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Sales tax in Russia to speed up inflation — Sberbank

July 29, 2014, 16:19 UTC+3 VIENNA

The government plans to settle the sales tax issue were voiced in early July by Finance Minister Anton Siluanov

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© ITAR-TASS/Valery Matytsin

VIENNA, July 29./ITAR-TASS/. Introduction of sales tax in all Russian regions will speed inflation up by 2.1%, according to Sberbank Centre for Marcoeconomic Research.

This is the maximal possible immediate jump, according to Sberbank expert estimates.

The tax would also cause a maximal 1% retail sales reduction, which should drop gross domestic product 0.5 p. p.

“A new turnover tax will cause the highest costs for the county’s economic development because of limited consumer demand and sharper price jump than in other scenarios,” Sberbank experts warn.

By Sberbank estimates, with a 3% tax rate, tax revenue of regional budgets will be 380 billion roubles ($13,566). The maximal tax will be collected in Moscow greatly surpassing the rest of the leaders - Moscow Region, St. Petersburg, Sverdlovsk Region and Krasnodar Territory. Revenue will vary depending on the level of retail networks in each particular region.

Sales tax was also high undesirable for some legal reasons, the experts added. In particular, the Constitutional Court ruled simultaneous levying of VAT and sales tax unconstitutional.

Another government initiative, increasing VAT rate from 18 to 20% “will inevitably lay additional tax burden on the final customer” and lead to a one-off price jump by a maximum of 1.7% A milder price increase is possible if the tax is partly paid from manufacturers’ or sellers’ margin, which is “highly probable amid the falling consumer demand”.

Price growth will negatively affect retail sales that are estimated to contract by a maximum of 0.8%, which is equivalent to a GDP decline by 0.3-0.4 p.p., Sberbank experts.

The government plans to settle the sales tax issue were voiced in early July by Finance Minister Anton Siluanov in an interview to Rossiay-24 TV channel.

“Sales tax is one of the options under consideration aimed to expand income basis of the regional budgets,” the Minister said. “This is a regional tax.” A total of 200 billion roubles ($7,140) that can be thus collected at a 3% rate was an important amount for the regions but the discussion was yet to be completed, he added.

Sales tax is an indirect tax included in the price.

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