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Russia Set to Tax Cross-border E-commerce Imports from May Onwards

Higher level of import duty set to be phased in over the next two years as online shopping free-for-all ends.

Photo: To Russia with love: And, as of May this year, with added duty liabilities. (Shutterstock.com)
To Russia with love: And, as of May this year, with added duty liabilities.
Photo: To Russia with love: And, as of May this year, with added duty liabilities. (Shutterstock.com)
To Russia with love: And, as of May this year, with added duty liabilities.

The boom years for Russia's legion of online shoppers may be coming to an abrupt end, with the country's Ministry of Finance looking to impose duty charges on many cross-border e-commerce purchases. Scheduled to come into effect on 15 May this year, the new levy will mark the end of the country's five-year duty-free e-commerce shopping spree, a period that transformed AliExpress and JD into major players in the Russian market and which saw consumers in even the most remote regions coming to rely on the digital marketplace to supply many of their daily needs.

As of May, though, a new duty-declaration and customs-clearance system will see import taxes levied on any individual in receipt of goods worth more than €1,000 (US$1,233) or weighing more than 31kg in any one monthly period. Under current proposals, the threshold will drop to €500 from 1 January 2019, before settling at €200 from 1 January 2020. The regime is also set to be adopted across all of the Eurasian Economic Union member-states (Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia).

Under the terms of the new legislation, only a relatively small number of companies will be authorised to provide delivery and clearance services. In order to qualify, any interested business will require a two-year track record as a registered customs agent with experience of the declaration process and be able to secure a bank guarantee of €1.5 million.

For their part, online shoppers will have to provide their individual taxation numbers or their passport details when ordering or registering their accounts. It will then be the service providers' responsibility to submit this information to the relevant financial authorities as required.

A number of businesses have already secured approved supplier status, including Post of Russia, DHL Express, UPS, SPSR Express, DPD and Pony Express. It is expected that, ultimately, some 100 companies will be accredited, a sufficient number to ensure that the efficiency of the country's e-commerce sector will not be compromised.

Against this background, AliExpress – the leading e-commerce operator serving the Russian market – has launched Lowcoster, a dedicated discount e-store specifically geared to the preferences of Russian consumers. Targeted at a young demographic, the new site will capitalise on the fact that 30% of all purchases made via AliExpress' Russian-language portal total less than $10, a figure that would leave all such transactions comfortably below the new import-levy threshold.

Supporting the Lowcoster proposition, the Russian Association of Online Retail Companies (AKIT) estimates that 52% of the country's online shopping is conducted via Chinese e-commerce sites. Of this, 65% of all such purchases total $25 or less, while a further 21% falls in the $25-60 price range.

In light of this, it seems unlikely that Russia's sudden commitment to taxing e-commerce purchases will significantly damage the business of the Chinese companies already active in the sector. Indeed, even the more stringent post-2020 regime is unlikely to affect the majority of e-commerce purchases made via AliExpress, JD or any of their less high-profile competitors.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
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