In what looks as a final decision after a long period of discussions and unconfirmed announcements, Russia Economic Development Minister Alexey Ulyukaev announced yesterday a new threshold for customs taxation affecting cross-border sales to Russian online consumers.
These will continue to enjoy tax-free shopping through foreign retailers, as long as their purchases do not exceed a value of 500 euros per parcel. Above this limit, purchases will be subject to a 30% tax, as previously.
Compared with the current limit of 1,000 euros and 31 kg per person per month, the new threshold may seem restrictive. However, in reality little should change since average order value is well below 500 euros in the overwhelming majority of cases, as analyzed in a research report by East-West Digital News released this week.
“If you look at the Internet shopping graphic, you can see that parcels worth more than 500 euros, which is 2% of all shipments, account for about 30% of the cost volume. It is believed that business begins from this level onwards. It is therefore unclear why they should be exempted from customs duties when receiving goods from abroad by mail. A parcel with a cost of below 500 euros is, as a rule, the consumption of households where people are buying for themselves, and such parcels will not be subject to further costs,” Russian online publication Lenta.ru quoted Ulyukaev as saying.
Lobbying and protests
Over more than a year, active lobbying from domestic retailers – initially supported by the Russian government’s concern about lost tax revenue – tried to put an end to what they considered to be “duty-free e-commerce.”
Among the fiercest lobbyists were Enter.ru and KupiVIP.ru, two members of AKIT, an industry association created in 2012. (KupiVIP however, recently launched its own cross-border effort.)
The Russian government has objected that, according to their analysis, cross-border e-commerce is essentially filling gaps in domestic retailers’ assortment – and that, consequently, the latters’ complaints about unfair competition are largely unfounded.
Meanwhile, consumer groups called for a boycott of AKIT members and a public protest this past winter – although they failed to mobilize a crowd. A petition against new restrictions on online purchases from abroad was also organized.
More good news for cross-border trade to Russia is that customs processes and procedures are being simplified, as illustrated by the recent introduction of electronic forms.
The Russian domestic online retail market reached $16 billion last year, while cross-border sales accounted for approximately $3 billion, according to EWDN’s report on cross-border sales to Russia.
This year, the market is expected to grow by approximately 75%, with China’s AliExpress asserting its domination on the cross-border scene. Western players are still recording sales growth, even though some of them have experienced a slowdown or even stagnation over the past year, due to increased competition rather than weakening demand.
- This week, East-West Digital News is releasing an in-depth study on cross-border sales to Russia. In addition to a full set of market data, this 285-page research includes a detailed analysis of operational challenges for foreign operators, from site localization, to parcel shipment and customs rules, to payments and marketing specifics. To receive an executive summary at no charge, please contact us at [email protected].
