The government is afraid to extend the duty-free import threshold of 1000 euros

The authorities fear that the extension of the duty-free threshold of 1,000 euros for the import of goods from abroad by individuals may hinder the development of domestic production. Therefore, the relevant ministries are inclined not to initiate the preservation of the current threshold after October 1, in which case it will be reduced to 200 euros. This was reported to Vedomosti by two federal officials.

Representatives of the Ministry of Industry and Trade and the Ministry of Economic Development told Vedomosti that they would assess the need to extend the measure, taking into account the balance of interests of manufacturers, retail chains and consumers.

The duty-free threshold of 1,000 euros (everything above is taxed at 15% of the value of the parcel) has been extended twice by the Eurasian Economic Commission (EEC) at the initiative of the Russian side. The measure was adopted last spring as an anti-crisis measure – to support citizens in the face of sanctions and to avoid a shortage of essential goods. The decision should be made at the supranational level – by voting by representatives of five countries at the EEC meeting, so if the issue is not initiated by the Russian side, the threshold will automatically be reduced to 200 euros (it was at this level until April 1, 2022).

The initiative to extend the current threshold for another six months – until October 1 – belonged to Russian Prime Minister Mikhail Mishustin, a federal official said. According to him, at the same time it was decided that it was necessary to move towards abandoning this measure, since the Ministry of Industry and Trade and the Ministry of Economic Development expressed concerns that this would hinder the development of domestic production of non-food products. In addition, there is evidence of the abuse of the measure – professional buyers can also use the increased threshold, while most purchases of individuals are below the threshold, the source explained.

Deputy Prime Minister Alexei Overchuk, when asked by Vedomosti whether the Russian side plans to initiate an extension of the threshold in the fall, did not give a definite answer. When making a decision, two factors should be taken into account, the vice-premier noted: “On the one hand, the threshold of 1,000 euros makes it possible to ensure the saturation of the domestic market with goods. On the other hand, we understand that we need to stimulate the development of our own production.” When such discussions begin, a dilemma arises and one must balance between one and the other interests, he added.

The Ministry of Industry and Trade expressed certain concerns about the duty-free threshold, related to the need to support domestic producers, a representative of the ministry told Vedomosti. Lowering the threshold may even out price competition between foreign and Russian companies, the source said. This is especially true for some segments of cross-border trade, primarily digital and household appliances, he explained.

“Given the share of cross-border trade in the total volume of the Russian online trade market (about 7%), we consider it premature to conclude that domestic production is being destimulated,” a representative of the Ministry of Industry and Trade said. There are no risks of a shortage of goods in the event of a decrease in the threshold for duty-free import of goods, the ministry assured. First, traditionally, the main share of parcels falls on the segment up to 200 euros, which is comparable to the average check of the local online electronics trade, the source said. Secondly, a “parallel import” mechanism has been established, thanks to which the necessary goods are imported with customs payments, he said.

The measure was introduced as a temporary measure from the very beginning and the decision on the need to extend it will be made taking into account a comprehensive analysis of data received from manufacturers of goods, companies with a share in cross-border online trade, as well as information on the local market, the representative of the Ministry of Industry and Trade noted.

To resolve the issue of the advisability of extending after October 1 the increased rates of duty-free import of goods for personal use, a working group was created in May this year, a representative of the Ministry of Economic Development told Vedomosti. According to him, evaluation criteria will be developed at this site to maintain a balance of interests of domestic producers, traditional and electronic retail chains, and end consumers.

During the period of validity of the specified increased duty-free threshold from April 2022 to May 2023, about 2.25 million parcels worth from 200 to 1000 euros were imported to individuals, a representative of the Federal Customs Service told Vedomosti. The amount of conditional shortfalls in the federal budget amounted to 3.09 billion rubles, he added.

The EEC representative said that the issue of extending the threshold after October 1 has not yet been discussed.

Vedomosti sent a request to the Ministry of Finance.

It is unlikely that an increased threshold can interfere with import substitution, Vladimir Salnikov, head of the real sector of the TsMASF, doubts. In the segment from 200 to 1000 euros, there is practically no competition with Russian goods – when it comes to luxury clothing or electronics, the expert adds. In the production of smartphones or laptops, domestic enterprises do not compete with foreign ones, unless it is a subassembly of inexpensive devices, but in fact this is the same import – the added value in them is minimal. Most likely, the idea to return the threshold to the norm is connected with the need to additionally replenish the budget through duties, Salnikov believes.

The initial goal of temporarily increasing the threshold for duty-free importation of goods was to maintain access for consumers to the usual assortment through online trading channels in response to the withdrawal of foreign suppliers from the Russian market, recalls Ksenia Bannikova, director of the center for the economy of the non-primary sector of the CSR. First of all, these include gadgets, household appliances, clothing, accessories, children’s products. At the same time, according to the FCS, even with a threshold of 200 euros, more than 90% of goods imported for Russians cost up to 20 euros, the expert notes.

The measure was initially temporary and has already partially fulfilled its main task – over the past year, companies have been able to rebuild their logistics supply chains of goods to the Russian market, notes Associate Professor of the Department of Economic Theory of the Russian University of Economics. Plekhanov Ekaterina Novikova. According to her, the increased duty-free threshold for the import of goods may adversely affect the domestic manufacturer, since, as part of the import substitution policy, Russian companies are trying to produce more products for the domestic market. At the same time, lowering the threshold is unlikely to significantly change consumer preferences, since the Russian analogue of the product may lose in quality.

At first, raising the threshold helped the import of parallel imports, but now this is not so important, since the import of foreign brands in Russia has resumed, Salnikov points out. Lowering the threshold will affect the consumer, as imported goods in a certain segment may rise in price, but this is unlikely to give a significant incentive for import substitution, the expert believes.

In world practice, import duty exemptions for low-value goods are canceled, as it is believed that this gives advantages to foreign online sellers compared to retailers who sell imported products domestically, Bannikova points out. In addition, the existence of duty-free thresholds may lead to unjustified undervaluation of imported goods in order to qualify them for preferential treatment. This, in turn, can form a gray import, the expert adds.