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Russian stringent import tax puts a spotlight on controlling overseas competition

By Sasha Fedorenko July 19, 2019 - 2:22 pm

The governing bodies of the Russian Federation are currently in search of an effective solution to curb the growth of cross-border ecommerce in the country,” says Vladimir Stupnikov, chief executive officer of SPUTNIK marketplace.

Speaking to Tamebay, Vladimir starts describing the popularity of overseas marketplaces in Russia. “Foreign marketplaces gained momentum amongst Russian consumers, boasting a significant and unique product range as a competitive edge.

Chinese goods are gaining momentum in Russia

Vladimir says the last year showed a boom in online purchases from Chinese sellers.

He attributes the phenomenon to the pricing attractiveness of Chinese goods. Low-cost goods, coupled with seamless shopping experiences, are the key to consumers’ hearts.

However, the South Asian sellers only conquered a small and niche share of the Russian customer-base. “The majority of Russian shoppers who purchase from Chinese merchants reside in the suburbs.” Suburban shoppers’ lower monthly income leads them to opt-out for cheaper goods available to purchase from Chinese merchants.

It comes as no surprise that the largest country in the world by area attracts the attention of ecommerce players globally. Russia looks like a sweet spot for established businesses. When expanding into Russia, it often feels like ‘conquering’ two countries due to its size and diversity. ‘Rookie’ ecommerce companies who previously expanded into foreign territories already carry the knowledge of settling into new markets. However, Russia is still quite an untapped market. The latest efforts of the Russian government to control competition in the country raise concerns about the possibility to tap into the Eastern European market.

On the other hand, Vladimir says the Russian Federation is aiming to create a fertile ground for Russian players to reap the fruits of their domestic trading. He says such as saturated competition from East Asia leaves Russian players competing for shoppers’ wallets.

Cross-border ecommerce to become a luxury for Russian consumers

This January saw the Russian Federation government implementing new legislation focusing on lowering the threshold on import tax. The policy will see consumers absorbing the costs of high-ticket items purchased in the non-Russian territories. This means that shoppers can now buy goods ranging from £896 to £448 price point without having to pay tax. More expensive products will require consumers to splash out 30% of their cash on the total value of an item.

The next step in the Russian plan to control the overseas competition is to reduce the tax threshold significantly. January 2020 will see the tax threshold reduced to £179, while the tax rate will also be reduced from 30% to 15%. This will mean that buying goods from abroad will become a luxury for Russian shoppers.

The move will see a significant decrease in competition in the market. The Russian ecommerce may see a boost of domestic transactions but to the detriment of the healthy competition needed to promote innovation in the country. Concerns over the anti-competitive nature of the policy raise a question mark over the possibility of Russia joining the global trade arena.

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