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Russian tax hike to fund higher outbound subsidies

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Russia to introduce new utilization fee on finished vehicles in 2018Russia’s deputy prime minister, Dmitry Kozak, has announced plans to raise the utilisation fee on imported vehicles by 30%, to help fund an increase in the subsidies provided to export projects in the automotive sector.

Both Russian assembly plants and importers have been subject to the utilisation fee since 2014. The tax is used to push OEMs towards greater localisation, as the costs are refunded on finished vehicles assembled in Russian plants but not on imported ones.

Igor Marzharetto, senior analyst at Russian consulting agency Avtostat, estimated that on average, the utilisation fee added 80,000 roubles ($1,200) to the retail price of an imported vehicle. In the case of vehicles assembled in Russia, however, carmakers bear no additional costs thanks to the refund mechanism, Marzharetto confirmed.

At least some of the money collected from the increase in the utilisation fee will be spent on the International Cooperation and Export project, Russian newspaper Kommersant has reported. Under this national project, the Russian government provides partial reimbursement of logistics costs associated with finished vehicle and automotive components exports from the country.

Russia’s Industry and Trade Ministry has estimated that from 2018 to 2025, the government will allocate 136 billion roubles to outbound logistics subsidies in the automotive industry. That figure could rise to 215 billion roubles if more finished vehicle brands with strong export prospects were localised in Russia in coming years, however.

The measure should help support finished vehicle assembly plants in Russia, which have been operating well below capacity lately. Last year, they ran at an average of just 40% of capacity.

So far, however, such outbound logistics subsidies have not led to an increase in finished vehicle exports from Russia. From January to October this year, the country exported 18,200 finished vehicles to countries outside the Eurasia Economy Union – 40% down compared to the same period the previous year, according to research conducted by Avtostat. Of these, 8,000 vehicles were exported by Avtovaz under the Lada brand, 4,200 units were exported by Škoda and 1,400 units were exported by Volkswagen, it estimated.

Finished vehicle exports from Russia are expected to drop even further in coming months, as Ukraine’s parliament seeks to ban imports from Russia. Ukraine was the second biggest sales market for vehicles of Russian origin in 2018, after the Czech Republic, according to Avtostat.

In contrast, after a slump in 2014, finished vehicle imports into Russia have been recovering over the past two years. From January to October 2018, Russia imported 186,100 finished vehicles – 18.7% up compared to the same period in 2017, according to Russian Federal Customs Service estimates. These imports were worth a total of $4.5 billion.

The latest developments in automotive logistics in Central and Eastern Europe will come under the spotlight at the inaugural Automotive Logistics Central & Eastern Europe summit, taking place in Hungary on November 13-14.