19 January 2004
"Five Percent More Room to Maneuver"
The Russian government recently announced that the sales tax (Rus. NSP) will be eliminated in January 2004. This temporary tax was introduced in the summer of 1998 in order to make up for regional budget losses due to the five-percent reduction in the VAT. In addition, the sales tax replaced 16 various local taxes and duties that existed previously.
For almost five years, Russian retailers have been lobbying for an end to the sales tax, and in 2002 the government decided to eliminate it in 2004. However, the planned tax break came under fire this past May, when a group of Duma deputies representing the interests of local authorities tried to keep the tax (the OVR fraction headed by Moscow mayor Yuri Luzhkov was the strongest proponent of keeping the tax). In response, executives from a multitude of retail chains such as Kopeika, M.video, Sedmoi Kontinent, Snezhnaya Koroleva, Sportmaster, Perekrestok, Petrovsky, and Pyaterochka announced that they would cut prices by 5% if the tax was actually eliminated. This forced deputies to side with consumers, who are also potential voters, and the governmental bill was passed. The situation appears straightforward, but as January 1st approaches, the future of the price cut is looking more and more doubtful.
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