Russian parliament approves zero VAT rate for domestic flights avoiding Moscow

The lower house’s approval should eventually help regional businesses to grow (NoVy Urengoy airport)

Duma, the lower house of the Russian parliament has, in the first bill reading, approved a zero VAT rate for flights not using Moscow airports. To qualify, departure, destination, as well as intermediate points in the route, must be located outside of the Moscow hubs.

The bill was submitted to the State Duma in April 2019 at the initiative of the Russian government. According to Prime Minister Dmitry Medvedev, the development will help strengthen regional airlines and create new jobs.

The idea is also being lobbied by those Russian oligarchs who own the holding companies which manage a number of regional airports, in the hope of attracting more business to the airports located beyond the Russian capital, which currently attracts 77 per cent of all Russian passenger air traffic.

Given Russian president Vladimir Putin’s public criticism of underserved Russian regions and the low level of the population’s mobility, the VAT bill is likely to inevitably become a law.

Currently, and until the end of the year in Russia for all domestic flights, there is an existing preferential VAT rate of 10 per cent. The zero VAT rate regime is also valid for routes whose point of departure or destination is located in the Crimea, the Kaliningrad region and in Russia’s Far East, and will stand until the end of 2024.

Meanwhile, in a separate initiative, Russia’s ministry of transport has proposed to the ministry of finance to apply a nil VAT rate for all domestic flights, including those to and from Moscow. This idea has also found support from Rosturism, the country’s tourism agency. From 2019, the standard rate of VAT in Russia has risen to 20 per cent.