Additional taxation of luxury goods unlikely to bring expected revenues for governments (Eastern Europe)

Romania’s Government plans to reintroduce excises on yachts, perfumes, hunting weapons, jewelry and other luxury products starting 2010, and the country risks to be sanctioned by the European Commission, as it breaches certain European norms, Romanian Mediafax news agency reports. The draft act will be discussed at the regular Thursday Government meeting next week. Luxury products subject to excises are furs (with an excise of 45%), crystal products (15%), gold/platinum jewels except for wedding rings (10%), fragrances (35%), guns and hunting weapons (100%), yachts and other sport vessels (5% to 15%).

Last week, Russia’s Parliament, the Duma, has also been debating a new proposal to add additional taxes on imported luxury goods. They are mainly targetting fine jewellery, furs and cars. Similar debates are being held in Ukraine’s Parliament.

The three countries motivate the increased taxation on luxury goods as a measure to accummulate more revenues. Romania’s government said it will use such additional revenues to fight tax evasion which has been thriving since the debut of the economic crisis. CPP ‘s Managing Director believes such measure will not produce their intended effect, on the contrary, encouraging the growing black market of luxury goods. ”Handbag imports” of jewellery are way too common in the majority of emerging markets, retailers avoiding paying taxes. On the long term, such black market imports can have most negative effects on the luxury brands themselves.