explainers

The Kremlin’s new tax policy will send car prices skyrocketing but earn the government billions

Source: Meduza

On October 1, Russia introduced a new scale for its vehicle scrappage, or “recycling,” fee, raising rates for passenger cars by 70–85 percent in a single day. The government has also planned annual increases of 10–20 percent through 2030. This fee, applied when vehicles are imported or registered, is typically passed on to consumers through higher prices. Meduza explains why the government raised these fees, who stands to benefit, and how the policy will impact car affordability for ordinary Russians.

The “recycling fee,” often referred to as a tax, is a one-time charge for the future disposal of a vehicle. Russia introduced this fee in 2012 when it joined the World Trade Organization, aiming to prevent the market from being flooded with foreign cars. Officially, the goals were to improve environmental conditions and support local manufacturers.

While domestic carmakers are also subject to the recycling fee, the Russian government almost fully reimburses them through subsidies, meaning the burden primarily falls on importers when vehicles go through customs.

The fee has been adjusted over time, which is logical given the rising costs of scrappage. However, the increases have been disproportionate: the fee rose by 25 percent in 2021, then jumped by 70–270 percent in 2023, and now has risen again by 70–85 percent. The final amount depends on factors such as the vehicle type, engine size, and the car’s age.

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The most common category is new passenger cars with an engines between one and two liters — a group that includes all Chinese cars imported to Russia, according to Autonews.ru. The recycling fee for these vehicles was previously 306,000 rubles ($3,181), but it has now surged to 556,000 rubles ($5,791), making up 10 to 20 percent of the car’s total price. In January 2025, this fee will rise again to 667,000 rubles ($6,948).

For vehicles with larger engines, the fee is set to more than double. For example, starting next year, the fee for vehicles with engines larger than three liters will exceed two million rubles (over $20,800), leading importers to question whether bringing in such cars will remain profitable.

Panic buying

The fee increase wasn’t exactly unexpected. The government approved the new rates in mid-September, but the proposal had already been published in July. Anticipating price hikes, many Russians began taking out loans and buying cars. As a result, August saw record sales: 148,000 new passenger cars were sold in Russia, marking the highest monthly figure in 3.5 years, according to the analytical agency Autostat. The last time the market experienced this level of activity was before Russia’s full-scale invasion of Ukraine. In fact, the Association of European Businesses reported that this was the best August for the Russian auto industry in a decade. The trend continued into September, with sales surpassing 150,000 cars. Market players described this surge as “the final burst” before the fee increase.

Importers scrambled to meet the sudden demand and stock up before the recycling fee hike. By late July, traffic jams of trucks carrying passenger cars from China began to form at the border. According to Kommersant, imports surged by 50 percent. Despite these efforts, stockpiles are expected to last only about two months. In real terms, this amounts to roughly 80,000 Chinese cars (no data is available for other manufacturers). Even if there were more vehicles, importers wouldn’t recoup the cost of renting additional storage facilities.

Meanwhile, people began looking for ways to save on purchases. For instance, a car can be imported at the old preferential rate of 3,400 rubles (about $35) if certain conditions are met: the car must be less than three years old, have an engine no larger than three liters, and be purchased by a private individual for personal use and clear customs within the Eurasian Economic Union. The buyer also must not have imported any other cars that year, and the car cannot be sold within a year.

Some middlemen claim they can deliver a car within two months at a lower price than official dealers. However, dealerships have reportedly refused to service cars bought through these schemes.

Far-reaching effects

There’s no doubt that prices will jump, and industry insiders are clear that the extra costs will be passed on to consumers. “No one’s going to work at a loss,” an unnamed dealer told Autonews.ru.

It’s difficult to pinpoint exact figures, as the fee increase will affect different cars in varying ways, and many dealers still have stock purchased under the old rates. On average, market analysts expect Chinese cars with an engine of up to two liters to become about 250,000 rubles ($2,604) more expensive. The Alfa-Leasing group predicts a 10–15 percent price increase in the fourth quarter. Alexey Podschekoldin, head of the Russian Automobile Dealers Association, initially predicted a 10 percent rise this fall but revised that estimate to 20 percent by the year’s end.

Considering indexation, the recycling fee could have broader implications for inflation across Russia. Economist Dmitry Polevoy warns that the government’s recent policies could make it harder for the Central Bank to meet its inflation target next year, potentially forcing stricter monetary measures.

Dealers are concerned, too. One industry insider told The Moscow Times that the market could crash as early as October due to the rising prices. He believes that as new cars get more expensive, used cars will follow suit. The only segment dealers aren’t worried about is the luxury one — wealthy customers are unlikely to balk at an extra million rubles ($10,417).

In the first week after the new regulations kicked in, the market’s reaction was mixed. One of the most popular crossovers in Russia, the Chinese Chery Tiggo 7 Pro Max, went up by 50,000 rubles ($521), bringing the price to 2.82 million ($29,374). Other Chery models, such as the Tiggo 8 Pro Max and Tiggo 4 Pro increased by 10,000 rubles ($104), while the Arrizo 8 sedan went up by 20,000 rubles ($208). Other Chinese brands like Changan, Jetour, and Jaecoo raised prices by 100,000 to 200,000 rubles ($1,042–$2,083). In some cases, manufacturers simply reduced discounts instead of increasing sticker prices.

In terms of new car sales, the top 10 best-selling models are from Russia’s Lada, as well as Chinese brands like Haval, Chery, Changan, and Geely. Meanwhile, brands such as Hyundai, Kia, and Volkswagen are only really popular in the used car market, but even there, they’re gradually being overtaken by Russian manufacturers. The same trend is happening in the luxury segment, where brands like Exeed, Tank, Hongqi, and Voyah are replacing BMW and Audi, which are now only being brought in through parallel imports.

The increase in the recycling fee is likely to further solidify the dominance of Russian and Chinese brands, as they move to localize production. According to a press release from the Industry and Trade Ministry, one of the goals of the fee adjustment is to encourage manufacturers to shift production to Russia. Companies that do so are eligible for benefits, earning “localization” points for using Russian-made materials and performing certain manufacturing processes domestically. Accumulating enough points gives them access to subsidies and government contracts.

So far, only Russia’s state-owned carmaker AvtoVAZ, which produces the Lada series, has achieved a high degree of localization. Predictably, the company has said the recycling fee increase won’t affect them, and their prices won’t rise. A few other brands, including Haval, Kaiyi, BAIC, SWM, Foton, JMC, Forthing, DFSK, and Jetour, have some level of local production in Russia.

The Kremlin’s coffers

AvtoVAZ is widely seen as the main lobbyist behind the fee increase, with the company’s CEO, Maxim Sokolov, having pushed the idea for years. However, past increases have shown that AvtoVAZ doesn’t fully capitalize on the benefits, as the company tends to raise prices in line with foreign competitors. Experts expect a similar outcome this time. 

This year alone, the company has already updated its price lists three times — this August, citing “inflation adjustments.” According to statistics from Russia's Federal Statistics Service (Rosstat) reviewed by Meduza, since the start of the full-scale war in Ukraine, the price of a new foreign car has risen by 81 percent, while Russian-made cars have increased by 67 percent. AvtoVAZ has blamed rising prices on everything from “adding popular features like heated steering wheels” to “sanction risks” and even “increased costs for real estate and clothing.” After the latest fee hike, Sokolov once again called for measures to protect the market from “import dumping.”

Beyond any concerns for the domestic auto industry, the Russian government has clear financial motives. The recycling fee is listed as a separate revenue stream in the federal budget plan for the next three years. The fee is expected to generate about one trillion rubles ($10.4 billion) this year, with that figure set to double by 2025. To put this in perspective, two trillion rubles ($20.8 billion) would fully cover the government’s spending on education or healthcare. Over the next three years, revenue from the fee is projected to exceed seven trillion rubles ($72.9 billion).

The government isn’t obligated to spend the collected fees on vehicle recycling — and there isn’t much need to. Last year alone, over a million cars were imported into Russia, meaning a million recycling fees were paid. While there’s no precise data on how many cars are scrapped annually, experts who spoke with Autonews.ru cited estimates of between 20,000 and 400,000. Furthermore, as RIA Novosti points out, the government profits twice: before a car can be scrapped, it must be deregistered with the traffic police, which also comes with a fee.