Ministry of Trade allowed price rises in hope of preserving product range
As a result of devaluation and price-freezing, there is a serious danger of the range of products available in Belarus reducing severely. As a result, the regulatory authorities have allowed prices to increase according to the rise in the exchange rate. These measures will force the private sector to use tax optimisation more which will lead to budget income decreasing.
Act no.1207 (December 19th 2014) specifically banned prices from being increased in relation to their level at December 18th 2014. This measure was adopted due to a 30% duty on buying foreign currency being imposed which automatically led to price growth on purchased foreign goods, resulting in losses among importers. To minimise losses, importers started to return goods to foreign suppliers which had already been delivered but not yet paid for.
On January 15th 2015, the Ministry of Trade issued a statement according to which transfer prices may be increased by the rise in exchange rate subtracted by 5%. At the same time, it is mandatory to keep the level of sales profitability at 3%. Such measures have somewhat helped importers to reduce their losses caused by devaluation. By issuing this clarification, the Ministry of Trade is trying to prevent the range of imported goods from shrinking. Further bans could lead to a total collapse of domestic producers which have brought certain imported materials onto the domestic market.
The 3% limit on sales profitability makes business development and expansion impossible without using certain schemes of tax optimisation. Enterprises that would like to continue doing business in Belarus may start to create in-between companies in third countries in order to lower their profits to the level demanded by the Ministry of Trade, as surpassing this level would make it impossible to raise prices. A number of companies may decide to stop doing business in Belarus because of the worsening economic conditions. This will lead to a decrease in budget revenues from income taxes, while also forcing the Ministry of Trade to remove other restrictions on price increases.
In this way, an artificial attempt to limit price rises has created a situation in which product range could reduce significantly. The losses in budget revenues will force public authorities to weaken price control and remove existing restrictions.