Taxes take the petals off flower sales

Tax increases are hitting Russian flowers sellers, with imported flowers being subject to tax hikes as customs tries to clamp down on tax evasion, and end consumers likely to bear the extra cost.

The Russian flower market is one sectors which was not strongly affected by the economic downturn and consumers holding off on reaching into their pockets.Russians rank amongst the worlds biggest spenders on flowers, almost all imported, and a range of days throughout the year means there is rarely a good excuse for buying flowers far away – be it womens day, birthdays, work greetings and seasonal holidays.With the festive season upon us, you would think flower sellers on the streets of Moscow would be all smiles at the thought of another busy period before taking their New Year break.

But a recent tax increase of up to 50% on imported flowers has trimmed the bloom with Olga Golubeva procurement manager at Trade House Flores De America, saying retailers could be hurt.

“Our clients order mostly roses from Colombia and Holland. Roses from these origins are most in demand and beloved by the Russian people. We hailed the spring season for being the most profitable for our business given that the demand is skyrocketing due to state holidays such as the women’s day and late February Men’s day. St. Valentine’s Day and 1 September are also among our favorite. Christmas eve and New year eve has always been classified as a hard working season because we had to place orders long prior the sales events and take into account unpaid year liabilities of our clients. This year brought us to a complete disaster on the market with latest announcement for tax increase on 50% on import flowers”

Customs Broker, Sergey Ivanov, says customs calculates tax payments according to the declared invoice cost of goods. Different flower origins and types including quality and size have different tariffs and some wholesalers use specific ways to declare a lower cost.He sees the move as focused on clamping down on tax minimization, but says end consumers will feel the pinch.

“I can only propose that the recent tax increase is a measure to prevent fraud declaration and tax evasion. This will force wholesaler companies to increase the total cost of invoice and thus will add to a retail price on the market.”

The increased taxes will add approximately 25-30 roubles to the retail price of roses said David Aranzazu head of the transport department at Flex.

“The wholesalers’ flowers turnover can reach 20 million flowers at the end of the year which amount to $20 billion. Transport expenses account for 40% of a total cost of flowers delivered to Russia. Traditionally flowers purchased from Holland exclude air transport expenses as do flowers from Colombia. Albeit, Holland flowers despite lower quality and smaller size are more expensive than those of Colombia. In this case transport costs are insignificant.Till the last week wholesaler customers have paid $11 per rose stem and now after tax increase in a wake of up coming New Year holidays they have to pay $18 per stem. After a simple calculation we can absolutely say that the cost of the retail flowers will hike by 25-30 roubles per rose”

Despite the high profits of the flower business it is also one of the most risky retail businesses with flowers highly perishable and having a short shelf life.Victoria Kuzmicheva, Marketing Director at 7Flowers says the additional uncertainty also adds that a sometimes precarious existence isn’t made easier by a range of additional costs.

“The price of the flower includes a expenses such as transport, storage, custom relief and much more. In case the goods are late with delivery or loading in stock the company has to cover all expenses if it doesn’t have to do with weather or customs control. Nevertheless, those wholesalers who work on credit have the risk of client refusal to pay for ordered flowers if they have been delivered not on time.”