Russia may repeal bizjet import taxes

 - May 6, 2008, 11:26 AM

Currently, 30 dedicated Russian business aviation companies operate about 50 business jets, mostly converted Tupolev Tu-134s, Yakovlev Yak-40s and Yak-42s and Antonov An-74s. The Russian fleet of VIP-configured jets, some of which are in service with airlines, includes between 70 and 80 aircraft.

If the Russian government fulfills its promise to remove the customs tax on imported business jets, Russian business aviation operators expect to at least double their current 15-strong fleet of Western aircraft. This translates into $250- to $300 million worth of sales.

Furthermore, about 20 jets belonging to Russian businessmen but registered outside Russia as assets of non-Russian companies, will be “legalized” and placed on the Russian register. “Logic requires that the tax on imported business jets be removed because local industry does not produce, nor will produce in the foreseeable future, anything equivalent,” said Eugeny Bakhtin, general director of Russia’s largest business aviation company, Avcom.

Apart from creating jobs locally, the tax break will benefit the national economy because more Russian companies will be able to provide business jet services to people traveling to or from the country, as well as inside it. The market is estimated to be 10,000 flights a year, and at present foreign companies control more than half of it.

The Russian companies believe they are short of aircraft, but the heavy taxes deter them from buying Western aircraft. Instead, they buy used Yak-40s or Tu-134s with little appeal to business travelers.

Today, the purchase of a Western business jet is penalized by Russia’s 20-percent import tax and 20-percent VAT, requiring the buyer to pay the state 44 percent of the airplane’s purchase price. A year ago the import tax was reduced from 30- to 20 percent, but this had no effect on the market.

Although Tupolev and Yakovlev have been working on the Tu-324VIP and Yak-48 business jets for almost 10 years, these models are not likely to enter service in the next several years.