Russia's Finance Ministry has a bold new proposal to raise tax revenue from airfares

Russia’s Finance Ministry wants to eliminate the value-added tax on all domestic flights between regional airports, while simultaneously raising the VAT from 10 percent to 18 percent on all flights through airports in Moscow.

The newspaper Vedomosti learned about the proposal through a letter written in late March from a Putin advisor to the minister of transport. A source close to the Transport Ministry told Vedomosti that the tax reforms would saves airlines roughly 12 billion rubles ($209.2 million) a year in regional flights, while costing them an extra 29 billion rubles ($505.5 million) in higher taxes on flights through Moscow.

The potential winners and losers

The Transport Ministry, official representatives of Domodedovo airport, and S7 airlines all told Vedomosti that higher taxes in Moscow would raise ticket prices and reduce the number of available flights. In 2017, 62.7 million passengers flew Russia’s friendly skies. Almost three-quarters of these people flew through Moscow.

In 2017, “Airports of the Regions” owner Viktor Vekselberg asked President Putin to end the VAT on all flights that circumvented Moscow. Aeroflot, Russia’s biggest airline, runs all its domestic flights through the capital.