The New System of Marking of Goods Has Not Gone Beyond the Experiment

From January 1, 2018, it is planned to introduce in the Russian Federation a nation-wide goods traceability system which envisages a mandatory marking of goods with check (identification) signs.

The RF Ministry of Finance developed the draft federal law on “Marking of Goods with Check (Identification) Signs in the Russian Federation” 1, under which subject to mandatory marking are goods which consumption may do harm to life and health of people and cause damage to protection of the environment, cultural values and the country’s security. “The goal of marking is to prevent forged, counterfeit and substandard products from getting into the legal circulation”2, stated Mikhail Mishustin, Head of the Federal Tax Service.

Preliminary, the RF Government took a decision to carry out a pilot project on marking natural fur articles in 2016, while in 2017 it expanded the project to mark pharmaceuticals. However, at present marking of goods has not gone beyond the limits of the experiment.

At first sight, the very idea of goods marking to promote the transparency of trade operations and thus weaken the shadow sector of the economy appears fairly positive because nobody wants to buy counterfeit pharmaceuticals. In addition, the feasibility to check legality of goods through the internet and report a counterfeit immediately makes a goods marking system quite innovative in technological terms and effective in terms of prevention of violations related to illegal goods sale.

At the same time, at the business level compliance with marking requirements may produce negative results because it is related to substantial growth in business costs. According to the estimate of the RF Ministry of Economic Development, introduction of the goods marking system will virtually oblige enterprises to buy special equipment, including scanning units, software, as well as check (identification) signs. As seen from the practice, the volume of such costs for pharmaceutical enterprises varies from Rb 6bn to Rb 32bn (based on the data of the Conclusion on the Estimate of the Draft Law’s Regulatory Effect). Both for enterprises with low profitability and small enterprises, the need to comply with new requirements may become an overwhelming burden and cause a bankruptcy. Also, a negative result is explicit for households as consumers of goods: growth in costs will instigate growth in prices and that is highly undesirable in the current economic situation.

In such a situation, the issue of subsidizing enterprises’ marking-related costs has become topical, but the government’s financial capacity should be assessed objectively. Pharmaceutical companies will be granted target-specific loans on privileged terms out of the Industry Development Fund. It is expected to allocate Rb 1.5bn this year, but according to the expert estimate this sum is sufficient only for support of 4% of the entire pharmaceutical market 3. At the same time, for effective operation of the goods marking system the draft law provides for carrying out customs control, tax control and state control (supervision) and that cannot, but increase a burden on the state’s budget system.

Vladimir Gromov, PhD, Economics, Senior Researcher, Fiscal Policy Studies Department, Institute for Applied Economic Research, RANEPA, Senior Researcher, Center for Macroeconomics and Finance, Gaidar Institute