• New Tax Policies in Russia

• Details of the Tax Changes: VAT and Business Thresholds

• The Impact on Small and Large Businesses

• Other Tax and Duty Changes

• Russia's Economic Struggles: A Long-Term View

• The Military and Budget Outlook for 2026

• Conclusion: Balancing War, Economy, and Taxation

 

 

New Tax Policies in Russia

In response to the economic pressures brought on by its ongoing conflict with Ukraine, Russia has introduced a series of tax hikes aimed at shoring up its finances. These new tax policies are designed to generate additional revenue for the state and to offset the costs of the war, which has stretched on for nearly four years. On Tuesday, Russian lawmakers approved a key second reading of a bill that includes a significant increase in value-added tax (VAT) and other fiscal changes. These measures are expected to bring in substantial funds, but their implications for businesses and the general public remain complex and multifaceted.

 

 

Details of the Tax Changes: VAT and Business Thresholds

The most notable change in the new bill is the increase in VAT from 20% to 22%. This hike is expected to contribute as much as 1 trillion rubles (around $12.3 billion) to the state budget. This decision has raised concerns among businesses, as VAT is typically passed on to consumers, meaning prices for everyday goods and services are likely to rise.

In addition to the VAT increase, the bill also introduces a lower threshold for businesses required to collect VAT. Previously, businesses with annual sales revenue exceeding 60 million rubles (roughly $739,000) were required to collect VAT. Under the new legislation, this threshold will be reduced to 10 million rubles (around $123,000). This change is designed to close loopholes that allowed larger firms to split their operations into smaller entities to avoid tax obligations. While this move is expected to increase tax compliance, it will also place a greater burden on small businesses that were previously exempt from VAT collection.

These changes, set to be phased in gradually until 2028, reflect the Kremlin's strategy to streamline its taxation system and bolster revenue streams, but they also have significant implications for Russia s business climate, particularly for small and medium-sized enterprises (SMEs).

 

 

The Impact on Small and Large Businesses

For small businesses, this new tax regime could be a considerable challenge. Many smaller companies, previously not subject to VAT collection, now find themselves facing a sudden increase in their financial obligations. While some may be able to absorb the costs, others could be forced to pass on these additional expenses to consumers in the form of higher prices. This could affect consumer behavior and, in turn, reduce the purchasing power of average Russian citizens.

Large corporations, on the other hand, may benefit from these new regulations in the long term. By reducing the ability of smaller firms to bypass tax obligations, the government hopes to create a more level playing field for larger entities. However, this approach could also prompt some businesses to relocate operations abroad or to engage in tax avoidance practices, further complicating Russia s already difficult economic situation.

The legislation has received mixed reactions from business leaders. Some argue that it will incentivize tax compliance and foster a fairer business environment, while others fear it could stifle growth and push more businesses into bankruptcy.

 

 

Other Tax and Duty Changes

In addition to the VAT hike, the Russian government has proposed several other tax increases and duties. One such initiative involves scrapping the special, concessional rate on a state recycling fee for cars. This change targets high-priced, imported vehicles, which are seen as a luxury item for wealthier Russians. The move is part of a broader strategy to increase state revenue by targeting consumer goods and services that are often associated with higher income groups.

Furthermore, the Russian government has also proposed higher taxes on alcohol and tobacco products, including spirits, wine, beer, cigarettes, and vapes. This is expected to contribute to public health objectives while raising additional funds for the state. In addition, duties on technology items such as smartphones and laptops are also on the table. While these taxes are likely to generate revenue, they could also drive up the cost of living for average Russian citizens, especially those dependent on imported consumer goods.

These measures are intended to bolster the Russian economy during a period of stagnation, but they come at a time when inflation and interest rates are already putting pressure on households and businesses.

 

 

Russia's Economic Struggles: A Long-Term View

Despite efforts to stimulate economic growth through military spending and taxation, Russia's economy has been struggling. Following two years of robust growth fueled by military expenditure, the Russian economy shrank in early 2025. Economic forecasts predict a modest growth rate of just 1% for the year, which is far below the levels needed to offset the impact of the war and international sanctions.

The inflation rate is another major issue, with prices rising by 8% as a result of continued defense spending and the high cost of imported goods. The central bank s decision to raise interest rates to 16.5% has been aimed at curbing inflation but has also contributed to a slowdown in economic activity. For many Russians, the combination of high inflation, low wage growth, and rising taxes has created a challenging economic environment.

While the Kremlin hopes that its new tax policies will provide a financial cushion, it remains to be seen whether these measures will be enough to turn the tide of economic decline. The broader geopolitical context, including the ongoing war and the impact of sanctions, will continue to play a major role in shaping Russia's economic future.

 

 

The Military and Budget Outlook for 2026

The Russian government has also approved a draft budget for 2026, which outlines substantial spending on military and security sectors. Military spending is set to reach 12.93 trillion rubles ($159 billion), a figure that underscores the Kremlin s continued commitment to defense efforts. Including spending on security and law enforcement, the total amount earmarked for the military could rise to as much as 16.84 trillion rubles ($207 billion).

This military spending is seen as crucial for Russia's continued efforts in Ukraine, but it comes at a significant cost to other areas of the economy. With such a large proportion of the budget dedicated to defense, other sectors such as healthcare, education, and infrastructure development are likely to face cuts or reduced funding.

 

 

Conclusion: Balancing War, Economy, and Taxation

As Russia continues its war with Ukraine, its economy faces a difficult balancing act. The introduction of new taxes, including the VAT increase and higher duties on consumer goods, is one attempt to raise revenue in a challenging fiscal environment. However, these measures may place an additional burden on small businesses and ordinary citizens, who are already struggling with inflation and high interest rates.

The Russian government s focus on military spending remains a central element of its strategy, but this comes at the expense of broader economic growth. Whether these tax hikes and fiscal measures will be enough to stabilize the Russian economy remains uncertain. What is clear, however, is that the financial toll of the war, combined with domestic economic challenges, will continue to shape Russia s economic and political landscape in the years to come.