Russia Plans to Raise Taxes to Finance Ukraine War


Russia plans to raise taxes on high-income earners and businesses, the Russian Finance Ministry said on Tuesday (28/5), as the country needs to seek additional revenue to finance its military offensive into Ukraine.

Government spending has exceeded revenue by tens of billions of dollars since Russia sent troops to Ukraine in February 2022, pushing the country to a rare annual budget deficit.

A drop in lucrative energy sales to Europe, coupled with a huge increase in military spending has forced Russia to use its sovereign wealth fund and borrow funds from state-owned banks, to cover shortfalls in the past two years.

The finance ministry on Tuesday proposed a higher tax threshold for high-income earners and an increase in corporate tax to 25 percent from 20 percent.

The tax hike would raise revenues by around 2.6 trillion rubles or US$29 billion a year, the Interfax news agency reported, citing finance ministry calculations.

“These changes aim to build a fair and balanced tax system,” Finance Minister Anton Siluanov said in a statement. He added that the additional funds would support Russia’s “economic prosperity.”

The proposal moves Russia away from the flat income tax rate policy that was a cornerstone of President Vladimir Putin’s domestic economic policy during his first two decades in power.

The system, in place since 2001, imposes a 13 percent income tax and is credited with raising state revenues, cracking down on tax evasion and curbing a thriving black market.

In 2021, the government began increasing taxes to 15 percent on annual income above 5 million rubles or $56 thousand, in the first major change to its income tax.

Under the proposal announced on Tuesday, the income limit for the 15 percent tax rate would be cut to 2.4 million rubles or $27 thousand, and three higher rates, namely 18 percent, 20 percent and 22 percent, would be imposed on higher incomes. high too.

Soldiers fighting in Ukraine were granted an exemption, the finance ministry said. They added that the changes would be approved by parliament this year and would come into effect in 2025.