Russia weighs post-election tax hikes to fund its war in Ukraine
By Bloomberg News
Russia is weighing options for big tax increases to raise as much as 4 trillion rubles ($44 billion) as the war in Ukraine puts growing pressure on the government’s coffers.
Tax hikes on corporate profits and on high-earning individuals are being considered, two people involved in the discussions said, asking not to be identified because the matter isn’t public.
The government may raise personal income tax to 20% from 15% now for those earning more than 5 million rubles, and company taxation to 25% from 20%, according to the “Important Stories” news site and confirmed by two people involved in the discussions.
Russia’s Finance Ministry didn’t immediately respond to a request to comment.
President Vladimir Putin has announced he intends to overhaul the tax system once he returns for a new six-year term in this week’s elections.
In a Feb. 29 speech to lawmakers and officials at Russia’s Federal Assembly, he said he wanted “a more equitable distribution of the tax burden toward those with higher personal and corporate incomes.”
Individuals in Russia pay 13% tax on annual incomes up to 5 million rubles, rising to 15% for anything over that level.
Changes under consideration would lower the 15% threshold to 1 million rubles and increase the level to 20% on incomes above 5 million rubles, shifting many more Russians out of the lowest tax bracket.
The average monthly salary in December was 103,815 rubles, or more than 1.2 million rubles annually, according to the Federal Statistics Service.
Officials are likely to decide on the exact levels of the tax increase in the summer, the people said.
The government considers the beginning of a new presidential term a window of opportunity for unpopular reforms, according to people involved in the discussions.
Shortly after he was last reelected in 2018, Putin pushed through an unpopular increase in Russia’s pension age and raised the Value Added Tax to 20% from 18%.
Russia’s government is draining its resources amid surging expenditure on the military and efforts to support businesses as the economy labors under the pressure of unprecedented international sanctions.
Finance Ministry data showed it had tapped almost half of the national wealth fund’s available reserves at the end of last year.
This year’s federal budget was 1.5 trillion rubles in the red by the end of February, while the Finance Ministry has planned for a deficit of 1.6 trillion rubles for the whole of 2024.