Having secured "election" victory, Kremlin plans tax increases to fund war

24 September, 18:42

The Russian government is planning new tax hikes in 2027-2029 to support military spending against the backdrop of a budget deficit and a deteriorating economy.

Source: Reuters, citing materials from the Russian Ministry of Finance

Details: Defence and security are described as a "strategic priority" in the new draft budget. Budget revenues in 2027 are projected at 43.3 trillion roubles (about US$509 billion) and expenditure at 48.8 trillion roubles (US$574 billion). The deficit is 2.2% of GDP, compared to the 1.2% projected in previous three-year forecasts.

The Russian Finance Ministry is proposing to raise taxes on windfall profits made by metals and chemical companies, as well as taxes on cross-border e-commerce.

There are also plans to increase taxes on citizens' so-called passive income – investments in securities, property sales and interest on deposits. The Russian authorities estimate that these changes could affect around 4 million people.

The new taxes are planned amid worsening economic forecasts. Industrial output in 2026 is expected to contract by 0.2% – the first drop since the pandemic year of 2020.

Capital investment could drop by 5.4% – the largest decline since the 2015 economic crisis. The Russian government had previously projected a fall of only 1.5%.

The inflation forecast for 2026 has also been raised, from 5.2% to 6.8%. Reuters notes that the adjustment occurred following strikes on oil refineries, which have led to fuel shortages and price rises.

For information: The Russian parliamentary "elections" took place on 18-20 September. According to the official results, Putin's United Russia party received 57.83% of the vote on party lists and secured 355 out of 450 seats in the State Duma.

Background: As part of the budget package, the Russian Finance Ministry has proposed including passive income in the main personal income tax base and taxing it at a rate of 13-22%.

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