Russia plans tax hikes as Ukraine costs mount
RUSSIA is planning to raise taxes on high earners and businesses, the finance ministry said on Tuesday, as it scrambles for additional revenue to fund its military offensive in Ukraine.
Government spending has outran revenue by tens of billions of dollars since Moscow ordered troops into Ukraine in February 2022, pushing the country into rare annual budget deficits.
The loss of lucrative energy sales to Europe combined with a huge increase in military outlays has forced Russia to dip into its sovereign wealth fund and borrow from state-owned banks to cover the shortfall over the last two years.
The finance ministry proposed on Tuesday new higher-tax thresholds for top earners and a hike in corporation tax to 25 per cent from 20 per cent.
The increases would raise around 2.6 trillion roubles (S$39.1 billion) a year, the Interfax news agency reported, citing finance ministry calculations.
“The changes are aimed at building a fair and balanced tax system,” Finance Minister Anton Siluanov said in a statement, adding that the extra funds would bolster Russia’s “economic well-being”.
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The proposals move Russia further away from the flat rate of income tax that was the cornerstone of President Vladimir Putin’s domestic economic policy during his first two decades in power.
That system, in place since 2001, set income tax at 13 per cent and was credited with boosting the state’s coffers, stamping out tax evasion and curtailing a thriving black market.
In 2021, the government started levying a 15 per cent tax on annual earnings above five million roubles (S$75,510) in its first major income tax change.
Under proposals outlined on Tuesday, the earnings threshold for the 15 per cent rate would be cut to 2.4 million roubles (S$36,410), and three higher bands - of 18 per cent, 20 per cent and 22 per cent - would be introduced further up the income ladder.
Soldiers fighting in Ukraine would be offered exceptions, the finance ministry said, adding that the changes could be approved by parliament this year and be in force for 2025.
Russia ran a combined budget deficit of around 6.5 trillion roubles (S$98.44 billion) in 2022 and 2023.
It has budgeted for a shortfall of 1.6 trillion roubles this year, equivalent to around 0.9 per cent of GDP. AFP
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