Putin Signals Tax Increases as Russian Economy Struggles
MOSCOW – Russian President Vladimir Putin has signaled a shift in economic policy, indicating potential tax increases despite a previous pledge not to raise them within the next five years. The move comes as Russia‘s economy grapples with the impact of Western sanctions imposed following the invasion of Ukraine in February 2022, compounded by Ukrainian attacks on key oil refineries.
Putin had previously directed the government to seek new revenue through increased productivity rather than taxation,but has recently reversed course. While details remain scarce, potential increases include dividend taxes and the introduction of a luxury tax. This signals a growing concern over Russia’s economic performance, which, while still showing growth, is weakening and recently entered a technical recession with GDP declines in the last two quarters.
The value added tax currently accounts for approximately 37 percent of all Russian budget income. An increase in this tax could potentially halve the projected budget deficit for 2026. Despite the economic headwinds, Russia is currently experiencing economic growth of around one percent this year.
putin has attempted to frame the slowing growth as intentional, telling legislators it represents “a slowdown in growth in exchange for reducing inflation and maintaining macroeconomic stability.” However, this strategy is unconventional, as central banks typically utilize interest rates to control inflation. Notably, the Russian central bank lowered its basic interest rate by one percentage point to 17 percent in September, citing slowing economic growth as a contributing factor.
Inflation remains a concern, with consumer prices rising at approximately eight percent annually. The economic pressures are occurring alongside ongoing military expenditures related to the war in Ukraine, further straining the russian budget.
