Russia Raises VAT as Putin Seeks to Bolster Budget
MOSCOW – The Russian goverment is relying on increased Value Added Tax (VAT) revenue to address budgetary pressures,a move echoing strategies employed during past economic downturns. The tax, a key component of Russia’s fiscal system since its 1992 introduction following the collapse of the Soviet Union, is proving a critical lever for President Vladimir Putin as the country navigates ongoing economic challenges.
Introduced initially at a rate of 28%, VAT in Russia has become a cornerstone of government finance. The mechanism, conceptualized by French economist Maurice Lauré in 1954, taxes the value added at each stage of production and distribution-a design intended to minimize tax avoidance. Governments favor VAT for its efficiency and relative difficulty to evade, as the tax is embedded within the final price paid by consumers.
Increasing VAT rates represents a swift method for governments to close budget deficits, though it can concurrently dampen domestic demand. This reliance on VAT highlights the ongoing financial pressures facing Russia, and underscores the government’s prioritization of fiscal stability. The move impacts all sectors of the Russian economy and ultimately affects consumer purchasing power.
