Russia will raise value-added tax by 22% starting January next year and lower the VAT threshold to 10 million rubles in annual sales by 2028, aiming to curb tax avoidance and add up to about 1 trillion rubles to the budget.

Analysts expect the VAT rise to boost near-term revenue but foresee inflationary pressure and higher living costs, particularly hurting poorer regions and small businesses like corner stores and beauty salons that were previously exempt.

The measures are designed to stabilize finances while sustaining military spending, signaling a shift from wartime stimulus to lightening consumer and business burdens over time.

They reflect a balance between funding the war effort and protecting households amid reduced oil revenues and ongoing sanctions.

Public sentiment in Moscow centers on concerns about higher prices and the impact on poorer regions, with officials arguing the measures are necessary to support the war effort while avoiding excessive borrowing.

Muscovites worry that higher costs will hit small businesses and low-income households hardest.

Since robust growth, the fiscal position is tightening, creating a need for new revenue sources to sustain government spending.

Finance Minister argues for revenue-raising over borrowing, warning that debt and higher rates could fuel inflation and hurt investment and growth.

Analysts warn the package will raise short-term consumer costs and pressure households, especially in poorer regions, while officials frame tax reform as preferable to borrowing for the war.

Russia’s economy is slowing after years of growth tied to military spending, with oil revenues down and the budget deficit widening as sanctions bite and investment slows.

Economy contracted earlier in 2025 with modest growth expected, but high interest rates, reduced oil prices, sanctions, and limited access to international bond markets constrain recovery.

The budget deficit is projected to rise to about 2.6% of GDP in 2025 as growth slows, with the government prioritizing revenue measures over new borrowing.