Russia Plans Tax Increase as Ukraine Costs Grow

Wed May 29 2024
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MOSCOW, Russia: Russia plans to raise taxes on high-income earners and businesses, the finance ministry said on Tuesday, as it seeks to raise additional revenue to finance its military offensive in Ukraine.

Government spending has exceeded revenue by tens of billions of dollars since Moscow ordered troops into Ukraine in February 2022, sending the country into rare annual budget deficits.

The loss of lucrative energy sales to Europe, combined with a huge increase in military spending, has forced Russia to dip into its sovereign wealth fund and borrow from state-owned banks in the past two years to cover the shortfall.

The Treasury on Tuesday proposed new higher tax thresholds for top earners and an increase in corporation tax to 25 percent from 20 percent.

The increase would bring in about 2.6 trillion rubles ($29 billion) a year, Interfax reported, citing Finance Ministry calculations.

Finance Minister Anton Siluanov in a statement said that the changes are aimed at building a fair and balanced tax system adding that the additional funds would boost “Russia’s economic well-being.”

The proposals move Russia further away from the flat income tax rate that has been a cornerstone of President Vladimir Putin’s domestic economic policy during his first two decades in power.

The system, which has been in place since 2001, has set income tax at 13 percent and has been credited with boosting state coffers, cracking down on tax evasion and curbing a flourishing black market.

In 2021, the government began levying a 15 percent tax on annual incomes above five million rubles ($56,000) in its first major income tax change.

Under the proposals outlined on Tuesday, the earnings threshold for the 15 percent rate would be lowered to 2.4 million rubles ($27,000) and three higher bands – 18 percent, 20 percent and 22 percent – would be introduced further up the income ladder.

Soldiers fighting in Ukraine would be offered exemptions, the Treasury said, adding that the changes could be approved by parliament this year and would apply from 2025.

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