Russia is weighing options for big tax increases to raise as much as 4 trillion roubles (US$44 billion) as the war in Ukraine puts growing pressure on the government’s coffers.
Tax hikes on corporate profits and on high-earning individuals are being considered, two people involved in the discussions said, asking not to be identified because the matter isn’t public.
The government may raise personal income tax to 20 per cent from 15 per cent now for those earning more than 5 million roubles, and company taxation to 25 per cent from 20 per cent, according to the “Important Stories” news site and confirmed by two people involved in the discussions.
Russia’s Finance Ministry didn’t immediately respond to a request to comment.
President Vladimir Putin has announced he intends to overhaul the tax system once he returns for a new six-year term in this week’s elections.
In a February 29 speech to lawmakers and officials at Russia’s Federal Assembly, he said he wanted “a more equitable distribution of the tax burden toward those with higher personal and corporate incomes”.
Individuals in Russia pay 13 per cent tax on annual incomes up to 5 million roubles, rising to 15 per cent for anything over that level. Changes under consideration would lower the 15 per cent threshold to 1 million roubles and increase the level to 20 per cent on incomes above 5 million roubles, shifting many more Russians out of the lowest tax bracket.
The average annual salary in Russia in 2023 was 884,508 roubles, according to Federal Statistic Service data.
The war is helping to fuel a wage spiral as recruitment into the military intensifies an acute shortage of workers in the economy. Compensation for specialists such as engineers, mechanics, machine operators, welders, drivers and couriers rose by 8 per cent-20 per cent last year, according to data from local recruitment service Superjob seen by Bloomberg.
Officials are likely to decide on the exact levels of the tax increase in the summer, the people said.
The government considers the beginning of a new presidential term a window of opportunity for unpopular reforms, according to people involved in the discussions.
Shortly after he was last re-elected in 2018, Putin pushed through an unpopular increase in Russia’s pension age and raised the Value Added Tax to 20 per cent from 18 per cent.
Russia’s government is draining its resources amid surging expenditure on the military and efforts to support businesses as the economy labours under the pressure of unprecedented international sanctions.
Finance Ministry data showed it had tapped almost half of the national wealth fund’s available reserves at the end of last year.
This year’s federal budget was 1.5 trillion roubles in the red by the end of February, while the Finance Ministry has planned for a deficit of 1.6 trillion roubles for the whole of 2024.