Russia Proposes Tax Hike to Fund 'Defence and Security'

Russia's finance ministry plans to increase VAT from 20% to 22% in 2026 to support military spending amid the ongoing war in Ukraine. This proposal, part of a larger budget strategy, aims to address the budget deficit, with other tax hikes planned for gambling and small businesses.

Russia's finance ministry unveiled plans on Wednesday to increase the value-added tax (VAT) rate from 20% to 22% in 2026, aiming to boost military spending and address a growing budget deficit amid the ongoing conflict in Ukraine.

President Vladimir Putin has signaled openness to new tax measures as the government approved a 'wartime budget' for 2026, forecasting a significant drop in economic growth. Defense spending will decrease from a peak of 13.5 trillion roubles in 2025, with the deficit expected to rise to 2.6% of national output.

The proposed VAT hike, which would generate an estimated 1.2 trillion roubles in additional revenue, comes alongside plans to increase borrowing and eliminate tax breaks for small businesses, potentially complicating efforts to control inflation.

(With inputs from agencies.)