Russia is set to hike taxes on businesses and consumers as the government looks for ways to support military spending while its war-focused economy creaks at the seams.
The Kremlin’s commitment to the ongoing war with Ukraine came under renewed scrutiny Monday when the Finance Ministry released its 2026 draft budget. The spending plans show defense spending next year would stay largely static, and would be funded with tax hikes amid increasingly dour growth forecasts.
Presenting the budget this week, Russia’s Finance Ministry said that in order “to finance defense and security” it was proposing a number of tax hikes that it said were an alternative to increased borrowing and a way reduce the budget deficit, which was forecast at 1.6% of GDP in 2026.
Most notably, ministry officials said they planned to increase VAT from 20% to 22%, while the threshold at which small businesses start to pay VAT will be lowered from 60 million rubles (around $738,000) to 10 million rubles (around $123,000). The ministry also proposed a new 5% gambling tax.
The proposed tax hikes come as economic growth is expected to stutter to 1.3% in 2026, the government said — a far cry from the 4.1% expansion recorded in 2024 and a sharp drop from the previous projections for 2.5% growth this year and 2.4% next year.
