After two years of robust growth fuelled by military spending on the war in Ukraine, Russia’s economy is slowing. Oil revenues are down, the budget deficit is up and defence spending has levelled off.
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The Kremlin needs money to keep its finances steady – and it is clear where President Vladimir Putin intends to get it: at the cash register, from ordinary people and small businesses.
An increase in value-added tax to 22 per cent from 20 per cent is expected to add as much as 1 trillion roubles (US$12.3 billion) to the state budget. The increase is contained in legislation already making its way through Russia’s compliant parliament and would take effect from January 1.
On top of the rate increase, the legislation lowers the threshold for requiring businesses to collect VAT to a mere 10 million roubles in annual sales revenue, in stages by 2028. That is down from 60 million roubles. That change is aimed in part at tax avoidance schemes in which companies split their operations to skirt the threshold.
But it also will hit previously exempt businesses like corner convenience stores and beauty salons.
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The government has also proposed increasing taxes on spirits, wine, beer, cigarettes and vapes. For instance, the tax on stronger spirits such as vodka would go up by 84 roubles per litre of pure alcohol, which works out to 17 roubles for a half-litre bottle, or about 5 per cent of the minimum price of 349 roubles.