President Vladimir Putin approved a sweeping tax overhaul raising Russia’s value-added tax to 22% from 20% next year. Officials aim to close a widening fiscal gap driven by soaring military spending and declining energy revenues under Western sanctions. The new tax rate will take effect at the start of next year and will affect nearly all sectors of the economy.
Authorities also lowered the annual revenue threshold that determines which companies must pay VAT. The limit will fall from 60 million rubles to 10 million rubles. The move will bring many more small businesses into the tax system and increase the government’s taxable base. Surveys show that many businesses plan to pass the higher tax burden directly onto consumers. Households have already faced financial stress due to rising prices linked to war-related spending.
Economists expect inflation to rise again
Economists, including those from the Finance Ministry, said they expect a modest rise in inflation as the higher VAT rate comes into effect. They noted that price increases will likely spread across retail, manufacturing and services. VAT remains one of Russia’s most significant revenue streams. The tax generated 11.5 trillion rubles between January and October, accounting for more than 38% of total federal income.
The government said it will maintain the reduced 10% VAT rate on essential items such as select food products, medicines and goods for children. However, processed foods that use milk-fat substitutes will no longer qualify for the discounted rate. Products such as spreads and processed cheeses will now face the full 22% charge. Officials said the change aims to improve quality standards and strengthen regulatory oversight in the food sector.
Russia’s last VAT increase came in 2019
Russia last raised its VAT in 2019, when the rate increased to 20% from 18%. That adjustment also triggered price increases across the economy. Analysts say the latest hike represents a broader effort to stabilise government finances during ongoing military operations and restricted energy exports. They warn that consumers will likely bear much of the cost as businesses adjust to the new tax framework.
