Russia to raise VAT to finance its war against Ukraine

The Russian Ministry of Finance has proposed a bill that would raise the value-added tax (VAT) rate from 20% to 22%.

Source: Kremlin-aligned Russian news agency Interfax, citing a press release from the ministry

Details: The tax rate will be increased starting 1 January 2026.

The Russian Ministry of Finance stated that "the funds raised from the VAT increase are primarily intended to ensure the financing of defence and security".

It was previously reported that Russia’s draft budget is expected to be submitted to parliament on 29 September. Its key parameters are agreed upon in advance with Kremlin leader Vladimir Putin and are unlikely to change significantly during the formal review in the State Duma, the lower chamber of the country’s parliament.

Russia, now in the fourth year of its full-scale war against Ukraine, raised personal income and corporate taxes this year. Despite this, the government had to triple its projected federal budget deficit to 1.7% of GDP in May.

This month, an anonymous official quoted by state media stated the figure is now expected to be exceeded. The planned deficit of 0.9% of GDP for 2026, set in last year’s budget law, is also under threat.

Background: 

• Kremlin spokesman Dmitry Peskov insisted that the macroeconomic situation in Russia remains "reliable and predictable", despite the rouble’s collapse and the recession.
• Russia’s economy is facing more serious problems than officially acknowledged, and over the course of the year, there is a real risk of a systemic banking crisis.

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