Russia's new tax hike aimed at boosting the war budget and economy

For the first time in 26 years, Russia is raising taxes. In this way, dictator Vladimir Putin aims to bolster the country's budget, which is burdened by a special military operation – as the Kremlin describes the invasion of Ukraine. The wealthiest will pay higher taxes.

According to "Kommersant", Vladimir Putin signed the tax amendment bill, which will come into effect in 2025. The bill introduces a progressive tax for individuals with incomes exceeding £20,000. Russians who earn less will continue to pay a flat tax of 13%.

What taxes will citizens of the Russian Federation pay starting next year? For incomes from £20,000 to £43,000 annually, it will be 15% from £43,000 to £171,000 (18%), and for incomes between £171,000 and £429,000 (20%). The highest tax will be paid by the wealthiest – 22% for incomes exceeding £429,000.

"Corporate income tax was also raised from 20% to 25%. The value-added tax (VAT) will remain unchanged," reports "Kommersant".

It was also noted that soldiers fighting in Ukraine will pay taxes under the old rules. In this way, the Kremlin wants to attract volunteers to the front. In the first quarter of this year, Bloomberg reported that Russia aims to raise taxes to collect 4 trillion roubles, which converts to £36 billion.

In a comment for the American agency, Russian economist Alexander Isakov explained that higher taxes would help Putin solve three problems.

Firstly, they would generate from 0.5 to 1% of GDP in public revenues, which would help finance the war in Ukraine. Secondly, they would limit capital outflow, thus reducing pressure on the Russian currency. Thirdly, a more progressive tax schedule would finance growing child allowance programmes in Russia, attempting to reverse the demographic decline – assessed by the economist several months ago.