Putin approves the largest fiscal adjustment in 25 years, “with the aim of financing the war in Ukraine”
Vladimir Putin has signed into law a new bill that represents the biggest reform of the country’s tax system in a quarter of a century.
As the war in Ukraine drains the Kremlin’s coffers, the government has been looking for new ways to finance it.
The answer is a new progressive income tax rate, as well as an increase in corporate tax.
“It seems that tax reform is a tool to move the economy from butter to guns,” Alexander Kolyandr, a nonresident senior fellow at the Center for European Policy Analysis, said last month.
“The government is no longer concerned about whether you eat well, but rather about producing more weapons.”
The new bill, approved by both houses of parliament this week, marks a dramatic shift from Putin’s previous fiscal policies.
Shortly after taking office in 2001, the Russian president introduced a universally applied flat tax rate of 13%. Since then, most Russians have paid the same tax rate.
The new law maintains a 13% rate for incomes up to 2.4 million rubles (about £20,800) a year.
For income above that amount, an increasingly higher tax rate would apply.
Incomes between five and 20 million rubles (around £43,500 to £174,000) will be taxed at 18%, those between 20 and 50 million rubles (around £174,000 to £434,000) at 20%, and anything over 50 million rubles at 22%.
Putin has said the increases will not affect more than 3.2% of Russian taxpayers.
Corporate tax will also increase from 20% to 25%.
The changes will come into effect next year and are expected to generate 2.6 trillion roubles (£22.5bn) in additional federal revenues by 2025.
In addition to helping fund Russia’s ongoing war in Ukraine, the Kremlin hopes the tax reforms will help make the country less dependent on revenue generated by oil exports amid continued Western sanctions.
