‘Budget needs patching’: Finance Ministry turns to taxes again

“Raising personal income tax was more painful”

From 1 January 2026, new amendments to the Tax Code will come into force in Russia. First and foremost, this involves an increase in the value-added tax from 20% to 22%.

The Finance Ministry emphasised that the preferential 10% rate will remain for socially significant goods — food products, medicines and medical devices, children’s goods, and others.

Among other goods, consumers will face a one-time price increase, but economist and member of the Supervisory Board of the Guild of Financial Analysts and Risk Managers Alexander Razuvaev is confident that “people will continue to buy as they have been buying.”

However, the VAT increase will not be critical.

“We have a huge defence budget — more than 13 trillion roubles — and we have to pay for it. But it is not frightening. The rise in personal income tax was more painful,” the expert reminded.

With the increase of VAT from 20% to 22%, Russia will overtake France, Spain, and the UK. It will enter the top five countries in the world with the highest tax. Currently, the list is headed by Hungary.

“The current rate is still reasonable. Some write that in America VAT is zero. Yes, but they have a sales tax. There is no need to compare with the US. We effectively counter sanctions, but a treasury is a treasury,” said Razuvaev.

According to Reuters, in 2024 more than a third of budget revenues (37%) came from VAT. If this tax is increased, the budget deficit in 2026 could be halved.

What will happen to business?

Businesses face much greater changes. First, the Finance Ministry proposes to significantly lower the income threshold for companies under the “simplified system” that must pay VAT — from 60 million to 10 million roubles. Currently, companies on the simplified tax system pay VAT at a preferential rate of 5% or 7% depending on income (in Tatarstan it is 5%).

“The decision is aimed against schemes for splitting businesses to minimise taxes. Lowering the threshold to 10 million rubles will allow more effective combat against ‘splitting’ and provide growing businesses with a smooth transition to general taxation conditions,” the Finance Ministry said in a statement.

Secondly, the taxation system for bookmakers is changing. A gambling tax of 5% on accepted bets for bookmakers will be introduced, along with a 25% corporate profit tax.

“These measures will allow not only turnover but also the actual financial results of companies to be taken into account. In addition, they will ensure transparency in the gambling business, which traditionally has high turnover and low tax yield,” the Finance Ministry stated.

Thirdly, the preferential rate for insurance contributions for small and medium-sized businesses is being abolished. For a number of sectors, including trade, construction, and mining, general rates will be established — 30% up to the maximum base and 15% above the base.

“At the same time, for priority SME sectors (processing, manufacturing, transport, electronics, etc.), a reduced rate of insurance contributions is retained. Reduced rates for SMEs were introduced as a temporary measure during the coronavirus period to keep unemployment low. Later, the benefit was extended at the request of businesses and achieved its goal — the SME sector shows a stable positive trend. Now, the measure no longer serves the purpose of maintaining employment, and therefore it is proposed to be reformatted,” the Finance Ministry commented.

Fourthly, from 1 January 2026, commercial organisations will be required to top up the base for insurance contributions on payments to executives to the level of the minimum wage (MROT) in cases where the amount falls below this threshold. “The measure is aimed at combating shell companies — it will close common schemes of tax evasion through fictitious salaries, reducing the volume of ‘grey’ practices in the corporate sector,” the Finance Ministry stated.

Fifthly, the scope of the federal investment tax deduction (FINT) is being expanded — 3% of expenditures on fixed assets and certain intangible assets. “This benefit will be granted to any person within the same group as a taxpayer who has made capital investments, regardless of the sector in which such a person operates,” the Finance Ministry said. This is being introduced “to stimulate investment.”

All changes are aimed “at financing defence and security,” the ministry noted.

Russian budget “facing serious turbulence”

In September 2023, at the Eastern Economic Forum, Russian President Vladimir Putin said that the government saw no need to raise taxes. At that time, the Cabinet introduced a one-off levy on the superprofits of large businesses. Later, in 2024, speaking in his address to the Federal Assembly, Putin assured that the main tax parameters would remain fixed until 2030.

“At the same time, it is, of course, necessary to close all loopholes used by some companies to evade taxes or underreport their tax payments,” the president emphasised at the time.

As early as 20 June, Russian Finance Minister Anton Siluanov said at a Sber business breakfast on the sidelines of the St Petersburg International Economic Forum that basic taxes would not change, but the Russian budget is currently “facing serious turbulence.”

According to the Finance Minister, there are several ways to ensure financial stability. First, one must be absolutely precise in “tempering ambitions”; second, budgetary policy needs to be coordinated with monetary policy. “Because what has happened now is still an element of lack of coordination,” Siluanov explained.