Russian Finance Ministry proposes VAT increase

The value-added tax rate could be raised to 22% next year to boost revenue for defense and social spending

The Russian Finance Ministry has proposed raising the value-added tax rate in 2026 in a draft budget. The move is designed to boost state revenues and direct more money to defense and social support, according to the ministry.

The Finance Ministry said the standard VAT rate would rise from 20% to 22%, bringing in around 1 trillion rubles ($11.9 billion) in extra revenue. It said the funds would be used to equip the armed forces, pay military salaries, support families, and modernize defense enterprises. The measure is part of the federal budget plan for 2026-2028, which the cabinet approved on Wednesday. The draft keeps the reduced VAT rate of 10% for socially important goods.

Other tax measures are included in the budget, such as a 5% tax on bets accepted by bookmakers and continued taxation of corporate profits. The ministry described the draft for 2026 as “balanced and sustainable.”

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The proposal comes as Russia’s forecast budget deficit has widened. In April, the ministry raised its 2025 deficit forecast more than threefold, from 0.5% to 1.7% of GDP. VAT already accounted for around 37% of federal revenues in 2024, underlining its importance as a funding source.

According to the draft, federal revenues in 2026 are projected at 40.3 trillion rubles ($481 billion), with non-oil and gas income expected to make up nearly 78% of the total. Spending is forecast at 44.1 trillion rubles ($526 billion).

Prime Minister Mikhail Mishustin has called the planned deficit “acceptable.” The government expects real wages to grow by around 10% and real incomes by more than 9% over the three-year period.

Since the escalation of the Ukraine conflict in 2022, Russia has faced sweeping Western sanctions. The economy has nevertheless remained resilient, recording GDP growth of 4.1% in 2023 and 4.3% in 2024. Growth is forecast to slow to 2.5% this year, while the central bank predicts a more cautious range of 1% to 2%.

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