The Russian government has announced an increase in the value-added tax (VAT) rate from 20% to 22%. The decision will take effect in 2026 and has already sparked active debate among experts. According to the authorities, the measure is driven by the need to replenish the budget amid ongoing military expenditures and social support for veterans and their families.

Value-added tax is one of the key sources of revenue for the federal budget. Raising it is a tool that allows the government to quickly boost fiscal inflows. Economists estimate that a two-percentage-point increase could bring in several trillion rubles annually.

However, this measure also has an obvious downside: VAT is an indirect tax that directly affects consumers. Goods and services will become more expensive, which will inevitably lead to rising prices and increased inflationary pressure.

According to the Financial Times, the budget deficit in 2026 could reach 2.6% of GDP, while revenues from oil and gas, though still significant, show a downward trend. This is due both to sanctions and to changes in the global market environment.

Thus, the VAT hike becomes an attempt to compensate for the structural decline in oil and gas revenues at the expense of domestic consumption.

Consequences for households and businesses:

- Price growth. The VAT increase is likely to affect basic goods and services, hitting household purchasing power, especially amid already high inflation.

- Business burden. Companies will have to incorporate the tax difference into product prices, reducing competitiveness and potentially accelerating the exit of small players from the market.

- Social tensions. Higher indirect taxes against the backdrop of falling real incomes may increase dissatisfaction and trigger social risks.

The VAT hike in Russia should be seen not only as an economic measure but also as a political signal. Amid the protracted conflict in Ukraine and massive military expenditures, the state is showing its readiness to shift part of the burden onto society.

Fiscal pressure is distributed unevenly: large resource corporations retain export benefits, while the population and small businesses become the main donors to the budget.

Analysts outline several possible scenarios:

- Accelerating inflation. Even with the Central Bank’s high key rate (18%), higher indirect taxes will push prices upward.

- Declining consumer demand. Households will start saving more, slowing economic growth, which already fell to around 1.2% in 2025.

- Expanding social spending. The state, in turn, will increase expenditures on veterans, the army, and defense to contain domestic discontent.

- Political risks. In the long term, higher taxes combined with weak income growth may fuel protest sentiments, especially in large cities.

Raising VAT to 22% is a forced measure for the Russian budget, which is balancing between military spending and social obligations. Strategically, however, this decision carries risks: weakening domestic demand, rising inflation, and growing social discontent.

For the authorities, this is a choice between short-term budget stability and long-term economic development challenges. Ultimately, the key question is how long the government can maintain social balance while the burden of economic adjustment falls mainly on the shoulders of ordinary citizens.

#RUSSIA

28.09.2025 08:43