Putin's tax hike to fund war: Russia's new financial strain

The document signed by Vladimir Putin introduces a progressive personal income tax (PIT) scale, and the corporate income tax (CIT) will also be increased. The new PIT tax rates will be:

      
• 22% for the highest earners, i.e., Russians with an income of more than 1.34 million USD annually
• 20% for those earning more than 537,000 USD annually
• 18% for those earning more than 134,000 USD annually
• 15% for Russians earning between 64,000 and 134,000 USD annually

The Kremlin is introducing these changes for all Russians except for the "participants" of the Russian aggression in Ukraine. Families with more than two children and an income not exceeding the equivalent of 210 USD per month will pay a PIT rate of 7% instead of the standard 13% rate.

In 2025, due to the tax increases, an additional 16 billion USD is expected to flow into the Kremlin's budget, and by 2030, 93 billion USD. "The tax increases will hit Russian businesses even harder. Over the next six years, entrepreneurs will pay the state treasury an additional 333 billion USD. From 2025, the CIT rate in Russia will jump from 20% to 25%," it reads.

"Raising taxes will help Putin fund his war in Ukraine," notes Alexander Isakov, Chief Economist for Russia at Bloomberg Economics.

"Almost all of the extra money will go to the federal treasury, which is yet another confirmation that these are war levies," writes "Rzeczpospolita."

This year, the Russian federal budget will spend a record 136 billion USD on defense, with military spending accounting for 30% of the budget. "This is an amount unseen since Soviet times," emphasizes Isakov.

As the newspaper points out, the Kremlin convinces Russians that this is all for their benefit without mentioning the war. After the law was adopted, Vyacheslav Volodin, the head of the Russian Duma, stated that raising taxes was supposed to "develop the economy" and stabilize the tax system.