Russia announces sweeping tax reforms, boosts corporate rates to 25%

Russia begins work on significant tax reform, reports wyborcza.biz.pl. Corporate income tax will increase, and the flat tax will be abolished. Meanwhile, a tax relief for soldiers fighting in Ukraine will be introduced.

"Russia is finally ending the flat PIT tax, significantly raising the corporate income tax rate and introducing new taxes, including on fertilizer production. Slogans of deepening social justice accompany the changes, but it's hard to forget that Russia needs money for the war against Ukraine," we read in "Gazeta Wyborcza."

Putin announced the changes in taxes during the April address.

Russia will raise the corporate income tax (CIT) from 20% to 25%. However, tax deductions will still be possible for companies carrying out government projects – mainly in the defense industry. Additionally, the income tax for the IT sector will increase from 3% to 5%.

It is estimated that raising the CIT rate will add an extra 1.6 trillion rubles to the budget. Together, the tax hikes will support the Kremlin with 2.6 trillion rubles.

The real revolution will be the abandonment of the flat tax, which was introduced "at the beginning of this century." The rate was 13% and was supposed to favor wealthy individuals.

"At the beginning of this decade, the Russian government introduced an additional PIT rate of 15% for individuals whose annual incomes exceed 5 million rubles. Starting next year, Russia will finally end the flat tax, introducing five PIT rates. The lowest rate of 13% will be paid by persons whose annual incomes do not exceed 2.4 million rubles. The highest PIT rate – 22% – will cover individuals with incomes exceeding 50 million rubles annually," added "GW."

Soldiers fighting in the war in Ukraine will continue to pay PIT according to the old rules (13% or 15%).

Moscow, however, will strike the fertilizer industry. "The tax on potassium fertilizer production will more than double, the tax on phosphate fertilizer production will double, and additionally, an excise tax on gas used in ammonia production (i.e., nitrogen fertilizers) will be introduced," notes "GW."

Enterprises involved in iron ore mining and companies in the tobacco industry will also pay more significant levies.