Russia weighs biggest tax shake-up in almost 25 years as Putin scrambles to finance Ukraine war
Signs of Russia’s so-called special military operation are everywhere in Moscow, from roadside recruitment adverts to Z-themed souvenirs.
Now there is another example – a proposed tax hike that amounts to the biggest shake-up of the Russian tax system in a quarter of a century.
As the war in Ukraine drains the Kremlin’s coffers, the government is scrambling to find new ways to finance it.
Its answer is a new progressive income tax rate that will target the wealthy, as well as a rise in corporation tax.
The proposals were first proposed by Vladimir Putin, the Russian president, on the campaign trail ahead of his re-election in March. Analysts say he was forced to act.
Defence spending has surpassed 8% of GDP and is sucking up nearly a third of the state budget this year.
“It seems like the tax reform is a tool to move the economy from butter toward guns,” Alexander Kolyandr, a non-resident senior fellow at the Centre for European Policy Analysis, said.
“The government is no longer concerned about you eating well, but rather about you producing more guns.”
The reforms mark a dramatic departure from the Russian leader’s previous tax policies.
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In 2001, shortly after assuming office, he introduced a flat rate of 13% that was applied universally, and most Russians have been paying the same rate since.
The move simplified a previously complicated tax regime which few adhered to and it successfully boosted revenues – and his popularity – as a result.
A higher rate of 15% was established in 2021 for those earning more than five million roubles (around £43,500).
Now the finance ministry wants to lower the threshold for the 15% rate, so it applies to annual incomes from 2.4 (around £20,800) to five million roubles, and introduce more bands above.
Incomes between five and 20 million roubles (around £43,500 to £174,000) will be taxed at 18%, those between 20-50 million roubles (around £174,000 to £434,000) at 20%, and anything over 50 million roubles at 22%.
Under the proposals, corporation tax will also increase from 20% to 25%.
If adopted by the Russian parliament, the changes will come into force next year and generate 2.6 trillion roubles (£22.5bn) in budget revenues, the government said.
“For the past two years, the Russian economy has been running on state spending,” Mr Kolyandr said.
“It cannot last forever, because in effect, it’s mortgaging your future.
“To get this mortgage more appealing, you need more money.”
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According to the Kremlin, 3% of the workforce will be affected by the changes, which it insists are fair.
It says the reforms should solve national problems, reduce inequality and help develop Russia’s regions.
But the official line has been met with some scepticism on the streets of Moscow.
“I think they don’t have enough money for the special military operation, that’s why they’re introducing it,” Sergei told Sky News in Moscow.
Ulyana agreed, adding: “I don’t think it’s fair to tax more from 200,000 [roubles a month].
“This will just affect people who work a lot.”
In reality, everyone here is affected by Russia’s current path.
This is merely the latest impact, and it will be felt in people’s pockets.
Israeli Prime Minister Benjamin Netanyahu has vowed to retaliate against the Houthis and their Iranian “masters” after the group launched a missile attack on the country’s main international airport.
A missile fired by the group from Yemen landed near Ben Gurion Airport, causing panic among passengers in the terminal building.
“Attacks by the Houthis emanate from Iran,” Mr Netanyahu wrote on X. “Israel will respond to the Houthi attack against our main airport AND, at a time and place of our choosing, to their Iranian terror masters.”
Israeli police officers investigate the missile crater. Pic: Reuters
The missile impact left a plume of smoke and briefly halted flights and commuter traffic at the airport. Some international carriers have cancelled flights to and from Tel Aviv for several days.
Four people were lightly wounded, paramedic service Magen David Adom said.
Air raid sirens went off across Israel and footage showed passengers yelling and rushing for cover.
The attack came hours before senior Israeli cabinet ministers were set to vote on whether to intensify the country’s military operations in the Gaza Strip, and as the army began calling up thousands of reserves in anticipation of a wider operation in the enclave.
Houthi military spokesperson Brigadier General Yahya Saree said the group fired a hypersonic ballistic missile at the airport.
Iran’s defence minister later told a state TV broadcaster that if the country was attacked by the US or Israel, it would target their bases, interests and forces where necessary.
Israel’s military said several attempts to intercept the missile were unsuccessful.
Air, road and rail traffic were halted after the attack, police said, though it resumed around an hour later.
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Yemen’s Houthis have been firing missiles at Israel since its war with Hamas in Gaza began on 7 October 2023, and while most have been intercepted, some have penetrated the country’s missile defence systems and caused damage.
Israel has previously struck the group in Yemen in retaliation and the US and UK have also launched strikes after the Houthis began attacking international shipping, saying it was in solidarity with Palestinians over Israel’s war with Hamas.
The Israeli Air Force is regarded as one of the country’s most elite units.
So, when hundreds of current and former pilots call for an end to the war in Gaza to get the hostages out, Israelis take notice.
This month, 1,200 pilots caused a storm by signing an open letter arguing the war served mainly “political and personal interests and not security ones”.
The pilots’ protest letter
Part of the letter translated
Israeli Prime Minister Benjamin Netanyahu said the original letter was written by “bad apples”.
But Guy Paron, a former pilot and one of those behind the letter, said the Israeli government had failed to move to phase two of the ceasefire deal with Hamas, brokered under US President Donald Trump.
That deal called for a full withdrawal of Israeli forces from Gaza and the release of all the remaining hostages. Mr Netanyahu continues to argue that the war must continue to put pressure on Hamas.
Mr Paron said the (Israeli) government “gave up or violated a signed agreement with Hamas” and “threw it to the trash”.
“You have to finish the deal, release the hostages, even if it means stopping that war,” he argued.
It’s not the first time Israeli pilots have taken up a cause. Many of them also campaigned against Mr Netanyahu’s 2023 judicial reforms.
“In this country, 1,000 Israeli Air Force pilots carry a lot of weight,” Mr Paron added.
“The Air Force historically has been the major force and game-changer in all of Israel’s wars, including this current one. The strength of the Air Force is the public’s guarantee of security.”
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UN runs out of food aid in Gaza
Anti-government campaign spreads
Now, the open letter campaign has spread to other parts of the military.
More than 15,000 people have signed, including paratroopers, armoured corps, navy, special units, cyber and medics. The list goes on.
Dr Ofer Havakuk has served 200 days during this war as a combat doctor, mostly in Gaza, and believes the government is continuing the war to stay in power.
He has also signed an open letter supporting the pilots and accused the prime minister of putting politics first.
Israeli Prime Minister Benjamin Netanyahu described the authors of the original letter as ‘bad apples’. Pic: AP
He said Mr Netanyahu “wants to keep his coalition working and to keep the coalition together. For him, this is the main purpose of the war”.
A ceasefire could lead to the collapse of the prime minister’s fragile far-right coalition, which is opposed to ending the war.
Threat of dismissal
The Israeli military has threatened to dismiss those who have signed protest letters.
We met a former pilot who is still an active reservist. He didn’t want to be identified and is worried he could lose his job.
“This is a price that I’m willing to pay, although it is very big for me because I’m volunteering and, as a volunteer, I want to stay on duty for as long as I can,” he told us.
The controversy over the war and the hostages is gaining momentum inside Israel’s military.
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It is also exposing deep divisions in society at a time when there is no clear sign about how the government plans to end the war in Gaza, or when.
The renewed war in Gaza over the last year and a half followed deadly Hamas attacks on Israel on 7 October 2023, which killed 1,200 people, mostly civilians, and saw around 250 taken hostage.
More than 51,000 people have been killed in Gaza during the Israeli military’s response, many of them civilians, according to the enclave’s Hamas-run Ministry of Health.
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