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.
Donald Trump has threatened Russia with more sanctions after a series of deadly strikes across Ukraine, as he said of Vladimir Putin: “What the hell happened to him?”
The US president appeared aghast at the conduct of his counterpart in the Kremlin after drone and missile attacks in Kyiv and other Ukrainian cities left 12 people dead and dozens more injured.
Trump criticises Putin – latest updates
Speaking to reporters at an airport in New Jersey ahead of a flight back to Washington, Mr Trump said: “I’m not happy with Putin. I don’t know what’s wrong with him.”
“He’s killing a lot of people,” he added. “I’m not happy about that.”
Mr Trump – who said he’s “always gotten along with” Mr Putin – told reporters he would consider more sanctions against Moscow.
“He’s sending rockets into cities and killing people, and I don’t like it at all,” he said.
Ukraine said the barrage of strikes overnight into Sunday was the biggest aerial attack of the war so far, with 367 drones and missiles fired by Russian forces.
It came despite Mr Trump repeatedly talking up the chances of a peace agreement. He even spoke to Mr Putin on the phone for two hours last week.
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Hundreds of drones fired at Ukraine
‘Shameful’ attacks
Volodymyr Zelenskyy has said Ukraine is ready to sign a ceasefire deal, and suggested Russia isn’t serious about signing one.
In a statement after the latest attacks on his country, he urged the US and other national leaders to increase the pressure on Mr Putin, saying silence “only encourages” him.
Mr Trump’s envoy for the country, Keith Kellogg, later demanded a ceasefire, describing the Russian attacks as “shameful”.
Three children were among those killed in the attacks, explosions shaking the cities of Kyiv, Odesa, and Mykolaiv.
Ukrainian siblings Tamara, 12, Stanislav, eight, and Roman, 17, were killed in Russian airstrikes. Pic: X/@Mariana_Betsa
Before the onslaught, Russia said it had faced a Ukrainian drone attack on Sunday. It said around 100 were intercepted and destroyed near Moscow and in central and southern regions.
The violence has escalated despite Russia and Ukraine completing the exchange of 1,000 prisoners each over the past three days.
Donald Trump says he will delay the imposition of 50% tariffs on goods entering the United States from the European Union until July, as the two sides attempt to negotiate a trade deal.
It comes after the president of the European Commission, Ursula von der Leyen, said in a post on social media site X that she had spoken to Mr Trump and expressed that they needed until 9 July to “reach a good deal”.
The US president had last Friday threatened to bring in the 50% tariffs from 1 June, as European leaders said they were ready to respond with their own measures.
But Mr Trump has now said that date has been put back to 9 July to allow more time for negotiations with the 27-member bloc, with the phone call appearing to smooth over tensions for now at least.
Speaking on Sunday before boarding Air Force One for Washington DC, Mr Trump told reporters that he had spoken to Ms Von der Leyen and she “wants to get down to serious negotiations” and she vowed to “rapidly get together and see if we can work something out”.
The US president, in comments on his Truth Social platform, had reignited fears last Friday of a trade war between the two powers when he said talks were “going nowhere” and the bloc was “very difficult to deal with”.
Mr Trump told the media in Morristown, New Jersey, on Sunday that Ms Von der Leyen “just called me… and she asked for an extension in the June 1st date. And she said she wants to get down to serious negotiation”.
“We had a very nice call and I agreed to move it. I believe July 9th would be the date. That was the date she requested. She said we will rapidly get together and see if we can work something out,” the US president added.
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Shortly after, he wrote on Truth Social: “I agreed to the extension – July 9, 2025 – It was my privilege to do so.”
On his so-called “liberation day” last month, Mr Trump unleashed tariffs on many of America’s trade partners. But since then he’s backed down in a spiralling tit-for-tat tariff face-off with China, and struck a deal with the UK.
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Much of his most incendiary rhetoric on trade has been directed at Brussels, though, even going as far as to claim the EU was created to rip the US off.
Responding to his 50% tariff threat, EU trade chief Maros Sefcovic said: “EU-US trade is unmatched and must be guided by mutual respect, not threats.
“We stand ready to defend our interests.”
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