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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 continues to drain the Kremlin’s coffers, the government is scrambling to find new ways to finance it.

Read more: Ukraine-Russia war latest updates

Pro-Russian 'Z' patches on display at a store in Moscow
View of a store in Moscow selling pro-Russia and pro-war merchandise

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 mooted by Russian president Vladimir Putin 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.

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“It seems like the tax reform is a tool to move the economy from butter toward guns,” said Alexander Kolyandr, a non-resident senior fellow at the Centre for European Policy Analysis.

“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.

Pic: AP
Image:
Pic: AP

In 2001, shortly after assuming office, he introduced a flat rate of just 13% that was applied universally, and most Russians have been paying the same rate ever 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%.

The proposals will also see corporation tax increase from 20% to 25%.

Pro-Russian artwork in Moscow, featuring the 'Z' icon used throughout the war in Ukraine

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.

A woman takes photos of art about Russia's war in Ukraine in 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.

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Trump’s pride vs Putin’s legacy: What to expect from pivotal Ukraine summit

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Trump's pride vs Putin's legacy: What to expect from pivotal Ukraine summit

Donald Trump and Vladimir Putin will meet for the first time in six years on Friday, with a possible deal to end the Ukraine war on the agenda.

Mr Trump has threatened “very severe consequences” if his Russian counterpart doesn’t agree to a ceasefire at the summit, being hosted at a remote US army base in snowy Anchorage, Alaska.

Follow latest updates from Ukraine war

But there are fears they will discuss a deal robbing Ukraine of the land currently occupied by Russia – something Volodymyr Zelenskyy has said he won’t accept.

Here’s what three of our correspondents think ahead of the much-anticipated face-to-face.

Putin’s legacy is at stake – he’ll want territory and more
By Ivor Bennett, Moscow correspondent

Putin doesn’t just want victory. He needs it.

Three and a half years after he ordered the invasion of Ukraine, this war has to end in a visible win for the Russian president. It can’t have been for nothing. His legacy is at stake.

So the only deal I think he’ll be willing to accept at Friday’s summit is one that secures Moscow’s goals.

These include territory (full control of the four Ukrainian regions which Russia has already claimed), permanent neutrality for Kyiv and limits on its armed forces.

I expect he’ll be trying to convince Trump that such a deal is the quickest path to peace. The only alternative, in Russia’s eyes, is an outright triumph on the battlefield.

Vladimir Putin and Donald Trump meeting in Osaka in 2019
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Vladimir Putin and Donald Trump meeting in Osaka in 2019

I think Putin‘s hope is that the American president agrees with this view and then gives Ukraine a choice: accept our terms or go it alone without US support.

A deal like that might not be possible this week, but it may be in the future if Putin can give Trump something in return.

That’s why there’s been lots of talk from Moscow this week about all the lucrative business deals that can come from better US-Russia relations.

The Kremlin will want to use this opportunity to remind the White House of what else it can offer, apart from an end to the fighting.

Read more:
What could Ukraine be asked to give up?
Trump-Putin summit starting to feel quite ‘Midnight Sun’

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What will Kyiv be asked to give up?

Ukraine would rather this summit not be happening
By Dominic Waghorn
, international affairs editor

Ukraine would far rather this meeting wasn’t happening.

Trump seemed to have lost patience with Putin and was about to hit Russia with more severe sanctions until he was distracted by the Russian leader’s suggestion that they meet.

Ukrainians say the Alaska summit rewards Putin by putting him back on the world stage.

But the meeting is happening, and they have to be realistic.

Most of all, they want a ceasefire before any negotiations can happen. Then they want the promise of security guarantees.

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Does Europe have any power over Ukraine’s future?

That is because they know that Putin may well come back for more even if peace does break out. They need to be able to defend themselves should that happen.

And they want the promise of reparations to rebuild their country, devastated by Putin’s wanton, unprovoked act of aggression.

There are billions of Russian roubles and assets frozen across the West. They want them released and sent their way.

What they fear is Trump being hoodwinked by Putin with the lure of profit from US-Russian relations being restored, regardless of Ukraine’s fate.

US Army paratroopers train at the military base where discussions will take place. File pic: Reuters
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US Army paratroopers train at the military base where discussions will take place. File pic: Reuters

That would allow Russia to regain its strength, rearm and prepare for another round of fighting in a few years’ time.

Trump and his golf buddy-turned-negotiator Steve Witkoff appear to believe Putin might be satisfied with keeping some of the land he has taken by force.

Putin says he wants much more than that. He wants Ukraine to cease to exist as a country separate from Russia.

Any agreement short of that is only likely to be temporary.

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Zelenskyy: I told Trump ‘Putin is bluffing’

Trump’s pride on the line – he has a reputation to restore
By
Martha Kelner, US correspondent

As with anything Donald Trump does, he already has a picture in his mind.

The image of Trump shaking hands with the ultimate strongman leader, Vladimir Putin, on US soil calls to his vanity and love of an attention-grabbing moment.

There is also pride at stake.

Joint Base Elmendorf-Richardson in Alaska, where Trump will meet his Russian counterpart. File pic: Reuters
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Joint Base Elmendorf-Richardson in Alaska, where Trump will meet his Russian counterpart. File pic: Reuters

Trump campaigned saying he would end the Russia-Ukraine war on his first day in office, so there is an element of him wanting to follow through on that promise to voters, even though it’s taken him 200-plus days in office and all he’s got so far is this meeting, without apparently any concessions on Putin’s end.

In Trump’s mind – and in the minds of many of his supporters – he is the master negotiator, the chief dealmaker, and he wants to bolster that reputation.

He is keen to further the notion that he negotiates in a different, more straightforward way than his predecessors and that it is paying dividends.

So far, despite sanctions on Russia, despite warnings and deadlines, the situation in Ukraine is only getting worse.

He’s hoping that this meeting, simply the act of sitting down with Putin, can change the tide.

The Russian president may have different ideas.

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Trump’s targets for Putin summit appear fluid – can he even get a ceasefire?

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Trump's targets for Putin summit appear fluid - can he even get a ceasefire?

The “if” was doing some heavy lifting.

Mr Trump floated the idea of a second meeting, this one between Putin, Zelenskyy and possibly himself, “if” the Alaska summit goes well.

Speaking to European leaders earlier, in a virtual call he rated at “10” and “very friendly”, he’d shared his intention to try to broker a ceasefire on Friday.

So, the strategy is crystallising – he will press for a trilateral meeting to discuss territory “if” he manages to secure a truce during the bilateral meeting.

But that begs the obvious question: what if he can’t?

The US president is keeping his options open – rating the chance of a second meeting as “very good” but preparing the ground for failure too.

“There may be no second meeting because if I feel that it is not appropriate to have it because I didn’t get the answers that we have to have, then we’re not going to have a second meeting,” he said.

More on Russia

Unusually, given how often he talks about his abilities, he conceded that he may not persuade Vladimir Putin to stop targeting civilians.

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Sky’s defence analyst, Prof Michael Clarke, looks at what land Ukraine might be asked to give up when Donald Trump meets Vladimir Putin on Friday in Alaska.

Read More
Trump’s threat to Putin – Ukraine latest
What could Ukraine be asked to give up?
Sky News’ Ukraine Q&A

But without elaborating on what any sanctions might be, he warned that Russia would face “very severe consequences” if it doesn’t end the war.

Even if he achieves the seemingly impossible – a halt to the fighting – there seems little chance of agreement on any swapping of territory.

A BTR-4 armoured personnel carrier during military exercises in Kharkiv region.
Image:
A BTR-4 armoured personnel carrier during military exercises in Kharkiv region.

Mr Zelenskyy has told Mr Trump that Putin “is bluffing” and wants to “push forward along the whole front” not return land.

In the space of a week, Donald Trump has gone from talking about a land-swapping deal, to a “listening exercise”, to the potential for a ceasefire.

His expectations appear changeable, an indication of how fluid back-room negotiations are in the run-up to his first face-to-face with Vladimir Putin in six years.

He described Friday’s summit as “setting the table for a second meeting”, but that’s presumptuous when the meal – or deal – isn’t cooked yet.

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Over 100 people killed in Gaza in 24 hours, officials say, marking deadliest day in a week

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Over 100 people killed in Gaza in 24 hours, officials say, marking deadliest day in a week

More than 100 people have been killed in Gaza within 24 hours, officials there have said – the deadliest day recorded in a week.

The Gaza health ministry said 123 people were killed, adding to the tens of thousands of fatalities during the near two-year war raging in the Strip.

It comes as officials said Israel’s planned re-seizure of Gaza City, which it took in the early days of the war before withdrawing, is likely weeks away.

Follow the latest: Netanyahu accused of having ‘lost the plot’

Palestinians shelter at a tent camp on a beach amid summer heat in Gaza City. Pic: Reuters/Mahmoud Issa
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Palestinians shelter at a tent camp on a beach amid summer heat in Gaza City. Pic: Reuters/Mahmoud Issa

Eastern areas of Gaza City were bombed heavily by Israeli planes and tanks, according to residents, who said that many homes were destroyed in the Zeitoun and Shejaia neighbourhoods overnight.

Al-Ahli hospital said 12 people were killed in an airstrike on a house in Zeitoun.

Israeli tanks also destroyed several homes in the southern Gaza city of Khan Younis, Palestinian medics said.

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Netanyahu vows to ‘finish the job’ in Gaza

They added that in central Gaza, Israeli gunfire killed nine people seeking aid in two separate incidents. The Israel Defence Forces (IDF) did not comment on this.

The number of Palestinians who died of starvation and malnutrition in Gaza has risen to 235, including 106 children, since the war began, following the death of eight more people, including three children, in the past 24 hours, the Gaza health ministry said.

Palestinians scramble to collect aid from trucks that entered through Israel, in Khan Younis. Pic: Reuters
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Palestinians scramble to collect aid from trucks that entered through Israel, in Khan Younis. Pic: Reuters

The malnutrition and hunger death figures have been reported by the Hamas-run ministry and have been disputed by Israel.

Israeli Prime Minister Benjamin Netanyahu said on Sunday: “If we had a starvation policy, no one in Gaza would have survived after two years of war.”

He also repeated the allegation that Hamas has been looting aid trucks and claimed uncollected food has been “rotting” at the border, blaming the UN for not distributing it.

Aid packages being dropped from a plane in Deir Al-Balah. Pic: Reuters
Image:
Aid packages being dropped from a plane in Deir Al-Balah. Pic: Reuters

A Palestinian boy jumps over wastewater in Gaza City. Pic: Reuters
Image:
A Palestinian boy jumps over wastewater in Gaza City. Pic: Reuters

The latest death figures come as Hamas held further talks with Egyptian mediators in Cairo with a focus on stopping the war, delivering aid and “enduring the suffering of our people in Gaza”, an official for the group said in a statement.

Egyptian security sources said the possibility of a comprehensive ceasefire would also be discussed.

This would see Hamas relinquish governance in Gaza and concede its weapons, with a Hamas official saying the group was open to all ideas as long as Israel would end the war and pull out of Gaza.

But the official added that “laying down arms before the occupation is dismissed as impossible”.

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Meanwhile, Mr Netanyahu reiterated that Palestinians should simply leave Gaza, an idea which has also been enthusiastically floated by US President Donald Trump.

“They’re not being pushed out, they’ll be allowed to exit,” Mr Netanyahu told Israeli television channel i24NEWS. “All those who are concerned for the Palestinians and say they want to help the Palestinians should open their gates and stop lecturing us.”

World leaders have rejected the idea of displacing the Gaza population, and Mr Netanyahu’s plan to expand military control over Gaza, which Israeli sources said could be launched in October, has increased global outcry over the widespread devastation, displacement and hunger in the enclave.

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‘See with your eyes the reality’

The humanitarian crisis in Gaza is at “unimaginable levels”, Britain and 26 partners said in a statement on Tuesday, warning: “Famine is unfolding before our eyes.”

The statement added: “Urgent action is needed now to halt and reverse starvation. Humanitarian space must be protected, and aid should never be politicised.”

It was signed by the foreign ministers of Australia, Belgium, Canada, Cyprus, Denmark, Estonia, Finland, France, Greece, Iceland, Ireland, Japan, Lithuania, Luxembourg, Malta, the Netherlands, Norway, Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland and the UK.

Read more from Sky News:
West Bank: The city locked down by armed troops
Who were the journalists killed by Israel in Gaza?

The war in Gaza began on 7 October 2023 when Hamas killed about 1,200 people – mostly civilians – and abducted 251 others in its attack.

Most of the hostages have been released in ceasefires or other deals. It is believed Hamas is still holding 50 captives, with 20 believed to be alive.

Israel’s retaliatory offensive has killed more than 61,000 Palestinians, according to Gaza’s Hamas-run health ministry, which does not differentiate between militants and civilians in its count.

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