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

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 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%.

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.

“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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Israeli airstrike on Beirut causes more shock to a country already rocked to its core

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Israeli airstrike on Beirut causes more shock to a country already rocked to its core

The Israeli airstrike in the southern suburbs of Beirut came as the Lebanese caretaker government was having an emergency meeting to discuss the previous two days of pager and radio explosions.

It caused yet more shock in a nation which considers itself battle-hardened after years of strife, disaster and wars.

But Lebanon has been truly rocked to its core by the string of attacks over the past few days.

“These are war crimes,” one Lebanese minister told us.

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Watch Yalda Hakim’s interview with Lebanon’s energy minister

The Israeli military said it had targeted and killed a senior Hezbollah military commander. They named him as Ibrahim Aqil – a man with a $7m US bounty on his head.

He’s been on the US most wanted list for more than forty years after being accused of being involved in the bombing of the US embassy and US marine barracks in 1983 which killed hundreds.

But the Hezbollah stronghold of Dahieh is a heavily populated crowded residential area and packed with shops, markets, and high-rise apartments.

The strike appeared to have flattened an entire block, flipping cars and leaving other vehicles covered in a heavy blanket of thick dust and rubble.

Damage caused by an Israeli air attack on a southern suburb of Beirut. Pic: AP
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Damage caused by an Israeli air attack on a southern suburb of Beirut. Pic: AP

Several people could be seen in video footage filmed by neighbours, trapped under piles of rubble.

The Lebanese health authority keeps on updating the number of people killed in the strike, with the latest figures reaching 14.

There are more than 60 injured, with some of those believed to be in critical condition. Children are said to be among the dead, missing and injured.

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Aftermath of IDF strike on Lebanon

‘Our actions speak for themselves’

The Israeli military immediately claimed success – saying that, along with Aqil, the strike had wiped out about 10 of his elite Radwan Force.

According to an IDF spokesman, who did not provide any evidence, Aqil’s team had been planning an attack into northern Israel similar to the Hamas attack on 7 October.

The Israeli Prime Minister Benjamin Netanyahu issued a very short statement on X, saying: “Our goals are clear and our actions speak for themselves.”

Both the prime minister and defence minister have vowed to restore security to the north of Israel so the 60,000 residents who have fled the cross-border attacks can return to their homes.

An estimated 120,000 Lebanese have also been forced out of their homes along the border.

The airstrike in the capital is the second in Beirut in two months – both, according to the IDF, targeted at senior Hezbollah commanders.

According to sources being quoted in Lebanese media, the Hezbollah group of senior leaders was meeting in an underground basement of a large housing block when the missile penetrated.

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‘Things are escalating by the minute’

It is unlikely to be seen as a justifiable precision attack – or a “targeted strike”, as described by the Israeli military – if the Lebanese government ministers’ reactions are anything to go by.

We spoke to several as they arrived for their emergency cabinet meeting in the hour before the attack.

They were already incensed by the back-to-back coordinated booby trap explosions of communication devices across the country. Israel has yet to confirm or deny its involvement in the blasts.

Speaking about the pager and radio explosions across Lebanon earlier this week, the country’s environment minister and head of its disaster management committee Nasser Yassin said: “It’s genocidal, it’s indiscriminate and a violation of international humanitarian law and every other law.

“We have an insane leadership on the southern end of our borders who don’t want to be indicted by the International Court of Justice.”

The head of the country’s disaster management, Nasser Yassin
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The head of the country’s disaster management committee, Nasser Yassin

The information minister Ziad Makary called the explosions of communication devices “a new crime… it’s a war crime and not something that would pass easily trying to kill three thousand or four thousand civilians as we see them”.

The information minister Ziad Makary
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The information minister Ziad Makary

And Amin Salam, the economy minister, warned: “Things are escalating by the minute.

“There’s more tension, more provocation. We have been doing our best to get to a peaceful solution but the escalation is unprecedented.

“It’s an act of terror, regardless of who was targeted.”

Most intense border fighting in nearly a year

The airstrike in Beirut came after a marked increase in cross-border exchanges – the most intense in nearly a year.

The Israeli military said Hezbollah had spent the early part of the day firing nearly 200 rockets across the border into Israel.

Many of them were intercepted by the Iron Dome defence system.

This followed the Israeli bombing of more than 50 targets in the south of Lebanon overnight – which the IDF said hit launchers and weapons stores.

The Israeli military is suffering losses too – there were two funerals today for Israeli soldiers killed on their northern border – but it’s Hezbollah which seems to be paying a far heavier price right now.

Read more from Sky News:
Iran mulls next move as fears of war grow
Israel’s history of secret operations

Hezbollah unilaterally entered this latest war on 8 October, much to the frustration of Lebanon’s caretaker government, and a day after the Hamas attack on southern Israel.

Hezbollah have repeatedly said their actions are in support of Gaza and have continued to insist they will only stop once there’s a ceasefire.

But right now, the fighting group allied to Iran – and designated a terror group by the US and UK – appears to be very much on the backfoot after three attacks in four days.

Meanwhile, Israel is ploughing on despite the cries of indignation and condemnation from the international community.

Additional reporting from Beirut with camera Jake Britton, specialist producer Chris Cunningham and Lebanon producers Jihad Jineid and Sami Zein.

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Why Western allies calculate there is hope for avoiding all-out war between Israel and Iran-backed Hezbollah

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Why Western allies calculate there is hope for avoiding all-out war between Israel and Iran-backed Hezbollah

Even after exploding pagers, thousands of casualties and the killing of a top Hezbollah commander in an Israeli airstrike, the UK and other allies are still hoping that all-out war between Israel and the Iran-backed militant group in Lebanon can be avoided.

But events are unfolding at a dizzying pace – far faster than governments can react – and each new attack raises the chance of escalation into wider, regional confrontation.

A big unknown is how Iran will respond.

Hezbollah is regarded as its most powerful proxy – and Tehran directly suffered from the pager bombs with its own ambassador to Lebanon being injured.

Adding to the pressure, the Iranian regime has yet to carry out any major retaliation for the killing by Israel of a top Hamas leader – Ismail Haniyeh – in Tehran in July.

 Ismail Haniyeh. Pic: AP
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Ismail Haniyeh. Pic: AP

Iran launched a barrage of drones and missiles against Israel in April in response to an attack on an Iranian consular building in Damascus. Israeli air defences, bolstered by the US, the UK and other allies, ensured that strike failed.

Tehran will not want to fall short a second time – or else risk looking weak.

Doing nothing is also not an option.

The same is true for Hezbollah.

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Hezbollah: ‘Enemy crossed all red lines’

But a calculation by Western allies when considering the timing and scope for Hezbollah’s next move appears to be that the group’s ability to retaliate in any meaningful way for the damage it has suffered is in disarray, following the targeting of thousands of its fighters’ pagers and walkie-talkies.

Israel is accused of turning the devices into remotely detonated bombs in an unprecedented attack on Tuesday and Wednesday that left dozens of people dead and thousands wounded across Lebanon, including an undisclosed number of Hezbollah members. Israel has neither confirmed nor denied its involvement.

The blasts also devastated the group’s communication channels making it much harder to muster a speedy response – though Hassan Nasrallah, the leader, has vowed retribution.

A second factor behind the West’s hope for calm heads is a belief that neither Israel nor Hezbollah nor Iran want a full-blown war.

Read more:
UK fears Britons might need evacuating from Lebanon
Top Hezbollah commander ‘killed in Israeli strike’

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Lebanon minister: ‘Israel has committed war crimes’

Israel does not yet appear to have the scale of troops on its northern border that would be needed for a large-scale ground offensive – though a ground attack is only one option.

Only striking from the air is another.

On Thursday, Israel Defence Forces launched their most intense barrage of airstrikes into southern Lebanon since the start of this latest round of hostilities almost a year ago.

The Israeli government has said it wants to enable tens of thousands of its citizens to return to their homes close to the border with Lebanon in the north from where they were forced to flee in the wake of increased Hezbollah rocket attacks.

At the same time, Nasrallah has promised to prevent this from happening, which puts the two sides on a direct collision course.

It means the risk of escalation remains high.

Against such uncertainty, David Lammy, the British foreign secretary, chaired a meeting of the government’s emergency COBRA committee on Friday.

He discussed the crisis and the UK’s ability to deal with what would be a hugely complex and risky evacuation operation of British nationals from Lebanon should the situation deteriorate significantly.

The previous evening, he had called for an immediate ceasefire by both sides following a meeting in Paris with his American, French, German and Italian counterparts.

But less than 24 hours later, Israel said it had killed Ibrahim Aqil, one of Hezbollah’s most senior commanders, in a strike on a southern suburb of Beirut – another significant blow to the group and yet one more reason for Hezbollah and Iran to want to retaliate.

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Lebanese minister accuses Israel of ‘committing war crimes’ in a ‘blatant way’ after ‘terror’ of pager blasts

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Lebanese minister accuses Israel of 'committing war crimes' in a 'blatant way' after 'terror' of pager blasts

A Lebanese government minister has accused Israel of committing war crimes “in a blatant way and without immediate condemnation”, in an interview with Sky News. 

Walid Fayad, the country’s energy minister, also said Lebanon was “losing faith” in the UN and international laws.

He called this week’s pager attacks a move “from targeted terror to distributed and blind terror”.

Communication devices used by Hezbollah members, such as pagers and walkie-talkies, exploded on Tuesday and Wednesday, killing at least 37 people and injuring thousands.

The blasts increased fears of an all-out war in the Middle East.

Lebanon and Hezbollah say Israel was behind the pager attacks. Israel has neither denied nor confirmed its involvement.

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Hezbollah fighters carry the coffins of fallen four comrades who were killed Monday after their handheld pagers exploded, during their funeral procession in the southern suburb of Beirut, Lebanon, Wednesday, Sept. 18, 2024. (AP Photo/Bilal Hussein)
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Hezbollah fighters carry the coffins of fallen comrades who were killed after their handheld pagers exploded. Pic: AP

“What I am shocked not to see is an immediate, overwhelming condemnation by all countries of the world,” Mr Fayad told The World With Yalda Hakim.

“What we have seen in front of our own eyes is civilian people in the supermarkets or going about their business in the city of Beirut and anywhere else in Lebanon dying or getting injured.”

Mr Fayad added: “This attack was perpetrated deliberately in a clear contradiction with and disobedience to all humanitarian international laws or UN resolutions with respect to Israel and Lebanon. What we are seeing is very alarming because the world is silent on a very large scale.”

He said Lebanon is losing faith “with the international laws, with the ability of the UN to enforce any law and order at world scale and at regional scale”.

He continued: “We would be certainly asking for the implementation of UN resolutions and for the implementation of the latest security council decision asking Israel to stop its attacks on the Palestinians and on the Lebanese.”

Lebanon's energy minister Walid Fayad
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Lebanon’s energy minister Walid Fayad

Reflecting on the approaching anniversary of the 7 October attack on Israel, in which Hamas killed 1,200 people and took around 250 hostages, Mr Fayad said: “We are looking at one year of useless conflict where Israel is not making any accomplishments with these conflicts other than total destruction for the Palestinian people and not only the people themselves, but also the infrastructure.”

Since Israel’s military response began last October, more than 41,000 Palestinians have been killed in Gaza, according to the Hamas-run health ministry there. The ministry’s count does not differentiate between fighters and civilians.

A population of more than 2.3 million people has also been displaced by the conflict in Gaza.

Read more from Sky News:
Attack on Hezbollah is warning to governments
Hezbollah chief’s message means devastation will continue
Middle East is ‘closest to regional war since 1970s’

Mr Fayad also criticised President Joe Biden and Antony Blinken, the US secretary of state, saying that “sometimes they can be driven by national priorities”.

He said: “You have a situation in the US where it’s currently the election race time, and there are lobbies that are very strong in the US and where any change in the establishment’s policy or stance might have a bearing.”

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Mr Fayad urged world leaders to prevent “escalation into a much broader conflict” on the Israel-Lebanon border.

“World leaders happen to have a lot of leverage whether in the supply of ammunition or in the supply of financial support to the state of Israel,” he added.

“It is in their hands to use this leverage to put a stop to these atrocities and to start going in the right direction, a direction that allows… peace and stability in the region rather than complete chaos and risking everybody’s lives and escalation into a much broader conflict.”

Despite the minister’s calls for de-escalation, Israel said it hit Beirut in a “targeted” strike on Friday afternoon after Hezbollah fired 140 rockets into Israel.

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