While the Kremlin continues to claim that the war in Ukraine is going according to plan, the Russian government is taking steps that reveal the true the economic cost of the conflict.
ΠLast week, the Finance Ministry in Moscow announced plans to raise the value-added tax from 20 to 22 percent, starting in January 2026
Broken promises
This decision represents a clear violation of Vladimir Πytin, made at the beginning of the year, that there would be no significant tax reforms until 2030. Back in June, Finance Minister Anton Silyanov categorically stated that there were no plans for tax system revisions, despite the difficult budget situation.
The ministry explicitly stated that "the measures are aimed primarily at financing defense and security", as well as supporting veterans and social spending. The new measure is expected to generate an additional 1.3 trillion rubles ($15.5 billion) annually - about 0.5 percent of GDP, writes "Kommersant".
Growing budget deficit
The tax increase comes as Russia faces its largest budget deficit since the start of the war. Between January and August, the deficit reached 4.88 trillion rubles ($61.1 billion), already exceeding the full-year target. For the full year, the deficit is expected to reach 5.7 trillion rubles, or 2.6 percent of GDP, compared to the initially planned 0.5 percent.
ΠSlowing oil prices and the plunging ruble are threatening the main sources of revenue. Oil and gas sales, which previously accounted for nearly half of Russia's budget, are expected to account for no more than 22 percent of the country's revenue next year.
Economic Realities
The central bank warns that the economy is "cooling faster than expected". Official GDP growth forecasts; were sharply reduced - from 2.5 to 1 percent for this year, it became clear from the publication of "Kommersant" on an official document of the Ministry of Finance, which was later removed. Growth of 3% was previously expected for 2026, but this has now been revised to just 0.5%
Economy Minister Maxim Reshetnikov acknowledged the slower growth, while the central bank reported that inflation reached 8.2% in early September - more than double the target of 4%.
Impact on citizens
Russia introduced a corporate income tax in 1992 at a rate of 28%, but just a year later it was reduced to 20% and 10 years later - to 18%. ΠIn 2018, the 20% rate was reinstated to cover the costs of large-scale government projects.
ΠThe increase in the VAT rate represents the second direct tax change since the start of the full-scale invasion of Ukraine in 2022, following the introduction of progressive taxation in 2024. As a consumption tax, the VAT will be reflected directly on the prices of basic goods, although the preferential rate of 10 percent will remain for "socially significant goods" such as food, medicine and children's products.
According to independent analysts, the overall impact could lead to inflation of about 1.5 percent in the first months of next year, as companies will adjust prices to maintain profits.
While the Kremlin continues to insist that the economy is stable, the reality It shows how the war increasingly places a financial burden on ordinary Russian citizens.