On September 24, 2025, Russia's Finance Ministry submitted a bill to the government to increase VAT from 20% to 22%. The new rate, effective January 1, 2026, will apply to a broad range of products, from bread to medicine. The government justifies the tax hike as necessary for funding defense and security and covering the budget deficit.
In the first eight months of 2025, the federal budget deficit reached about 4.9 trillion rubles, compared to a surplus in 2022. The National Welfare Fund, once a major reserve, fell from $113 billion to $39 billion over two years and may be exhausted by the end of 2025.
Besides the VAT increase, the threshold for VAT payment will drop from 60 to 10 million rubles in annual turnover, expanding the number of small businesses subject to the tax. Reduced insurance rates for small businesses are also being canceled, increasing their social contributions from 15% to 30%.
Military spending is planned to decrease in the 2026 draft budget. Economic growth is stalling; previously driven by defense industry output, this factor now plays a lesser role.
The new VAT level is among the highest globally. For comparison, the EU average is 21.6%, while the U.S. has no federal VAT at all.
Unlike in democratic countries, Russian tax changes are not publicly debated. Decisions are made without parliamentary hearings or public consultations. The VAT hike will impose additional burdens on citizens and small businesses but won't resolve all budget issues.
