Russia plans higher taxes for rich, companies as cost of Ukraine war mounts

New tax thresholds and hike in corporation tax are expected to raise about 2.6 trillion rubles ($29bn) a year.

Russia has announced plans to raise taxes on businesses and the wealthy as it scrambles for additional revenue to fund its invasion of Ukraine.

Government spending has exceeded revenue by tens of billions of dollars since Moscow ordered its troops into Ukraine in February 2022 as sanctions have cut off lucrative energy sales to Europe.

The Ministry of Finance proposed on Tuesday new tax thresholds for top earners and a hike in corporation tax.

The amendments are expected to raise about 2.6 trillion rubles ($29bn) a year, the Interfax news agency reported, citing Finance Ministry calculations.

“The changes are aimed at building a fair and balanced tax system,” Minister of Finance Anton Siluanov said in a statement, adding that the extra funds would bolster Russia’s “economic wellbeing”.

The proposed amendments would come into force from 2025.

Russian President Vladimir Putin suggested the country would raise taxes for companies and wealthy individuals shortly before he secured a fifth term in office in March, in a further step away from the flat rate of income tax that was the cornerstone of his economic policy during his first two decades in power.

Income tax is currently 13 percent for the majority of Russians, with some higher earners paying a rate of 15 percent.

The Finance Ministry said under the amendments that the 15 percent rate would apply for annual incomes between 2.4 and 5 million roubles ($27,000-56,000), with three higher bands – of 18 percent, 20 percent and 22 percent – further up the income ladder. The top rate would apply to earnings exceeding 50 million roubles ($560,000).

Siluanov said the changes would affect 2 million people and there would be rebates for families of two or more children.

The corporate tax, meanwhile, will rise to 25 percent from 20 percent, adding 1.6 trillion roubles ($18b) to the budget in 2025 and 11.1 trillion roubles ($125.3bn) by 2030, according to Interfax.

The ministry said corporate tax rates could increase because the share of profitable companies in the economy was growing.

Soldiers fighting in Ukraine would be offered exceptions from the tax regime, the Finance Ministry said.

Russia ran a combined budget deficit of about 6.5 trillion rubles ($73b) in 2022 and 2023.

It has budgeted for a shortfall of 1.6 trillion rubles ($18b) this year, equivalent to about 0.9 percent of gross domestic product (GDP).