Jan 2026 Russia 2% VAT hike to 22% as military spending drains budget
Russia’s Duma Parliament approved on 20 November a 2% VAT rise to 22% from 1 January 2026. The VAT registration threshold will also be cut from Rub 60 million to Rub 10 million by 2028.
The government is facing a widening budget deficit driven by record military spending since the invasion of Ukraine. Parliament (Duma) will now review the proposal, and is likely to approve.
The country’s 2025 deficit target has already tripled to 1.7% of GDP, and is still expected to exceed this by year end.
Prolonged Ukraine conflict pushes impetus for tax rises
The push for a VAT rise stems from mounting fiscal stress. Even with defense spending projected to remain extremely high, officials admit the current budget cannot be balanced without fresh revenues. One government source recently told Reuters that without a tax hike, “we simply won’t be able to make ends meet.”
A two-point VAT increase could generate around 0.5% of GDP in additional revenue, or roughly 1 trillion rubles annually, even before exemptions. That would offer short-term relief to the budget but risk fueling consumer price increases. Economists warn that carve-outs for “socially important goods” are likely to be politically motivated rather than economically meaningful, doing little to shield households from higher prices.
2019 VAT 2% rise to 20%
In 2019, the government raised VAT from 18% to 20%, also justifying the move as necessary to strengthen state finances. That increase initially sparked higher inflation and public discontent, but revenues grew steadily, reinforcing VAT’s role as a dependable fiscal tool. The current proposal follows the same logic — prioritizing predictable income streams over potential economic drag.
