Russia’s recently announced tax hikes will almost certainly be used to fund growing financial commitments, including the war in Ukraine. The tax changes are expected to raise additional revenues of approximately 2.6 trillion rubles ($29 billion) in 2025. The corporate tax rate will increase from 20 to 25 per cent, and additional tax brackets will be introduced under the new income tax system. The highest income tax rate will increase from 15 to 22 per cent, the UK Defense Intelligence reports.
The additional revenue raised, primarily through the corporate tax increase, will almost certainly be used to fund increasing government expenditures. Government spending in 2024 is forecast to increase by approximately 15 per cent from 2023 but will highly likely increase further. This increase in spending will almost certainly continue in 2025 as defense expenditure will highly likely increase, alongside social and infrastructure spending.
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The increased tax burden on businesses will almost certainly restrict future investment and growth of non-military sectors. Russia’s economic growth is highly likely being driven by high state investment into the military sectors of the economy. However, investment into non-military sectors is likely stagnating. Military sectors are also highly likely monopolizing much of the available labour resources. The added costs to businesses will almost certainly restrict further private investment into non-military sectors.
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