The Finance Ministry in Russia has unveiled plans to raise the country’s value-added tax, VAT, as part of a broader strategy to finance its ongoing war in Ukraine.
The announcement, made on Wednesday, outlines that VAT will rise from the current 20 percent to 22 percent under the draft 2026 budget proposal.
Officials explained that the measure is designed to sustain Moscow’s war economy while maintaining social stability. Defence, security, and welfare packages for soldiers and their families were described as “strategic priorities” in the new budget framework.
The ministry stressed that all social policy commitments, including pensions and welfare programmes, would still be honoured.
The conflict, now stretching into its fourth year, has reshaped Russia’s economic landscape. Military and security spending already consumes about 40 percent of the total government budget for 2025, according to official figures.
This heavy allocation has spurred growth in the defence sector, with large state orders for weapons production and consistent financial support for troops’ families.
At the same time, ordinary Russians are beginning to feel the strain. Inflation, driven by sanctions, supply chain pressures, and redirected resources, is eroding household incomes.
Civilian industries outside the defence sector are showing signs of stagnation, raising concerns about long-term sustainability.
The Finance Ministry attempted to soften the blow by clarifying that the lower 10 percent VAT bracket—applied to essentials such as food, medicines, and children’s goods—will remain unchanged.
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This exemption is intended to shield vulnerable households from the full effects of the tax hike, though analysts warn that rising inflation could still offset these protections.
Russia’s economic choices are closely tied to the war effort, which began in February 2022 when President Vladimir Putin ordered a full-scale invasion of neighbouring Ukraine.
After more than three and a half years of fighting, the conflict shows no signs of ending, and Moscow continues to reallocate resources towards sustaining its military campaigns and the domestic structures that support them.
The Finance Ministry’s budget proposal now moves to the Russian parliament for approval. In a political environment where dissent is tightly controlled, analysts consider parliamentary endorsement a formality. Once passed, the higher VAT is expected to come into force at the start of the 2026 fiscal year.
Critics argue that the tax increase could deepen inequality, as wealthier Russians are better able to absorb the rising costs of goods and services, while lower-income households will face tighter budgets.
Proponents, however, contend that the increase is necessary to guarantee consistent funding for soldiers on the frontlines and their families back home.
Economists also highlight that while the defence sector has enjoyed robust growth due to war-related demand, Russia’s broader economic health remains precarious.
Prolonged military expenditure and restricted access to international markets risk undermining consumer confidence and long-term development.
For now, Moscow appears determined to prioritise its military campaign over civilian economic recovery, signalling that the Ukraine war will continue to define Russia’s fiscal policy for years to come.
NAN
