President Vladimir V. Putin of Russia is set to implement a rare tax increase on corporations and high earners. This move is a response to the growing costs of the war in Ukraine and showcases his firm control over the Russian elite as he begins his fifth term in office.
Financial experts in Mr. Putin’s government are exploring new ways to finance not only the expensive war in Ukraine but also a broader conflict with the West that is expected to be costly for years to come. Russia is allocating a significant portion of its 2024 budget to national defense spending, resulting in a substantial increase in the deficit.
The proposed tax hike highlights Mr. Putin’s growing confidence in his political influence over the Russian elite and his country’s economic strength at home. This demonstrates his willingness to risk alienating certain segments of society to fund the war, marking the first major tax overhaul in over a decade.
“I think that this is a real sign of how comfortable he is,” said Richard Connolly, an expert on the Russian economy at Oxford Analytica. “The fact that they are doing it – they are looking to repair the house whilst the weather is good, or at least reinforce the walls from a fiscal point of view.”
The increase in military spending and high oil prices has bolstered the Russian economy and raised wages, despite causing inflation and labor market shortages. This likely prompts financial officials to view the current moment as opportune for implementing tax hikes.
The new tax policies show how Russian society, from business leaders to mobilized soldiers, is being drawn into the war effort, which has become the central focus of public life in Russia.
Mr. Putin has indicated that the tax overhaul will include special incentives for certain groups, such as those directly involved in the war effort or families with multiple children. The government is also considering raising the tax on corporate profits to increase revenue from sources other than the oil and gas sector.
Despite potential backlash from high earners, many Russians would not see a significant increase in income taxes under the proposed changes. Moscow’s defense spending has surged due to the war, prompting financial officials to raise funds for future military expenditures.
In recent years, Russian finance officials have implemented various measures to raise funds for the war, including changes to taxation on oil companies and the introduction of a “windfall” tax on excess profits.
“You increase the corporation tax now, then say you will try your best to refuse windfall taxes, but then if the war carries on, these things are likely to continue,” said Mr. Connolly. Higher Russian defense expenditures are expected to persist for a considerable time.
Ms. Prokopenko, a former official at the Russian central bank, stated that the Russian authorities would now target all corporate profits after initially relying more on oil-and-gas-related revenue to fund the war.
“They need to do what’s called income mobilization,” she said. “And increasing taxation is part of this.”
Oleg Matsnev and Alina Lobzina contributed reporting from Berlin.
