As Russia’s budget deficit continues to swell under the weight of unprecedented military expenditures, the government is once again considering higher taxes. According to The Bell, the most likely scenario is raising the value-added tax (VAT) from 20% to 22%, with certain exemptions for socially significant goods, DKNews.kz reports.
While no final decision has been made, insiders note that there is little room for alternatives. Options such as additional borrowing or printing money risk destabilizing the financial system. As a result, the Kremlin is effectively shifting the cost of war onto businesses and consumers.
How the tax increase might look
“Taxes will definitely go up,” one source close to the government told The Bell, adding that discussions are now in their final stage: the draft budget for the coming year is traditionally submitted to the State Duma by the end of September.
The VAT hike was discussed during a September 10 meeting chaired by Prime Minister Mikhail Mishustin. Several officials confirmed to The Bell that the increase in the base rate is on the table, while some exemptions may remain for socially essential products. One participant said the figure under consideration is 22%.
VAT is one of the federal budget’s main pillars: in 2024, together with mineral extraction tax, it accounted for roughly 70% of total revenues. Economist Oleg Buklemishev highlights that VAT is “technologically efficient,” collected automatically, and less visible to consumers as it is passed on through higher prices. For these reasons, it has become the government’s preferred “tax cushion.”
Why now
The Bell’s sources say other options were also discussed: raising corporate profit tax or personal income tax (PIT). But both were already increased in 2024 — corporate tax from 20% to 25% and the top PIT rate to 22%. That leaves VAT as the most “logical” lever.
The last VAT hike came in 2019, when it rose from 18% to 20%. At the time, the Central Bank estimated it added about 0.6 percentage points to inflation. A similar effect is likely now: businesses will pass on the extra burden to consumers, fueling inflation despite high interest rates.
Experts estimate that raising VAT to 22% would bring the budget an additional 1 trillion rubles annually (about 0.5% of GDP). But for the economy, this means extracting resources from households and companies to finance the state’s military commitments.
An economy hitting the brakes
After two years of growth fueled by defense contracts, Russia’s economy slowed sharply this summer. According to the Ministry of Economic Development, GDP grew by just 0.4% in July, down from over 1% in the spring.
Meanwhile, the budget is under extreme strain. From January to August 2025, the deficit reached 4.2 trillion rubles (1.9% of GDP), exceeding planned levels. To cover the gap, the government has been drawing down the National Wealth Fund (NWF) at a rapid pace: its liquid assets have more than halved since February 2022. As of September 1, just $48.9 billion remained, compared to $112.7 billion before the war.
Turning to debt markets is also problematic: although government debt is still low at 14.5% of GDP, interest rates remain high, and servicing costs already account for 8% of GDP.
A strategic shift
Economists describe this as a transformation of Russia’s economic model. “Taxes are better than printing money. Inflation is also a tax, but it hurts the poor the most,” The Bell quoted one insider as saying.
In essence, Russia is shifting from a model of “balancing” to one of war financing. The government is patching budget holes not through spending reform or structural changes, but by leaning more heavily on taxpayers.
For households, this means higher prices, lower consumption, and a slowdown in growth. For businesses, it means weaker domestic demand and pressure to pass the tax burden onto consumers.
Kazakhstan’s contrasting path
For readers in Kazakhstan, the contrast is striking. Today, VAT in Kazakhstan stands at 12% — one of the lowest rates in the region.
Yes, the country will also raise VAT — from 12% to 16% starting in 2026. But the rationale is fundamentally different from Russia’s.
In Astana, the increase is explained by the need to harmonize the tax system with partners in the Eurasian Economic Union (EAEU) and to broaden fiscal capacity through diversified revenue sources. At the same time, the government is rolling out tax digitalization, strengthening support for businesses, and working to maintain a balance between state and enterprise interests.
In Russia, by contrast, the VAT hike is a forced response to ballooning military spending and a chronic budget deficit. Tax policy is increasingly subordinated to the logic of war financing.
Kazakhstan also faces challenges — from falling oil revenues to financing infrastructure and social projects. But its approach differs: the focus remains on long-term sustainability and predictability, not emergency revenue mobilization.
What it means for business
In Russia, the VAT hike is more than a technical adjustment. It is a signal that the state is ready to shift the costs of war onto society, reshaping the very rules of the economic game.
For companies, this means higher costs, weaker consumer demand, and greater uncertainty in planning. For households, it means higher prices and declining purchasing power.
For Kazakhstan, it is a reminder that tax stability and predictable policy are among the country’s strongest competitive advantages in the region.
