Russia Plans Significant Tax Hike as Costs of War in Ukraine Mount

The war in Ukraine has created immense problems for Russia

by Sead Dedovic
Russia Plans Significant Tax Hike as Costs of War in Ukraine Mount
© Getty Images

Since the situation in Russia isn't ideal, new moves by the country's authorities are speaking volumes. Namely, Russian authorities are contemplating a tax system overhaul. The current flat tax rate of 13 percent is set to be replaced by a progressive rate, meaning significantly higher taxes for the wealthy and corporations. 

Russia is a country with an intriguing political system, but the tax rate has remained unchanged since 2001 when a 13 percent tax rate was implemented. 

The war in Ukraine has created immense problems for Russia, which must balance on multiple fronts. The leader of this country, Vladimir Putin, is aware that his country is in a tough spot, especially due to the long-standing sanctions. The country's budget isn't ideal, provoking consideration of tax increases in the upcoming period. 

Three years ago, Russians made an interesting change by raising the tax rate to 15 percent for individuals earning over five million rubles (approximately $55,000). According to the proposed changes, the threshold for the 15 percent rate would decrease to 2.4 million rubles, up to five million. 

From five million to 20 million rubles, the rate would be 18 percent. Individuals earning between 20 to 50 million rubles would pay a 20% tax rate, while those earning over 50 million would pay 22%, and corporations would pay 25% tax. 

Russians clearly intend to make some changes, aware that it's challenging to operate in such circumstances. Citizen dissatisfaction is palpable, and the state certainly doesn't need dissatisfied citizens. However, it seems that the situation on the front lines and the sanctions are causing certain calculations.

Russian President Vladimir Putin has had several interesting reactions to the sanctions imposed by the West. The Russian leader emphasized last year that such sanctions could have consequences for the Russian economy. Although Putin is known for his optimistic statements, often striving not to show weaknesses, the Russian leader surprised many. 

“The illegitimate restrictions imposed on the Russian economy may indeed have a negative impact on it in the medium term,” Putin said.

Vladimir Putin
Vladimir Putin© WSJ News / Youtube channel

It was probably a warning to Russian citizens that they could expect certain problems in the upcoming period. However, the Russian leader is pleased with the relations with some of the countries that have been on Russia's side since the beginning of the war, such as China and some African countries. 

The Russian president has expressed his intention to develop the Russian economy, although it will be a challenging task at times when Russians have to spend a huge amount of money on the war in Ukraine, as well as due to the long-standing sanctions. 

The initial sanctions didn't cause the best results, so major world powers decided to subsequently impose new packages of sanctions on Russia with the aim of weakening them. It seems that the citizens of this country will increasingly feel the consequences of the war in Ukraine.

Vladimir Putin's statements; We must be prepared for the fact that Western sanctions pressure will intensify

In November of last year, during one of the government meetings concerning economic issues, Vladimir Putin highlighted that his country must be prepared for the possibility that the West will intensify sanctions over time, which could be concerning for Putin and those close to him. The Russian president has economic experts by his side, and in discussions with them, he has drawn interesting conclusions. Vladimir Putin believes that the West wants to punish Russia, but by taking such actions, they are essentially punishing themselves.

“We must be prepared for the fact that Western sanctions pressure will intensify. They tried to punish us, but in the end, as we see they hit their own economy,” he said.

Putin also remarked that Western politicians' proposals to ban the export of small items like screwdrivers and needles to Russia are reaching levels of absurdity. He humorously suggested that having fewer of these items exported could potentially decrease the likelihood of pests, like bed bugs, being transferred from large European cities to Russia.

It will be interesting to see the direction in which the Russian economy will move. The world hopes that the sanctions imposed on Russia will yield results beneficial to all. The greatest fear is that Russia will not be deterred in the future and will increasingly aggress Ukraine. This is the last thing Europe and the world want.

Vladimir Putin remains silent, showing no intention of providing concrete statements. It's evident that there is a sense of fear within him due to all the events, but the Russian president is experienced and seeks to find solutions.

Having dissatisfied citizens facing an economic crisis is the last thing any leader of a country wants to see. Some believe that Russia is facing significant challenges, but let's wait and see.

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