Putin's war will soon register on tax bills of Russians
President Vladimir Putin of Russia appears on track to institute a rare tax increase on corporations and high earners, a move that reflects both the burgeoning costs of his war in Ukraine and the firm control he has over the Russian elite as he embarks on a fifth term in office.
Financial technocrats in Putin's government are searching for new ways to fund not just the war but also a broader confrontation with the West that is likely to remain costly for years. Russia is allocating nearly one-third of its overall 2024 budget to national defense spending this year, a huge increase, adding to a deficit that the Kremlin has taken pains to keep in check.
The proposed tax increase underscores Putin's rising confidence about his political control over the Russian elite and his country's economic resilience at home, showing that he is willing to risk alienating parts of society to fund the war. It would represent 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, a strategic analysis firm. “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.”
Military spending and high oil prices have buoyed the Russian economy and driven up wages, despite causing higher inflation and shortages in the labor market; that is probably leading financial officials to see the current moment as a good time to push through tax increases.
Those responsible for paying Russia's bills cannot predict how much Putin's future geopolitical moves will cost or whether Western
sanctions will further limit income.
“From Moscow's point of view, they are looking in pretty good shape, and now is a good time to do these things,” Connolly said. “Even the people who it will fall on have had a good couple of years and look like they are going to have a good year ahead.”
Few details are known about the planned increase. In a speech Wednesday, Putin said his government was assessing various proposals. He said the new tax arrangements would remain fixed for a long period to ensure stability.
“Modernization of the fiscal system should ensure a more equitable distribution of the tax burden, while stimulating businesses that develop and invest, including in infrastructure, social and training projects,” Putin said.
Most Russians pay income tax at a flat rate of 13%, significantly lower than what taxpayers in the United States and Western Europe typically pay. In an interview in March, Putin said he planned to introduce a new progressive tax scale in part to alleviate poverty — a popular message among many Russians who support increasing taxes on the country's rich, which have historically been low.