Eastern Europe

Russia Raises Taxes

Emblem of the Federal Tax Service
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Russia has long bragged about having a flat tax of 13%, a fever dream for Western followers of Austrian economics.

That now seems to be changing for the worse, to allow the Kremlin to allocate more to public spending.

The flat tax will go away, and replaced by a progressive system. The changes should be implemented early next year.

  • Russia’s flat income tax rate of 13% (the only exception, introduced in 2020, was a 15% rate on salaries over 5 million rubles ($55,300) a year) will be replaced by a progressive system. For salaries up to 2.4 million rubles, income tax will remain at 13%. All earnings above that threshold will be taxed at incrementally higher rates, ranging from 15% to 22%.
  • Income from dividends, deposits, or transactions involving securities and real estate will not be affected by the new rules (the maximum tax on them remains at 15%).
  • Corporate income tax will increase from 20% to 25%. From a revenue point of view, this is the most important change (it is predicted to generate 1.6 trillion rubles next year).
  • Small and medium-sized businesses will be able to access tax breaks, but will also have to pay VAT on revenues over 60 million rubles ($670,000)

(Source: Russian independent news outlet The Bell)

Increasing corporate income tax will reduce company profits by an average of 6.3%. Although tax breaks are available when money is spent on scientific research and Russian technologies, these – by definition – apply to only a small number of companies. The trade and service sector – the bulk of medium-sized business in Russia – is unlikely to benefit, writes The Bell.

The move looks to allocate tax revenue towards war-fighting industries, instead of a consumer economy.

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