Russia plans to raise taxes on businesses and the wealthy, targeting a relatively small number of people in what could prove a popular move as the invasion of Ukraine continues to put pressure on government finances, according to Bloomberg, citing an Interfax report.
The Finance Ministry plan would introduce a more robust progressive income tax, while the levy on corporate profits would rise to 25% from the current 20%, according to a proposal filed to the government. From 2025, the level of personal income tax for the highest earners would increase to 22% from 15% currently. The entire package would raise an additional 2.6 trillion rubles ($29.2 billion) in 2025, with over a half of that coming from the higher corporate tax.
Levies on the extraction of iron ore, potash, and phosphate fertilizers would also rise. The mineral extraction tax on iron ore is to increase 15%, potash 130%, and phosphate fertilizers 100%, according to BBC Monitoring, which also reported that it is proposed that nitrogen fertilizer producers pay an excise tax on the purchase of natural gas for ammonia production at a rate of 1,200 rubles per thousand cubic meters.
“The plan looks like a certain compromise between the government’s intention to increase personal income tax revenues without affecting the interests of the vast majority of the population,” said Olga Belenkaya, an economist at Finam in Moscow.
The personal income tax would affect only about 2 million people, or 3.2% of the total workforce, Finance Minister Anton Siluanov said in a statement. Rates would range from the current 13% for those earning as much as 2.4 million rubles a year to 22% for those exceeding 50 million rubles.
Siluanov said the changes reflected a need “for social justice, including for progressive tax rates.” Yet the tax increases won’t affect dividend payouts or share sales, the major source of wealth for Russia’s richest, The Bell reported. At the same time, troops fighting in Ukraine will be eligible for additional tax benefits.
Meanwhile, the increase in corporate taxes will provide the government 1.6 trillion rubles of extra income, Interfax reported, citing the Finance Ministry.
Some businesses welcomed the move as more predictable than the one-off taxes the government has enacted in past years. “As an entrepreneur, I am in favor of increasing income taxes instead of fees and one-time payments,” Russia’s richest man, Vladimir Potanin, told Tass news service when asked about the government plan.
Russia has run a budget deficit since the end of 2022, a reflection of the steep costs of Putin’s invasion of Ukraine in February of that year.
The Finance Ministry said in a statement the proposals have been submitted to the cabinet and could win approval in the lower house of parliament before the summer recess.