In recent years, the Russian government has faced increasing financial challenges due to the conflict in Ukraine. As a result, state finances are under strain and the government is seeking ways to address the budget deficit. One of the options being considered is raising taxes, but businesses are calling for more predictable fiscal policies.
According to a document seen by Reuters in August, Russia has doubled its 2023 defense spending target to over $100 billion, which accounts for a third of all public spending. In addition to this increase, the Russian government has already raised taxes on various sectors. For instance, they introduced a one-off windfall tax on big business aimed at raising 300 billion roubles ($3.34 billion) to help finance the budget deficit. The government also hiked mineral extraction taxes on the energy sector and imposed export duties linked to the rouble-dollar exchange rate from October 1st.
Businesses are aware that tax increases will continue but are calling for clearer and more systematic investment tax deductions in order to better understand how their tax situation will change when certain conditions vary. Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs (RUIE), stated at a financial conference that “We are ready to discuss with the government the issue of increasing income tax, provided that there are intelligible, clear and fairly systematic investment tax deductions.”
Last week, Russian businessmen meeting with President Vladimir Putin proposed that any increase in income tax be accompanied by greater long-term predictability in fiscal policy. A source familiar with these discussions told Reuters that “Business understands that exactions will continue; this is an attempt to conclude a gentleman’s agreement – we pay more but there are no unexpected changes in the near future.”
In summary, while businesses understand that tax increases will be necessary for Russia’s fiscal stability, they want more predictable policies so they can plan accordingly and invest with confidence in their country’s future growth.