Russia will soon implement its new tax reform, a move that is unprecedented in 25 years, driven primarily by the financial strain of its ongoing war in Ukraine. The proposed changes, including a progressive income tax system and increasing corporate tax rates, aim to bolster the state’s coffers amidst rising defence expenditures and sanctions. Interestingly, Russian President Vladimir Putin initially put forward all these proposals during his campaign for re-election in March.
Under the new regime, Putin has steered away from his previous flat tax policies, opting for a progressive income tax system. In 2001, Putin simplified Russia’s complex tax regime by introducing a flat tax rate of 13 per cent, bolstering revenues and his popularity. However, the financial demands of the war in Ukraine have prompted a reassessment.
The proposed changes maintain the current tax rate of 13 per cent for those earning less than five million rubles ($55,850) annually. However, higher earners will face increased rates:
Annual incomes from 2.4 million to five million rubles ($27,000-$56,000) will be taxed at 15 per cent.
Incomes between five and 20 million rubles ($55,850-$223,400) will be taxed at 18 per cent.
Incomes between 20 and 50 million rubles ($223,400-$560,000) will be taxed at 20 per cent.
Incomes exceeding 50 million rubles ($560,000) will be taxed at 22 per cent.
Putin brought in flat tax system in 2001
The new tax regime is anticipated to generate an additional 2.6 trillion rubles ($29 billion) in budget revenues annually. Finance Minister Anton Siluanov stated, “The changes are aimed at constructing a fair and balanced tax system. The additional funds will bolster Russia’s economic well-being.” It’s noteworthy that in 2001, Putin himself simplified Russia’s complex taxation system by implementing a flat tax system.