{"id":382534,"date":"2025-11-16T07:54:10","date_gmt":"2025-11-16T07:54:10","guid":{"rendered":"https:\/\/www.europesays.com\/us\/382534\/"},"modified":"2025-11-16T07:54:10","modified_gmt":"2025-11-16T07:54:10","slug":"a-slowing-wartime-economy-pushes-the-kremlin-to-tap-consumers-for-revenue","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/382534\/","title":{"rendered":"A slowing wartime economy pushes the Kremlin to tap consumers for revenue"},"content":{"rendered":"

After two years of robust growth fueled by military spending on the war in Ukraine,<\/a> Russia\u2019s economy is slowing. Oil revenues are down<\/a>, the budget deficit is up and defense spending has leveled off. <\/p>\n

The Kremlin needs money to keep its finances steady \u2014 and it\u2019s clear where President Vladimir Putin intends to get it: at the cash register, from ordinary people and small businesses.<\/p>\n

An increase in value-added tax to 22% from 20% is expected to add as much as 1 trillion rubles, or about $12.3 billion, to the state budget. The increase is contained in legislation already making its way through Russia\u2019s compliant parliament and would take effect from Jan. 1.<\/p>\n

More tax and fee increases are on the way<\/p>\n

On top of the rate increase, the legislation lowers the threshold for requiring businesses to collect VAT to a mere 10 million rubles (about $123,000) in annual sales revenue, in stages by 2028. That\u2019s down from 60 million rubles, or $739,000. That change is aimed in part at tax avoidance schemes in which companies split their operations to skirt the threshold. <\/p>\n

But it also will hit previously exempt businesses like corner convenience stores and beauty salons.<\/p>\n

The government also has proposed increasing taxes on spirits, wine, beer, cigarettes and vapes. For instance, the tax on stronger spirits such as vodka would go up by 84 rubles per liter of pure alcohol, which works out to 17 rubles or about 20 U.S. cents for a half-liter bottle, or about 5% of the minimum price of 349 rubles ($4.31). Fees for renewing driver\u2019s licenses or getting an international license also are going up, and a key tax break on imported cars is being axed. The government is weighing a tech tax on digital equipment including smartphones and notebooks of up to 5,000 rubles ($61.50) for the highest priced items, the Kommersant news site reported.<\/p>\n

The economic slowdown and tax increases are signs that Putin and ordinary Russians will face harder choices<\/a> in the months ahead between guns and butter \u2014 that is, between military spending and consumer welfare after 3 1\/2 years of war against Ukraine.<\/p>\n

Tax increases bring dismay and shrugs<\/p>\n

Muscovites interviewed on a main street in the Russian capital by The Associated Press expressed dismay mingled with resignation, saying the higher food prices would be widely felt, especially in poorer regions and among those with low incomes.<\/p>\n

Pensioner Svetlana Martynova said making small businesses collect VAT would backfire.<\/p>\n

\u201cI think that small and medium businesses will fold,\u201d she said. \u201cThe budget will get less, not more.\u201d<\/p>\n

On top of VAT, registering a car will cost more<\/p>\n

The VAT increase comes on top of changes in the recycling fee paid for registering cars, a step that mostly hits high-priced imports. From Dec. 1 individuals can no longer get a concessionary rate of 3,400 rubles ($42) on cars with more than 160 horsepower, but must pay the commercial rate, which can be hundreds of thousands of rubles, or thousands of dollars, per car.<\/p>\n

The step, however, was unlikely to boost investment in domestic manufacturing, given high central bank interest rates and the smaller size of the Russian market compared with neighboring China, now the source of most imported cars. That\u2019s according to Andrei Olkhovsky, general director of Avtodom, a major auto dealer group. <\/p>\n

As for customers, sales \u201cwill decline in the short term, but will recover to current levels within six months,\u201d he said in an answer to emailed questions.<\/p>\n

\u201cIncreased taxes and fees will influence prices for the end consumer,\u201d he said. \u201cConsumers in turn will factor this into their lifestyle and demand higher wages from their employers. This will increase the cost of everything around us.\u201d<\/p>\n

Slower economic growth pushes up the budget deficit<\/p>\n

Russia\u2019s economy shrank at the start of 2025 and is on course for growth this year of only around 1%, according to government estimates, after growing more than 4% in 2023 and 2024. Growth has suffered from high central bank interest rates, currently at 16.5%, aimed at controlling inflation of 8% fueled by massive military spending. Oil revenues are down about 20% this year mainly due to lower global prices, according to the Kyiv School of Economics Institute. Western sanctions imposed over the war against Ukraine have been an ongoing drag on growth by increasing costs and deterring investment that could expand the economy\u2019s productive capacity.<\/p>\n

As a result, this year\u2019s budget deficit has been revised upward from 0.5% to 2.6%, up from 1.7% last year. That doesn\u2019t seem huge in comparison with other countries \u2014 but unlike them, Russia can\u2019t borrow on international bond markets and must rely on domestic banks for credit.<\/p>\n

Finance Minister Anton Siluanov said raising revenue was preferable to increasing borrowing, saying excessive borrowing \u201cwould lead to a speeding up of inflation, and as a result, to an increase in the key rate\u201d from the central bank that would hurt investment and growth.<\/p>\n

The VAT increase could boost inflation at first as merchants change their price lists. But over the longer term, it could lower price pressures by dampening demand for goods \u2014 and help the central bank in its battle to keep inflation in check.<\/p>\n

The Kremlin won\u2019t run out of money but faces hard choices<\/p>\n

The tax and fee increases are a step back from Russia\u2019s wartime economy of the two previous years that put more money in people\u2019s pockets. Then-higher prices for oil exports filled state coffers, while vast increases in military spending boosted hiring, and paychecks for factory workers kept pace with inflation. Along with that, military recruitment and death bonuses pumped cash into poorer regions.<\/p>\n

Putin won\u2019t run out of money in the short term, said Alexandra Prokopenko, fellow at the Carnegie Russia Eurasia Center in Berlin. <\/p>\n

\u201cGrowth is slowing down, but corporates are paying taxes, people are consuming and getting salaries, and paying taxes from this,\u201d she said. \u201cFor the coming 12 or 14 months, Putin has enough money to maintain the current war effort and the current level of expenditures.\u201d<\/p>\n

After that, she said, \u201che will need to make tough choices, trade-offs between maintaining military effort or, for example, maintaining consumer abundance so people won\u2019t feel 100% that the war is going on.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"After two years of robust growth fueled by military spending on the war in Ukraine, Russia\u2019s economy is…\n","protected":false},"author":3,"featured_media":382535,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[182982,102348,64,12042,79,60,57,266,50,257,3658,3657,182981,618,273,237,274,103,107],"class_list":{"0":"post-382534","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-world","8":"tag-andrei-olkhovsky","9":"tag-anton-siluanov","10":"tag-business","11":"tag-economic-policy","12":"tag-economy","13":"tag-financial-services","14":"tag-general-news","15":"tag-inflation","16":"tag-news","17":"tag-russia","18":"tag-russia-government","19":"tag-russia-ukraine-war","20":"tag-svetlana-martynova","21":"tag-taxes","22":"tag-ukraine","23":"tag-vaping","24":"tag-vladimir-putin","25":"tag-world","26":"tag-world-news"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/115558303094461373","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/382534","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=382534"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/382534\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/382535"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=382534"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=382534"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=382534"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}