Russia plans tax hike to finance war on Ukraine

Russia plans to raise value-added tax (VAT) to help finance its war on Ukraine, the Finance Ministry said on Wednesday.

Under the draft 2026 budget proposal, the VAT rate would increase to 22 per cent from the current 20 per cent.

The government said it would continue to meet all social policy commitments, but listed defence, security and support for soldiers and their families as “strategic priorities.”

Military and security spending already accounts for about 40 per cent of total government expenditure in the 2025 budget, according to government estimates.

Large state orders for the defence industry and hefty payments to soldiers and their families have fuelled a period of growth for Russia’s war economy.

But signs of strain are emerging in civilian sectors, and inflation is squeezing household budgets.

The Finance Ministry said a lower 10 per cent VAT rate on food, medicines and children’s goods would remain unchanged.

Russia, under the orders of President Vladimir Putin, has been waging a full-scale war on neighbouring Ukraine for more than three and a half years, with no end to the conflict in sight.

The budget proposal still requires approval by parliament, a step widely seen as a formality in Russia.