Economic pressures in Russia have intensified as President Vladimir Putin announced a “significant increase” in tax collection measures to support the country’s wartime economy. Following a meeting with the Council for Strategic Development and National Projects in early December, the Kremlin revealed that part of this tax overhaul would involve raising the Value Added Tax (VAT) from 20% to 22%, effective from January 1, 2025. This adjustment is projected to generate approximately 1 trillion rubles (around £9.1 billion) in additional tax revenue.
The increase in VAT primarily aims to fund heightened military expenditures and address growing budget deficits. Notably, a reduced rate of 10% will remain in place for essential items such as food and medicine. This latest tax initiative is part of a broader strategy to adapt Russia’s fiscal policies in response to ongoing military efforts.
Tax Changes and Economic Challenges
In addition to the VAT hike, the government has lowered revenue thresholds for simplified tax regimes, effectively shifting more financial responsibility onto consumers and businesses. This move, detailed by Bloomberg, aims to manage the costs associated with war-related expenditures.
Moreover, Russia is preparing to introduce a new tax on electronics starting in September 2025. Initially focused on imported finished goods, such as smartphones and laptops, this tax is expected to bolster domestic electronics manufacturing and enhance technological independence.
These tax adjustments come at a time when Russia’s economic growth has slowed dramatically. In the third quarter of 2025, the nation’s GDP grew by just 0.6%, a significant decline from 1.4% at the beginning of the same year. By November 2025, the year-over-year growth rate plummeted to 0.1%. Industrial output has also dipped by 0.7%, suggesting that the initial boost in military manufacturing is insufficient to counteract broader economic pressures.
Energy exports, which have historically been a key revenue source for the Russian economy, are now under severe strain. In 2025, oil prices fell by approximately 20% due to increased global supply and a downturn in demand. Inflation remains a persistent issue, with rates reaching 9.5% in 2024. The government is striving to reduce this figure to a target of 4–5% by the end of 2026.
According to Business Insider, a growing number of Russians now anticipate that the ongoing war will conclude in 2026, largely influenced by the evident economic slowdown and the toll on household finances. Additionally, the United States’ efforts to rejuvenate oil production in Venezuela pose a further threat to Russian oil’s desirability, potentially leading to an oversaturated market that could drive down prices even more.
As Russia navigates these turbulent economic waters, the government’s new tax initiatives reflect a desperate attempt to stabilize its finances while continuing to support military operations. The outcomes of these measures will be critical in shaping the future of the Russian economy amidst ongoing global challenges.
