Increased Russian revenue from oil and gas, attributed to increased Value-Added Tax (VAT)
The Russian government is considering a potential increase in the value-added tax (Mehrwertsteuer) from 20 to 22 percent as a means to fill the budget gap for 2026. However, it's important to note that the specific details of the budget draft, including any potential tax changes, are being handled by the government.
President Putin has urged the government this month to focus on increasing productivity, rather than raising taxes. This comes as the decline in revenue is due to lower prices and a stronger ruble.
Moscow's largest source of revenue is affected by this projected decline, with oil and gas revenues making up to a quarter of the Russian budget. These revenues are the main source of funding for the ongoing war in Ukraine, now in its fourth year.
In the first nine months of the year, revenue is expected to drop by 20.5 percent to 6.62 trillion rubles. This would result in a revenue shortfall of approximately 23 percent compared to last year, totaling around 592 billion rubles (approximately six billion euros).
While the government is discussing an increase in value-added tax to fill the budget gap while maintaining reserves, it's not yet clear whether this is part of the 2026 budget draft. The Kremlin has not explicitly denied or confirmed the possibility of a value-added tax increase in the 2026 budget draft.
All questions about the budget draft process should be directed to the government, not the Kremlin. Kremlin spokesman Dmitry Peskov has stated that the budget draft is being prepared by the government.
It's worth noting that the government is preparing the budget for 2026 while funding the highest military spending since the Cold War.
The Russian government's discussions about the potential increase in value-added tax come as the country faces economic challenges, including a decline in revenue and the ongoing costs of military expenditure. The final decision on any tax changes will likely be made in the coming months as the budget for 2026 is finalised.
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