Russia's Central Bank warns people of faster price rises due to new taxes

Forecasts indicate that the tax increases planned by the Russian government for 2026 to fund its war against Ukraine will accelerate inflation.

Source: The Moscow Times, an independent Amsterdam-based news outlet

Details: Aleksei Zabotkin, Deputy Governor of the Russian Central Bank, said that increasing value-added tax (VAT) to 22% in 2026 is expected to add 0.6-0.7 percentage points to the consumer price index. VAT is Russia's main turnover tax and is included in the price of almost all goods and services.

"This is my personal expectation at the moment. We will adjust as the data comes in," Zabotkin said. He added that final prices would depend on how far businesses decide to pass on higher tax costs to consumers.

Annual inflation in Russia slowed to 8% in late September after a two-year record high of 10.3% in March, according to Russia's Federal State Statistics Service (Rosstat).

The rate of price growth will fall to 6.8% by the end of the year, Russia's Ministry of Economic Development predicts.

In addition to raising VAT, the authorities are preparing a radical tax reform for small businesses. The threshold for the simplified taxation system (STS), which allows businesses to operate without paying VAT, will be lowered from RUB 60 million (around US$729,000) in annual revenue to RUB 10 million (US$241,000).

There are also plans to abolish tax breaks for IT companies, which currently pay insurance contributions at a reduced rate of 7.6%.

This year, the Russian government has carried out the largest tax reform in a decade: income tax has been increased, a differentiated personal income tax scale has been introduced and customs duties and excise taxes, including on fuel, have been raised.

However, The Moscow Times reports that this will not suffice for the budget, which next year must spend 30% on the armed forces and nearly 40% on all law enforcement agencies in Russia. Oil and gas revenues have dropped by 20%, and the Ministry of Finance estimates the deficit will soar to RUB 5.7 trillion (US$69 billion), almost five times the planned RUB 1.2 trillion (US$24 billion).

Background: In Russia, GDP is projected to grow by just 1% in 2025 and 1.3% in 2026. This updated forecast from the Ministry of Economic Development of the Russian Federation underpins the preparation of next year's budget.