Moscow is turning to higher taxes on ordinary Russians and large companies to finance its war in Ukraine, as the federal budget deficit widened to 5.8479 trillion roubles (€60.4 billion) in the first half of the year. Official figures show the shortfall reached 2.8% of annual GDP by the end of July—almost double the level originally planned for the whole year.
The reserve fund has shrunk to just 1.6% of GDP, pushing the Kremlin to borrow from domestic banks. Economic growth has also cooled from the peak of over 4% year-on-year seen in 2023–2024. Government forecasts now put expansion at just 0.6% this year, with the economy contracting in the first quarter and only a modest rebound in the second.
Analysts attribute the deficit to a sharp rise in state spending, including massive outlays on the military and advance financing of state contracts, alongside weaker revenues under sanctions pressure and volatile commodity markets. More frequent and intensified long-range strikes by Ukrainian forces on strategically important targets—above all oil refineries and depots—as well as growing spending to counter these attacks, are further deepening the hole.
New taxes on passive income and online shopping
The finance ministry has submitted a draft law to the Russian government for a new three-year budget with an annual deficit of around 2% of GDP, along with a bill amending the Tax Code to “increase the resilience of the budget system.” The proposal states that “the strategic priority of the budget is the financial provision of defence and national security needs, and social support for participants in the special military operation (Russia's official term for the war against Ukraine) and their families.”
Under the plan, Russians' so-called “passive” income—interest on deposits, dividend income, securities transactions, property sales, and insurance or gift contracts—would be taxed at rates of 13% to 22%, up from the current 13% to 15%. Economist Dmitry Polevoy, quoted by the outlet Meduza, estimates this could bring an additional 500–700 billion roubles a year.
The ministry also proposes introducing value added tax (VAT) on purchases from foreign online shops, applied immediately at the maximum rate of 22%, despite earlier talk of a phased increase. A fee of 100 roubles (about €1) would be levied on parcels from abroad worth up to €200, which are currently exempt from customs duty. In parallel, Russian media report that the Federation Council has proposed higher taxes for the self-employed. Andrei Yepishin, deputy chair of the committee on the budget and financial markets, said couriers and drivers who in practice work full time should pay tax at a rate starting from 13% instead of the 4%–6% self-employment tax.
According to the ministry's estimates, the changes will affect about 4 million Russians, roughly 2.74% of the population. However, the finance ministry stressed that the amendments should not affect the income of participants in the war.
For large businesses, a windfall tax is being introduced: for certain companies in the mining and metals sector, the tax will be 30% of additional income, and for gold producers, 20%. The ministry openly states that “the resources envisaged will ensure that the armed forces are supplied with the necessary weapons and military equipment, the modernisation of defence-industry enterprises, the payment of monetary allowances to servicemen and support for their families.” Priority funding will continue under the national projects “Machine tools” and “Unmanned aerial systems,” with their three-year funding rising to 135.7 billion roubles (€1.4 billion) and 103.3 billion roubles (€1.06 billion) respectively.
Kremlin's forgotten promise
The tax hikes come despite repeated assurances from the Kremlin that no increases were planned. Presidential press secretary Dmitry Peskov said 10 days before the State Duma elections, according to Interfax, “This is not under discussion.” Earlier this year, Finance Minister Anton Siluanov insisted that tax increases for Russian citizens were not being considered, calling such reports “fake leaks.”
The proposed amendments show the Kremlin is seeking additional revenue at home to sustain the war machine. The measures shift the rising cost of the conflict not only onto businesses but also onto ordinary Russians, even as low unemployment and generous state payments in poorer regions help contain consumer discontent for now. Economists warn that long-term problems are eroding the foundations of the economy and could eventually trigger a crisis.
For Europe, the implications are significant. A financially strained Russia may become more unpredictable, and its reliance on domestic borrowing could have knock-on effects on global markets. As NATO allies continue to support Ukraine, the Kremlin's fiscal choices will be watched closely. The EU's recent military aid package underscores the bloc's commitment, while Russia's Mediterranean ghost fleet remains a concern for European security. The tax hikes are a stark reminder that the war's economic burden is being borne by Russian citizens, even as the Kremlin tries to project stability.
