BERLIN – Russian President Vladimir Putin appears poised to introduce a rare tax hike on companies and higher-income earners, a move that reflects the emerging prices of his war in Ukraine and the business he exerts over the Russian elite as he embarks on a war against Ukraine. . fifth term.
The monetary technocrats in Putin’s government favor new tactics to fund not only the war, but also a broader confrontation with the West that will most likely remain costly for years to come. Russia is spending about a third of its overall budget for 2024 on national defense. spending this year, a massive build-up that comes in the wake of a deficit that the Kremlin has struggled to control.
The proposed tax hike underscores Putin’s growing confidence in his political elite over the Russian elite and in his country’s economic resilience, demonstrating that he is willing to threaten to alienate sections of society to fund the war. This would be the first primary tax reform in more than a century. decade.
“I think it’s a real sign of his comfort,” said Richard Connolly, an expert on the Russian economy at Oxford Analytica, a strategic research firm. “The fact that they’re doing this is that they’re looking to fix the space while the weather is good, or at least the walls from a fiscal standpoint. “
Military spending and high oil costs have boosted the Russian economy and raised wages, despite higher inflation and a shortage of hard work; This will most likely lead financial leaders to consider the current moment as the right time to impose tax increases.
Those guilty of paying Russia’s expenses are waiting to see how much Putin’s long-term geopolitical measures will charge or whether Western sanctions will further restrict revenues.
“From Moscow’s point of view, they seem pretty compatible and it’s a good time to do those things,” Connolly said. “Even those who will fall for this have had a few smart years and it looks like they’re going to do it. “”We have a smart year ahead of us. “
Few important points are known about the expected increase. In a speech on Wednesday, Putin said his government was comparing proposals. He said the new tax provisions would remain unchanged for a long period of time to ensure some stability.
“The modernization of the tax formula ensures a fairer distribution of the tax burden, while stimulating corporations to grow and invest, adding infrastructure, social and educational projects,” Putin said.
Most Russians pay income taxes at a flat rate of 13%, particularly lower than what taxpayers regularly pay in the United States and Western Europe. In an interview in March, Putin said he planned to introduce a new progressive tax scale, in part to reduce poverty, a message popular among many Russians who raise taxes on the country’s wealthy, which have traditionally been low.
A tax that largely protects low-income earners could also help ease discontent with the war among poorer Russians, who contribute much of the military’s tough workforce and bear the brunt of the losses. Putin said the tax reform would come with special incentive benefits for certain groups, which may include only Russians directly involved in the war effort or families with three or more children.
In internal discussions, Russian officials have considered raising the personal income tax for sources of income above 1 million rubles ($10,860) per year from 13 percent to 15 percent, and expanding the rate for sources of income above five percent. million rubles per year from 15% to 20%. According to a report by independent Russian investigative outlet Major Stories, citing anonymous government officials and published via Bloomberg News.
The change will most likely hit Moscow hard, as its citizens earn some of the highest salaries in the country. The average Russian salary last year was about 884,500 rubles, according to the national statistics company Rosstat. In Messus, it almost doubles, or about 1,636,800 rubles.
The government is also contemplating increasing the source of corporate income taxes from 20% to 25%, reported Important Stories. Changing corporate taxes is seen as one of the main tactics to increase the percentage of revenue coming from resources other than the oil and fuel sector.
About a third of Russia’s federal budget comes from oil and gas, and a major drop in costs in this sector could limit Moscow’s ability to finance the war, said Heli Simola, senior economist at the Bank of Finland.
“They don’t ask whether companies are satisfied or not,” Simola said. “They want money, they want it, and they want to show companies that they have to fund the war and a common cause. “
The planned new fiscal policies demonstrate how all of Russian society, from business leaders to mobilized soldiers, is being dragged into the war effort, which has become the defining precept of Russian public life. However, aside from being the main source of income, many Russians would not pay much more in taxes on the source of income under the proposals being discussed, which would restrict a potential political backlash against Putin.
Moscow’s defense spending has skyrocketed because of the war. Compared to the year before the full-scale invasion of Ukraine, government spending on national defense has more than tripled. Russian monetary technocrats are taking advantage of the existing economic scenario to increase the budget in the long run. war spending.
“No one knows Putin’s projections” of the war, said Alexandra Prokopenko, a senior fellow at the Carnegie Russia Eurasia Center. “There are rumors and anticipations about an upcoming Russian escalation. They don’t have a crystal ball, so they need to have that cash now. “
For much of the 1990s, Russia operated under a complex tax code with limited enforcement, allowing many Russians to pay taxes.
But in the years since Putin came to power just a quarter of a century ago, the country has undergone a fiscal revolution. The advent of a flat 13 per cent tax on private sources of revenue has encouraged compliance, particularly by expanding government taxation. It raises questions of equity in a society characterized by a significant source of income inequality.
Russia technically waived the flat tax in 2021, requiring citizens earning more than five million rubles a year to pay 15% instead of 13%. An article in the Russian business newspaper RBK revealed that the excess profits resulting from this accumulation came here to a large extent. part of Moscow.
Beyond the deficit, Russian monetary officials have discovered artistic tactics to raise more cash to fund the war since Putin introduced the invasion in early 2022.
Last year, Russia replaced taxes on oil corporations to fill state coffers. It taxed the outflows of foreign corporations leaving Russia and brought new export tasks for goods such as oil, timber and machinery. And Putin has imposed a “windfall. ” Tax on excess business profits.
Many corporations in Russia are content to pay higher corporate tax rates as long as taxes and unforeseen bills end, but this is guaranteed.
“Now corporate taxes are raised and then everything is said to do everything possible to reduce providential taxes, but if the war continues, those things will probably continue,” said Connolly, who predicted that Russia’s increased defense spending would persist for a long time to come. A long time.
Prokopenko, a former Russian central bank official, said authorities, having first exploited more oil and fuel revenues to finance the war, would now overlook all corporate profits.
“They have to do what profit mobilization is,” he said. “And raising taxes is one of them. “
This article gave the impression of being in the New York Times.