Russia Plans VAT Hike to Fund Ukraine War Amid Economic Worries

Russia is considering raising its value-added tax (VAT) from 20% to 22% in 2026. The move is aimed at raising money to support military spending during the ongoing war in Ukraine, which is now entering its fifth year. Officials say this increase could generate about $11.9 billion in extra revenue for the government.

The Russian finance ministry announced that the VAT hike would mainly be used to fund defence and security. Other tax measures are also being proposed, including higher taxes on gambling businesses and removing some tax breaks for small businesses. These steps are part of President Vladimir Putin’s plan to raise government revenues amid economic challenges caused by the war and global sanctions.

Last week, Putin suggested he was open to tax increases to meet financial needs, pointing out that the United States had raised taxes during past wars, such as Vietnam and Korea. Analysts say the Russian economy is expected to slow sharply, with growth dropping to around 1% in 2026, down from 4.3% last year. The VAT hike is likely to contribute to higher inflation, which has been decreasing recently. T-Bank analyst Sofya Donets estimated the new tax could raise inflation by 1.5 percentage points next year, making it harder for the central bank to manage the economy.

Business leaders are warning about the impact of the tax increase. Alexander Shokhin, head of Russia’s main business lobby, said the VAT hike would be “unpleasant” for both companies and ordinary citizens. The Russian currency, the rouble, remained steady at 83.60 per U.S. dollar, supported by a slower pace of interest rate cuts.

Meanwhile, U.S. President Donald Trump criticized Russia on his Truth Social platform, saying that Russia is in “big economic trouble” and that President Putin’s war efforts are “aimless.” Trump’s comments came after his recent meeting with Ukrainian President Volodymyr Zelenskiy at the United Nations General Assembly in New York.

The proposed tax increase marks a significant change in Russia’s financial policy. Until now, Putin had promised no major tax reforms before 2030 and asked the government to raise revenues through higher productivity rather than new taxes. With the war continuing and the economy under pressure, officials are now exploring measures like the VAT hike to maintain military spending and government operations.

Economic experts warn that the tax increase could slow consumer spending, raise prices, and affect businesses across Russia. It also highlights the heavy financial strain the country faces as the conflict with Ukraine continues and global sanctions remain in place.

This VAT proposal shows how prolonged conflicts can affect not only international relations but also domestic finances, creating challenges for ordinary citizens and businesses alike. The coming months will reveal how Russia balances the need for military funding with the economic wellbeing of its population.