Russian lawmakers approve tax hike bill to boost economy as the war with Ukraine nears 4 years

Russian lawmakers endorsed new tax hikes on Tuesday as Moscow looks for new revenue sources to boost its economy during its nearly four-year war with Ukraine.

Legislators in the lower house of parliament, the State Duma, approved the key second reading of a bill that will raise value-added tax from 20% to 22%. The changes are expected to add as much as 1 trillion rubles (about $12.3 billion) to the state budget.

The new legislation also lowers the threshold for businesses required to collect VAT from 60 million rubles (about $739,000) in annual sales revenue to 10 million rubles (about $123,000). The changes, which will be introduced in stages up to 2028, are designed to stop firms from dividing their operations to avoid taxes. But they are also expected to hit many small businesses that were previously exempt.

The move is just one part of a swathe of new taxes that the Kremlin hopes will aid Russia’s slowing economy. One new initiative will scrap the special, concessional rate on a state “recycling fee” for cars, largely targeting high-priced, imported vehicles.

Other proposals have included increasing taxes on spirits, wine, beer, cigarettes and vapes, as well as adding duties on technology items such as smartphones and notebooks.

After two years of robust growth fueled by military spending, Russia’s economy shrank at the start of 2025 and is on course for growth this year of only around 1%, according to government estimates. Growth has suffered from high central bank interest rates, currently at 16.5%, which have been aimed at controlling inflation of 8% fueled by state defense purchases.

In the Russian government’s draft budget for 2026, which was also approved by lawmakers Tuesday, Russia’s military spending was set at 12.93 trillion rubles ($159 billion) — or 16.84 trillion rubles (207 billion), including spending on security and law enforcement.

The bills must now be approved once more by the lower house, before moving to the upper house and being signed by President Vladimir Putin to become law.