As of: April 2, 2024, 5:36 p.m
By: Max Schäfer
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Putin is planning a tax reform that will place more burdens on Russia's oligarchs. The income is intended to close the budget gaps - and finance the war.
Moscow – Vladimir Putin has the oligarchs in his sights. Because of the financial challenges facing the Russian state budget, they are now expected to help finance the war in Ukraine. The Kremlin is planning to reform the tax system. According to the Russian president's plans, citizens will pay more depending on their income instead of paying a fixed tax rate.
Putin had already made his intentions known before his re-election as president. He aims for a “fairer distribution of the tax burden,” as he explained in the Russian Federal Assembly. Now that he has reached his fifth term in office, it is now the turn of implementation.
Putin wants to tax Russian oligarchs higher to offset the costs of the war
Putin plans to abolish the current flat tax rate of 13 percent on income. Instead, he wants to introduce a staggered system. A tax rate of up to 35 percent is provided for individuals who earn more than 100 million rubles annually. For incomes between 50 and 100 million, the tax rate is 30 percent. The majority of the Russian population will remain at the current tax rate of 13 percent. Anyone who earns less than 360,000 rubles (around 3,600 euros) per year should even be exempt from income tax.
Annual income in rubles |
Planned tax rate in percent |
|---|---|
Less than 360,000 |
0 |
Up to 5 million |
13 |
5 to 10 million |
15 |
10 to 50 million |
25 |
50 to 100 million |
30 |
Over 100 million |
35 |
According to experts, the additional revenue from progressive taxation is urgently needed to close the gaps in the Russian state budget. Although Russia's gross domestic product (GDP) grew by 3.6 percent in 2023, the largest share of this came from industry essential to the war effort. Other sectors, on the other hand, are suffering from high interest rates and the loss of workers due to the war in Ukraine and emigration.
Ukraine war costs Russia $300 million a day and tears a hole in its budget
The war itself is also a significant financial burden. The cost of the attack on Ukraine is
about $300 million per day, according to
the Wall Street Journal
. In view of the higher taxes for higher earners, experts therefore speak of “tax mobilization”.
Vladimir Putin wants to tax the oligarchs more to close Russia's budget hole. © Pavel Bednyakov/Imago
As a result of these pressures, Russia is running a budget deficit of 3.24 trillion rubles (about $33 billion), equivalent to 1.9 percent of GDP. The forecasts for the current year are no better. According to
Cicero,
in the months of January and February alone, spending amounted
to 6.5 million rubles, an increase of 17.2 percent compared to the same period last year. In addition, in January 2024, the regions recorded spending of 3.2 trillion rubles. Much of the regional debt consists of loans from the Kremlin.
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Putin cannot expect any relief from the economy. Russia is increasingly turning to China and India, which are becoming the most important buyers for Russian oil and gas exports. Nevertheless, Western sanctions have limited oil and gas revenues. Foreign companies are also reluctant to do business with Russia. Experts predict that the growth rates of the Russian economy will fall to two percent.
Oil and gas business does not balance the Russian budget
To cover government spending, Putin has already resorted to the state welfare fund last year, withdrawing about 3.5 trillion rubles from it, according to the
Wall Street Journal
. The liquid part still amounts to almost five trillion rubles, said the Russian economist Igor Lipsiz to the
FAZ
.
Replenishing the fund could be difficult due to limited oil business. In addition to the sanctions,
an OPEC agreement to reduce output and the lack of new technologies have led to a reduction in oil production, according to
Cicero
. State revenue from taxes and fees has fallen accordingly. The sanctions and the decline in imports have also resulted in import duties no longer being a reliable source of income.
Higher taxes are the only way for Putin
For the Russian government, income tax therefore appears to be the only reliable option. According to
the Wall Street Journal,
this has so far
accounted for almost ten percent of revenue. However, the reform could result in an increase. Russia could raise between 0.5 and one percent of GDP more through tax increases on high incomes. In addition, tax revenues could reduce the flow of capital and thus reduce pressure on the economy, according to the business magazine.
The editor wrote this article and then used an AI language model for optimization at his own discretion. All information has been carefully checked. Find out more about our AI principles here.