Russia raises VAT: Pressure on small businesses is growing!

Russia raises VAT: Pressure on small businesses is growing!

The Russian Duma voted today, November 18, 2025, to increase VAT by two percent. The VAT will therefore rise from 20 to 22 percent. This new law was passed in second reading and could have a significant impact on the domestic economy. The turnover threshold for taxable companies will be reduced from 60 million to ten million rubles, which will require more companies to pay taxes. In the coming period until 2028, the changes will be implemented gradually and will bring additional revenue to the state budget of up to one trillion rubles (approx. 10.1 billion euros), reports daily news.

The new rules aim to prevent tax avoidance by stopping companies from splitting up their operations. Many small companies that were previously exempt from tax are likely to be particularly affected by the increased VAT. However, the bills still need to be approved in a third reading by the Duma before they can be sent to the upper house and signed by President Vladimir Putin.

Additional tax increases

In addition to VAT, the government is also planning higher taxes on spirits, wine, beer, tobacco and e-cigarettes. Tariffs on technology items such as smartphones and notebooks will also be increased. In order to secure the necessary funds for the heavily planned military spending, the Duma approved a draft budget of almost 13 trillion rubles (approx. 138 billion euros). In total, the expenditure, which also takes into account security and law enforcement, amounts to 16.84 trillion rubles.

This new tax increase comes in the context of a cooling economy that is only expected to grow by around one percent in 2025. The central bank's high interest rates of 16.5 percent are intended to combat inflation, which is currently at eight percent and is being fueled by government arms purchases. Experts warn that the tax increases could endanger the existing economic system in Russia and possibly lead to a collapse, as German business news reported.

Reform of the financial system

In parallel with the tax increase, Russia is introducing a significant reform of the financial system. This includes a progressive income tax that imposes higher tax rates on higher incomes and is therefore intended to counteract income inequality. President Putin has emphasized that these reforms are intended to stabilize the economy and reduce dependence on raw material revenues. Households with two or more children benefit from a reduced tax rate of 6%, both to provide financial relief and to promote the birth rate.

In the first seven months of 2025, Russia recorded a 27% increase in tax revenues, particularly in the non-oil and gas sector. This brought an additional 2 trillion rubles to the state coffers. The manufacturing, financial, construction and IT sectors in particular showed strong developments. However, the long-term impact of these reforms depends on their consistent implementation and adaptation to geopolitical challenges, such as Eastern economy notes.