Russia’s Finance Ministry has unveiled a draft federal budget for 2026 that includes new tax hikes aimed at sustaining steady wartime spending.
The proposed budget, which still requires approval from lawmakers in the State Duma, underscores the Kremlin’s determination to press on with its war on Ukraine — even if it means higher costs for businesses and consumers.
The biggest change is a planned increase in value-added tax (VAT) from 20% to 22%, designed to help plug a widening deficit caused by soaring defense spending and shrinking oil and gas revenues under Western sanctions.
More businesses will be required to pay VAT. The minimum annual revenue threshold for businesses to make payments is set to fall from 60 million rubles ($732,000, according to spot foreign exchange market data published by Reuters) to 10 million rubles ($122,000).
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Moscow-based economist Dmitry Polevoy of Astra Asset Management estimates that the proposed measures, including both new taxes and the rollback of existing tax breaks, could generate an additional 2.4-2.9 trillion rubles ($29.3-$35.4 billion) in revenue.
For context, Russia’s budget deficit is projected at 5.736 trillion rubles ($70.0 billion) in 2025 and 3.786 trillion rubles ($46.2 billion) in 2026.
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Defense and domestic security spending will make up around 38% of the budget in 2026 — only slightly less than the 40% share seen over the past two years.
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Media and propaganda spending is also on the rise. The government intends to allocate 146 billion rubles ($1.78 billion) for mass media, up 6.6% from last year.
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About 25.96 billion rubles ($317 million) of this will go to the Institute for Internet Development, one of the Kremlin’s main vehicles for producing youth-oriented propaganda, the investigative website IStories reported.
Other influence projects are expanding as well. The Russia in the World program — designed to promote “traditional spiritual and moral values” among foreign youth — will receive 11.9 billion rubles ($145.2 million) in 2026, more than double the 5.5 billion ($67.1 million) allocated in 2025, according to the investigative outlet Agenstvo.
At the same time, traditional propaganda outlets like RT and the state television holding VGTRK are expected to lose around a third of their funding starting in 2027, IStories reported.
While defense and propaganda budgets remain protected, several development programs will face cuts.
Some of the reductions include rural development initiatives (down 30% to 81.5 billion rubles or $993 million), the aviation industry (-29.6% to 14.4 billion rubles or $175.7 million), and the energy sector (-28.6% to 17.9 billion rubles or $218.4 million).
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2025 budget revenues fell short of expectations and widened the deficit. Oil and gas revenues are projected at just 8.65 trillion rubles ($105.5 billion) this year — 22% lower than the 11.13 trillion rubles ($135.8 billion) collected in 2024
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Second, the war in Ukraine is dragging on with no end in sight, and sanctions are likely to be tightened even further.
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There is the problem of inflation, which remains stubbornly high largely because of Moscow’s sustained war-related spending and state subsidies.
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Small businesses are expected to be hit hardest by the new tax regime.
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“A business with 10, 20, or even 50 million rubles in revenue [per year] will simply become impossible to administer,” [Yegor Diashov, head of the Moscow-based investment firm Dialot] said. “Companies will either form partnerships, sell to one another, or stronger players will absorb weaker ones.”
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