Everything will become more expensive: Russians are on the verge of another blow to their wallets.
The Ministry of Finance's tax initiative means higher prices for almost everything except the most basic goods and medicines. What can ordinary Russians expect when the budget is thirsty for cash, but businesses are unwilling to pay for it?
The Ministry of Finance has initiated a new package of tax changes. We'll be living with them starting January 1, 2026, if approved. What will change:
- the VAT rate will increase from 20% to 22% ;
- The preferential 10% will be retained for socially significant goods: food and medicine;
- Those who were on the simplified tax system will have to pay VAT: the threshold for this tax system will be reduced sixfold: from 60 million to 10 million rubles;
- The preferential insurance premiums for small and medium-sized businesses introduced during COVID-19 will no longer be in effect.
The goal of these new measures is one: to fill the budget, which is short of revenue. Ordinary people will be the ones paying for this burden. Here's why.
The preferential rate will remain for socially significant products, while others will receive a 2% increase. Photo: 1MI
"VAT is a large and well-collected tax. Raising tax rates could result in additional federal budget revenues of 0.7% of GDP, or 1.5 trillion rubles, in 2026. These funds will be reinvested in the economy through government spending, so the negative impact of the tax hike will be minimal," Ivan Verbny, an analyst at the Bitcoin project, commented to NI.
However, the end consumer will bear the additional tax burden. Businesses will pass on part of their increased costs, the expert says. Everything will become more expensive except for basic products like fish, meat, milk, and bread, which are subject to preferential rates.
The tax increase will generate an additional 1.5 trillion rubles for the budget in 2026. Photo: 1MI
They promised a freeze, but they got growth.
It's worth recalling that just over a year and a half ago, in February 2024, Vladimir Putin, in his address to the Federal Assembly, ordered "fixing the main tax parameters until 2030." In early September 2025, the president again emphasized that budget revenues must be increased, but without increasing the tax burden . Today, the Ministry of Finance is proposing precisely what it promised not to do—increasing taxes on businesses and consumers.
In his address to the Federal Assembly, Vladimir Putin proposed fixing key tax parameters until 2030. Photo: kremlin.ru
An increase in VAT always results in higher prices for food products.
"According to various estimates, a 1% VAT increase translates into approximately 0.5% additional annual inflation. That is, if we're talking about a 2% VAT increase, we can roughly predict a 1.5-2.5% price increase," says Oleg Abelev , PhD, head of the analytical department at the investment company Rikom-Trust.
Boris Kopeikin , chief economist at the P.A. Stolypin Institute for Growth Economics, recalls: we already faced a similar situation in 2019. Back then, VAT was also raised by 2%.
"But back then, the increase was accompanied by a reduction in other taxes and fees, whereas now, on the contrary, conditions for small businesses are becoming more stringent. While the preferential rate remains in place for a number of goods, their producers don't operate in a vacuum. And the employees of such companies will feel the price increase just like everyone else," he comments.
Experts predict a 1.5-2.5% increase in food prices. Photo: 1MI
Tax increases reduce investment and slow the economy. Even if basic products remain at preferential rates, other goods and services will feel the impact. And the impact will be long-lasting.
"Even more companies will forego new capital investments, and some will try to go underground or even close. This means that competition for employees will decrease. Unemployment is extremely unlikely, but wages will grow more slowly. As a result, economic growth rates, which are far from encouraging after the record highs of 2023-2024, will slow even further," the expert predicts.
But the situation is worse for small businesses. They either close or go underground. Photo: 1MI
Boris Kopeikin highlighted another problem. The expected increase in budget revenue from the VAT increase is only 0.6-0.7% of GDP. Is it worth it?
"Global experience suggests that when the economy slows, it's best to stimulate it by increasing budget spending, rather than further complicating the situation by raising taxes. Especially since, despite the increase, our budget deficit is extremely moderate in a global context, and our public debt is low—around 15% of GDP," the expert emphasizes.
The expected increase in budget revenue from the tax hikes is disproportionate to the potential negative consequences. Photo: 1MI
The outcome of the initiative is simple: the budget will receive additional revenue, but ordinary Russians will have to pay for it. We can expect:
- price increase by 1.5–2.5%;
- investment disengagement;
- slowdown in wage growth;
- the withdrawal of small businesses into the shadows.
The question remains: what is the Ministry of Finance's goal? Is it to patch the current gap or should it consider long-term budget revenues? The idea of raising VAT is, to put it mildly, controversial.
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