Moscow set to increase taxes as Ukraine war costs soar

Russia’s Finance Ministry on Wednesday unveiled plans to raise the country’s value-added tax (VAT) as part of efforts to finance its ongoing war against Ukraine.

According to the draft 2026 budget proposal, the VAT rate would rise from 20 per cent to 22 per cent. The ministry said the move was necessary to sustain government spending on what it described as “strategic priorities,” including defence, security, and support for soldiers and their families.

The Kremlin pledged that social policy commitments would still be met. A reduced VAT rate of 10 per cent on essential goods such as food, medicines, and children’s products will remain in place.

Military and security expenditure has surged since Russia’s full-scale invasion of Ukraine began more than three and a half years ago. Official estimates show that defence-related costs already account for about 40 per cent of government spending in the 2025 budget.

Large state contracts with the defence industry, alongside payments to soldiers and their families, have driven growth in Russia’s war-driven economy. However, analysts warn that civilian sectors are beginning to show signs of strain, with rising inflation putting further pressure on household budgets.

The budget proposal must still be approved by Russia’s parliament, though observers widely view the process as a formality given the government’s tight control.