Russia’s economy is entering uncharted territory. For years, the Kremlin leaned on oil rents and resource windfalls to balance the books. But now, the state’s gaze is shifting squarely toward the pockets of its own citizens and businesses. The sweeping tax overhaul rolled out in 2025 is just the first brick in a new financial architecture where the wallets of ordinary Russians have become the lifeline for ballooning government spending.
From Flat to Progressive: A Tax Revolution
Moscow has left the club of low-income tax countries. The introduction of a five-tier progressive income tax — topping out at 22 percent for high earners — has vaulted Russia into a new global bracket. By comparison, 40 percent of countries with progressive systems start their rates under 10 percent, and 60 percent set the bar below 13 percent. Russia’s floor of 13 percent was already steep, and now it’s climbing.
The fallout is already measurable. Economists at the Higher School of Economics estimate the new tax brackets alone will shave 0.4 percent off real disposable income growth in 2025. That’s not a dry statistical blip — it translates into weaker consumer demand, tighter household budgets, and more pressure on GDP. People are running out of cash faster.
And businesses aren’t spared. The corporate profit tax jumped from 20 to 25 percent, small firms lost their exemption from value-added tax, and resource giants like steelmakers and fertilizer producers are feeling a sharper bite from mineral extraction levies. Add to that a brand-new tourist tax, and the picture is complete.
The Ministry of Finance projects the reform will funnel as much as 2.6 trillion rubles into the treasury in 2025 alone, and up to 17 trillion over five years. Early returns back that up: in the first five months of the year, total tax revenues climbed 6 percent, personal income tax collections rose 14 percent, and profit taxes skyrocketed an eye-popping 74 percent.
Rising Revenues, Deeper Deficits: The Wartime Paradox
Here’s the rub. Even with record inflows from tax reform, the federal budget deficit for the first half of 2025 hit 3.7 trillion rubles — 1.7 percent of GDP — far above the planned 1 trillion. Two forces are colliding head-on:
- Oil and gas revenues are sinking, with lower crude prices dragging mineral tax receipts down 18 percent.
- Military spending is ballooning, driven by the defense sector and the ongoing “special operation,” creating a drain no tax reform can plug.
Russia’s fiscal policymakers are trapped. They can’t cut core spending, export revenues are too volatile, and the only short-term patch is raiding the state’s rainy-day fund. Finance Minister Anton Siluanov has already greenlit a 447-billion-ruble drawdown from the National Wealth Fund — more than 10 percent of its liquid assets.
The stress boiled over this summer in what analysts dubbed a “technical default.” In late July, the ministry failed to transfer 51 billion rubles in pension co-financing to nearly 3 million citizens on schedule. Officials insist it was a mere “technical delay” and promise payouts by September. But the episode was a flashing red light: the budget is overstretched, and the seams are starting to show.
Taxes Are Just the Tip of the Iceberg
The Kremlin insists “baseline tax conditions will remain stable through 2030.” But that’s political theater. Behind the curtain, officials are busy devising alternative ways to squeeze cash out of households and companies without triggering open revolt.
When raising headline tax rates becomes too risky, the government turns to stealth tactics:
- Steep hikes in court fees, effectively pricing lower-income Russians out of challenging wrongful charges.
- A looming surge in recycling fees that will hammer car owners, whether they buy new or maintain old.
- The quiet dismantling of the “self-employed” regime, which had grown too popular as a tax-avoidance escape hatch.
Individually, these measures might look minor. Taken together, they form a confiscatory machine that relentlessly transfers resources from the private to the public sector.
The New Oil Is Your Wallet
Russia’s fiscal policy has entered a harder, more extractive phase. The 2025 tax reform isn’t the endgame; it’s the opening move in a larger reset of how the state funds itself. With oil rents dwindling and defense costs soaring, Moscow has little choice but to dig deeper into the pockets of its own citizens.
Pledges to leave “basic taxes” untouched increasingly ring hollow in the face of rising hidden fees and levies. As long as the conflict grinds on, fiscal pressure will keep ratcheting up. Finding new revenue streams is no longer a matter of choice but survival. In today’s Russia, ordinary wallets have become the “new oil” — but unlike petroleum, they’re finite, fragile, and politically explosive.
Justice at a Premium: The Price of Going to Court
One of the clearest examples of Russia’s new fiscal squeeze is the surge in court fees. The government has rolled out what is essentially a “paywall for justice” — a policy designed not only to feed the state budget but also to weed out what officials call frivolous lawsuits.
The price tag has skyrocketed. In most cases, fees have gone up ten- to fifteenfold; in some categories, more than fifty. Filing a property claim that used to cost 400 rubles now runs 4,000. An appeal has jumped from 150 to 3,000. The steepest blow lands on economic disputes: individuals now pay 10,000 rubles (up from 300), while businesses can be billed as high as 60,000 (up from 2,000).
As Duma deputy Oksana Dmitrieva put it, the hikes will hit ordinary citizens hard — particularly those contesting routine but vital issues like housing bills or fines. What once cost a token 300 rubles now takes a painful 3,000, raising an unspoken question: how much are Russians willing — or able — to pay for their rights?
Cars as a Never-Ending Cash Cow
If there’s one group Moscow knows it can tap, it’s drivers. Cars are more than just vehicles in Russia; they’re immovable tax targets. Unlike optional luxury items, a car is something most people can’t live without — which makes them the perfect captive audience.
Starting September 1, the Finance and Industry ministries are pushing to double the fees on core services: driver’s licenses (to 4,000–6,000 rubles), international licenses (to 3,200), vehicle passports (to 1,200), and car registrations (to 3,000).
Meanwhile, the government is tightening the noose on recycling fees. The perk that allowed individuals to import cars for personal use at discounted rates is being scrapped for vehicles above 160 horsepower — essentially everything beyond a bare-bones compact. That means a 20,000-ruble bill, with officials wryly noting that corporations pay hundreds of thousands, so “consumers should consider themselves lucky.”
Industry minister Anton Alikhanov is blunt: the goal is revenue, tens of billions annually. But the fallout is already hitting the market — collapsing sales of imported cars, soaring logistics costs, pricier consumer goods, and farmers unable to replace old equipment. Still, the government deems the experiment a success and is eyeing expansion to other categories, like electronics.
The End of the Easy Ride for Small Business
Perhaps the biggest shakeup looms for Russia’s small businesses and the self-employed. The so-called “tax holidays” are ending. The professional income tax system — a wildly successful experiment that legalized millions of freelancers, from home bakers to private tutors — is set to be phased out by 2028.
Deputy Finance Minister Alexey Sazanov insists the regime won’t vanish but “evolve.” The translation: it will stop being profitable. Once the benefits disappear, self-employed workers will face a choice: register as full-fledged entrepreneurs and pay higher rates, or shut down. And the tax authorities, now seasoned in tracking under-the-table income, are ready for the shift.
That 2028 deadline may even be wishful thinking. Lawmakers are already pushing for an early exit, with President Putin ordering officials to draft ways to squeeze self-employed workers back into standard tax brackets. The “simplified” system will remain only for the tiniest of businesses, while others could see their tax burden balloon from 6 percent to the 25 percent corporate profit tax.
Desperate Measures: A “Tax on the Horizon”
As the budget hole widens, officials are floating increasingly eccentric — and sometimes downright gimmicky — proposals. The most recent came from Sangadzhi Tarbaev, chair of the Duma’s tourism committee, who suggested a kind of “horizon tax” on tour operators offering foreign travel.
His pitch is simple, even seductive on paper: convert capital flight into investment at home. “The money leaving Russia for outbound tourism should be redirected into domestic tourism,” Tarbaev argued, noting that Russians spent some 700 billion rubles abroad on travel last year. Slap an extra 200–300 rubles per ticket, he says, and you’ve got 5–7 billion annually to fund the domestic industry.
But behind the slick sales job lie glaring problems. For one, basic economics: the tax would just be passed on to travelers, making foreign trips even less affordable for the middle class while doing nothing to improve domestic options. For another, the numbers don’t add up. Five or seven billion rubles is a drop in the ocean compared to the 700 billion flowing out — hardly enough to reshape the country’s tourism infrastructure. It’s not a strategy; it’s a simulacrum of one.
Dead-End Economics and the Search for Scapegoats
The Russian government is boxed in. There are no painless exits from the current economic quagmire. The obvious fix — ending the conflict, lifting sanctions through a comprehensive peace deal, and restoring trust in institutions and property rights — is politically off-limits for the ruling elite. Instead, the system is taking the path of least resistance: ratcheting up fiscal pressure.
Falling revenues are met not with new growth strategies, but with a steady drip of higher taxes, expanded tax bases, stiffer fines, and pricier state services. Rather than generating new wealth, the Kremlin is simply redistributing what’s left, tightening the belt around households and businesses alike.
The Excise Trap: Noble Intentions, Harsh Outcomes
Excise hikes remain the government’s go-to lever. Politically, they’re an easy sell: officials frame them as public-health crusades, claiming to fight bad habits while quietly milking consumers’ wallets.
But the market reality is far less flattering. Last year’s steep increase in excise duties on hard liquor triggered the textbook consequence: a surge in the black market. Rosalkogolregulirovanie boasted that legal vodka production dropped 10.9 percent in the first half of the year, with cognac down 17 percent. Behind those “successes,” though, lies a grimmer story: millions of Russians have simply turned to home-brewed moonshine and bootleg booze — products whose quality and safety are anyone’s guess.
The true scale of the damage is impossible to measure. The one reliable indicator — deaths from surrogate alcohol poisoning — has vanished, with Rosstat now blocking detailed demographic data. In other words, the state not only created the economic incentives for a shadow market, it also stripped itself — and society — of the tools to track its deadly fallout.
Taken together, the “horizon tax” and the excise policy point to the same conclusion: in the face of a structural crisis, the Russian state prefers quick fixes and cash grabs over real reform. These stopgaps don’t resolve the underlying problems — they only deepen them, while kicking the reckoning further down the road.
The Tax Needle: How the State Hunts for Cash in a Crisis
With traditional reserves depleted and spending still climbing, Russia’s federal authorities are once again turning their gaze to the pockets of citizens and businesses. The next phase won’t be a matter of minor tweaks. Analysts warn of a broader, systemic tightening of the tax regime — one that will lean heavily on ordinary people through higher indirect taxation.
Excise Expansion: The Quietest Squeeze
The most likely — and politically quietest — tool is the expansion of excise taxes. After earlier experiments like the infamous levy on “liquid steel,” officials are eyeing sugar, soft drinks, salty snacks, and high-fat foods. Branded as health initiatives, these measures are classic fiscal protectionism: easy to administer, harder to oppose, and less politically risky than hiking income taxes.
VAT in the Crosshairs
The government’s other favorite cash cow is VAT, one of the most reliable and easily enforceable taxes in Russia’s arsenal. Despite already sitting at a hefty 20 percent, discussions about pushing it up to 22 or even 25 percent surface with regularity. The counterargument is well known: higher VAT fuels inflation and puts added pressure on businesses, especially small and mid-sized firms already struggling with lengthy refund procedures. But with the treasury desperate for cash, those concerns may soon be brushed aside.
Economist Igor Lipsits put it bluntly: “Don’t expect dramatic moves like a wealth tax or steep progressive income hikes. The authorities will gravitate toward options that are politically softer. Raising VAT and broadening the scope of excises — that’s the path of least resistance. Anything that cuts too close to elite incomes is off the table for now.”
People as the ‘Second Oil’
The trajectory is clear: more fiscal pressure is inevitable. Years of economic stagnation, compounded by sanctions and isolation, have left the state with little choice but to mine domestic sources of revenue. Which makes an old line, once delivered by then–Deputy Prime Minister Sergei Ivanov, sound far darker today. Back then, “people are the second oil” could be read as a clumsy metaphor about human capital. Now, it risks becoming the literal blueprint for Russia’s financial policy.
Sources
[1] From 2025, a progressive personal income tax scale with a maximum rate of 22% will come into force
https://www.nalog.gov.ru/rn05/news/activities_fts/15068109/
[2] Five PIT rates established: 13%, 15%, 18%, 20%, 22%
https://www.nalog.gov.ru/rn86/news/tax_doc_news/15477619/
[3] Federal Law No. 389-FZ of 31.07.2024 (on the new PIT scale)
https://www.consultant.ru/document/cons_doc_LAW_477549/
[4] Progressive PIT scale from 2025: from 13% to 22%
https://www.garant.ru/1c-wiseadvice/guide/progressivnaya-shkala-ndfl-s-2025-goda/
[5] Russia has raised taxes. Who will pay more PIT and by how much
https://www.rbc.ru/life/news/65f2e4059a7947c43ef84a92
[6] Progressive PIT scale: who will be affected by the tax reform
https://www.vtbnpf.ru/press/articles/ndfl-v-2025-godu-kogo-zatragivaet-nalogovaya-reforma/
[7] Federal budget deficit for the first half of 2025 — 3.694 trillion ₽ (1.7% of GDP)
https://minfin.gov.ru/ru/press-center/?id_4=39806-predvaritelnaya_otsenka_ispolneniya_federalnogo_byudzheta_za_yanvar-iyun_2025_goda
[8] Budget deficit for the first half of the year amounted to 3.7 trillion ₽
https://ria.ru/20250707/byudzhet-2027729319.html
[9] Federal budget deficit of the Russian Federation amounted to 3.69 trillion ₽ (1.7% of GDP)
https://tass.ru/ekonomika/24452919
[10] Russia's budget deficit reaches 3.69 trillion roubles (1.7% GDP)
https://www.reuters.com/markets/europe/russia-budget-deficit-reaches-2025-target-level-17-gdp-first-half-year-2025-07-07/
[11] By the end of the first half of 2025, the deficit reached almost 3.7 trillion ₽
https://www.forbes.ru/mneniya/541715-vse-radi-deficita-pocemu-rossijskij-budzet-ne-vpisyvaetsa-v-prognozy
[12] Why the budget deficit grew: falling oil and gas revenues and rising spending
https://frankmedia.ru/209416
[13] Budget deficit, use of the National Wealth Fund, falling oil and gas revenues
https://t-j.ru/news/budget-half-2025/
[14] In 2025, Russia will allocate a record third of its budget to war and security forces
https://meduza.io/feature/2024/10/01/voyna-vnov-glavnyy-prioritet-rossiyskogo-byudzheta-v-2025-m-na-oboronu-i-silovikov-potratyat-rekordnuyu-summu
[15] The government is preparing a new tax increase to fill the military budget
https://www.moscowtimes.ru/2025/08/20/inache-prosto-neshodyatsya-kontsi-skontsami-pravitelstvo-gotovit-novoe-povishenie-nalogov-chtobi-napolnit-voennii-byudzhet-a172193