AIWorldNewz.com

Russia’s Economy Slows as Kremlin Boosts Taxes and Fees

Source: Russia’s slowing wartime economy pushes Kremlin to increase taxes and fees (2025-11-18)

Russia’s wartime economy, which experienced rapid growth over the past two years due to military spending on Ukraine, is now facing significant slowdown. Oil revenues have declined, the budget deficit has widened, and defense expenditures have plateaued, prompting the Kremlin to seek new revenue sources. To stabilize finances, President Vladimir Putin’s government plans to raise the value-added tax (VAT) from 20% to 22%, potentially generating an additional 1 trillion rubles ($12.3 billion) for the state budget starting January 1. This move reflects broader fiscal tightening as Russia navigates economic challenges amid ongoing geopolitical tensions. In recent developments, Russia’s economy has been impacted by declining global oil prices, which have fallen by approximately 15% over the past six months, reducing export revenues. Additionally, international sanctions targeting Russian financial institutions and energy exports have further constricted economic growth. The country’s GDP growth rate has slowed from 3.5% in 2024 to an estimated 1.2% in 2025, signaling a significant deceleration. Unemployment has slightly increased to 6.4%, and inflation remains elevated at around 8%, impacting household purchasing power. The Kremlin’s decision to increase taxes and fees is part of a broader strategy to offset the economic slowdown and fund ongoing military operations. Besides VAT hikes, other levies include increased fees on small businesses and higher excise taxes on fuel and alcohol. These measures are expected to generate additional revenue but may also dampen consumer spending and investment, potentially leading to a mild recession in 2026. Despite these fiscal adjustments, Russia continues to face external pressures. Western countries have maintained sanctions, restricting access to international financial markets and technology imports. Meanwhile, Russia has sought to deepen economic ties with non-Western nations, including China and India, to diversify its trade partnerships. Recent data shows that trade with China increased by 20% in the first half of 2025, with China becoming Russia’s largest trading partner, surpassing the European Union. Furthermore, Russia is exploring alternative revenue streams, such as expanding its military-industrial complex and increasing domestic production of critical goods. The government has announced plans to boost defense-related manufacturing by 15% over the next year, aiming to reduce reliance on imports and foster self-sufficiency. Additionally, efforts to develop the Arctic region’s natural resources are gaining momentum, with new investments in oil and gas exploration expected to commence in 2026. The economic slowdown also has social implications. Rising taxes and fees are likely to impact small businesses, which constitute a significant portion of Russia’s economy. Many small enterprises are already struggling with inflation and reduced consumer demand, and further tax burdens could lead to closures and job losses. Conversely, the government emphasizes that these measures are necessary to sustain military efforts and national security. In the broader geopolitical context, Russia’s economic adjustments come amid ongoing tensions with Western nations and a strategic pivot towards Asia. The country’s leadership is increasingly focused on strengthening alliances with non-Western powers, which could reshape global economic and political dynamics in the coming years. Experts warn that prolonged economic strain may lead to social unrest if not managed carefully, but also note that Russia’s resilient resource base and strategic partnerships could mitigate some adverse effects. As Russia navigates this complex economic landscape, the coming months will be critical in determining whether these fiscal measures will stabilize the economy or deepen existing challenges. Policymakers face the delicate task of balancing military spending, social stability, and economic growth in an uncertain global environment. The world will be watching closely as Russia’s economic policies evolve in response to both internal pressures and external geopolitical shifts.

More recent coverage