Russia is considering introducing a windfall tax for certain raw material companies and banks as the Kremlin seeks additional funds to cover its budget deficit amid rising military spending.
Points of attention
- Russia is exploring the possibility of implementing a windfall tax on selected raw material companies and banks to address the budget deficit exacerbated by the increased military spending in the wake of the Ukraine conflict.
- The new tax proposal is part of Russia's efforts to secure additional revenue streams following the slowdown of its war economy and the escalation of the conflict with Ukraine.
Russia lacks funds for war against Ukraine
Bloomberg writes about this, citing informed sources.
It is noted that the Russian Ministry of Finance is studying the possibility of introducing such a fee for businesses against the backdrop of the full-scale invasion of Ukraine that has been ongoing since 2022. A final decision has not yet been made, and detailed discussions will likely begin in the second half of the year.
Potential payers include individual raw materials companies, including the largest gold producer Polyus and the mining and metallurgical giant Norilsk Nickel, as well as some banks.
Last year, Russia's war economy slowed and the budget deficit increased, forcing the authorities to seek additional sources of revenue, including increasing the value-added tax starting this year.
In 2023, Russia already passed a decision that forced big business to pay a one-time tax on excess profits due to pressure on the budget after the start of the war against Ukraine. Currently, the Russian Ministry of Finance is targeting a budget deficit of about 1.6% of GDP this year, after 2.6% in 2025.
The idea of a new levy came as Russia's GDP likely contracted in the first quarter: production fell by almost 2% in the first two months of the year, the first quarterly decline since the beginning of 2023. Last month, the business climate index turned negative for the first time since the start of the war.
The issue of additional taxes was raised again after a closed-door meeting between President Vladimir Putin and a group of billionaires in March, during which one of them proposed contributing a significant amount to the budget.
The Bell reported that Suleiman Kerimov proposed transferring 100 billion rubles (about $1.3 billion) to the budget, but this information could not be independently confirmed.
While many industries in Russia — from steel and coal to retail — are under pressure due to high interest rates that are dampening demand, and prices for some goods are falling, other sectors remain relatively resilient thanks to a favorable export environment.
