Russian Business Leader Calls for Tax Certainty Amidst Possible Hikes

The Russian government has announced that another round of tax hikes is necessary to address a ballooning budget deficit, but businesses are calling for more predictable fiscal policies, the head of the country’s top business lobby said on Tuesday. The costs of the conflict in Ukraine have put a strain on state finances, with Russia doubling its 2023 defense spending target to over $100 billion in August.

To help finance the budget deficit, the Russian government has already raised taxes, including introducing a one-off windfall tax on big business and increasing mineral extraction taxes on the energy sector. Export duties linked to the rouble-dollar exchange rate were also imposed from October 1st.

Businesses are open to discussing an increase in income tax if there are clear and systematic investment tax deductions, said Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs. He stressed that while changes to the tax system cannot be avoided, some formulas are needed to ensure both parties understand how the situation will change when certain conditions vary.

Last week, Russian businessmen meeting with President Vladimir Putin proposed that any increase in income tax be accompanied by greater long-term predictability in fiscal policy. A source familiar with the discussions told Reuters that businesses understand that exactions will continue but seek a gentleman’s agreement – paying more but avoiding unexpected changes in the near future.

The cost of living is already high due to inflation and economic instability caused by sanctions imposed by western countries against Russia following its annexation of Crimea and ongoing conflict in eastern Ukraine. These factors have added pressure on the government to find ways to balance its budget without further burdening citizens or businesses.