Russias State Duma Approves Aggressive 2026-28 Budget and VAT Hike Amid Ongoing War Expenditures

On Thursday, lawmakers in the State Duma approved Russia’s federal budget for the next three years along with a set of tax increases. These measures are intended to bolster government revenue, as military spending related to the conflict in Ukraine remains a key focus for the Kremlin.

According to the budget proposal, the government anticipates revenues of 40.3 trillion rubles ($491.7 billion) next year, while projected expenditures are set at 44 trillion rubles ($548.3 billion), resulting in an expected deficit of 3.8 trillion rubles ($47.3 billion).

For 2026, defense and national security will consume about 38% of the total budget, amounting to 16.8 trillion rubles ($209.5 billion). This figure is slightly lower than the spending in the previous two years but still significantly exceeds pre-war expenditures.

Lawmakers have emphasized financial support for domestic initiatives, allocating over 10 trillion rubles ($124.6 billion) for family assistance programs and 50 billion rubles ($623 million) for a state-sponsored charity that aids soldiers fighting in Ukraine and their families.

Despite the overall spending remaining relatively constant, the budget breakdown indicates that the Kremlin’s focus continues to be on international relations and defense.

In conjunction with the budget plan, the State Duma also approved a series of tax reforms to address the fiscal challenges brought about by increased military spending and declining revenues from oil and gas due to Western sanctions. The value-added tax (VAT) will rise from 20% to 22%, which is likely to lead to higher consumer prices.

Economists, including those from the Finance Ministry, predict a slight uptick in inflation as a result of the VAT increase slated to start next year.

Furthermore, more small businesses will be included in the tax system as the threshold for VAT liability will decrease from 60 million rubles ($732,000) to 10 million rubles ($122,000).

Some legislators have cautioned that this adjustment may place additional pressure on small enterprises and independent entrepreneurs, many of whom earn below 200,000 rubles ($2,500) each month after taxes.

Experts estimate that the complete package, which also introduces a new tax on the profits of betting firms, could generate nearly 3 trillion rubles ($35 billion) in additional revenue.

State Duma Speaker Vyacheslav Volodin mentioned that lawmakers approved the budget and tax increases «under challenging conditions,» referencing over 30,000 sanctions imposed on Russia and what he referred to as «unfriendly actions» from the EU against Russian assets.

The budget for 2026-2028 was passed with 349 votes, while 56 lawmakers, mostly from the Communist Party, chose to abstain. Only one deputy, Anton Krasnoshantov from the ruling United Russia party, voted against the bill, although his dissent was reportedly due to a technical glitch.

The federal budget and tax legislation will now be sent to the Federation Council, where swift approval is anticipated before it is forwarded to President Vladimir Putin for ratification.