Jens Asbjørn Bøgen
It will allegedly hit both everyday Russians and businesses.
Behind the scenes, Russia’s regions are feeling the severe financial strain of the conflict in Ukraine.
To address this, the Federal Tax Service is now pushing regional governments to raise taxes on local residents and businesses.
According to The Moscow Times, citing the Russian news outlet RBC, these directives came straight from the top. President Vladimir Putin directly ordered local authorities to slash their deficits as quickly as possible to avoid a fiscal crisis.
By early June, governors had to submit their final proposals.
Reports from RBC show that the tax service wants regions to maximize transport tax revenues immediately. It also wants to expand property taxes based on market values. Local officials have even been instructed to identify improperly used land so that tax rates can be increased severalfold.
A massive shortfall
The numbers are stark. Last year, the combined deficit of Russia’s regions reached a staggering 1.538 trillion rubles, equivalent to roughly $20.8 billion.
That gap is five times larger than the deficit recorded in 2024. Even worse, it represents an eightfold increase compared with the previous year.
Statistics from the rating agency ACRA show that corporate tax revenues declined across 55 regions.
Some areas saw revenues fall by as much as half. To cope, local governments had to draw down a third of their bank reserves.
Deeper in debt
The pressure is unlikely to ease. Finance Minister Anton Siluanov previously warned that the regional budget deficit could climb to 1.9 trillion rubles this year.
To keep operating, regional governments have relied heavily on borrowing. Total regional debt has risen to 3.5 trillion rubles as authorities try to cover expenses they can no longer afford.
And that is where the real challenge lies. Analysts at the rating agency Expert RA warn that the economic slowdown will continue to weigh on revenue collection, leading to higher debt burdens and fewer options for regional governments.
