Anna Hartz
The war in Ukraine is not just affecting lives on the battlefield. It is reshaping Russia’s economy and the daily lives of its citizens.
Rising prices, falling investment, and struggling industries are putting ordinary Russians under pressure. In 2026, the government plans to rely even more on taxpayers’ money to fund its military campaign.
A 2% Increase
The Russian Finance Ministry announced that the value-added tax (VAT) will increase from 20% to 22%, reports Digi24 The government says the move is necessary to finance security and defense needs. It also aims to support families involved in the military operation in Ukraine. President Vladimir Putin told the State Council that Russians would understand the tax increase if the state meets its social obligations and guarantees security.
Economic sectors like metallurgy, coal, and energy are in crisis. Large state-owned companies, including Rosatom, RusHydro, and the railway company RZhD, are struggling. Recent US sanctions on major oil companies, such as Rosneft and Lukoil, caused a 35% drop in oil and gas export revenues in November. December is expected to see a further 50% decline. Despite these problems, the government is not providing bailouts. High inflation and efforts to control it make capital injections impossible.
Stagnant Economy
Experts say the economy is almost stagnant. Aleksandra Prokopenko from Carnegie described it as a car idling with the engine running. The military industry is an exception, running at full power. Deputy Prime Minister Aleksandr Novak said Russia will not recover until 2027. The Economy Ministry forecasts GDP growth of just 1% this year, down from 4.1% in 2024.
Authorities are raising taxes to cover gaps in revenue. Personal and corporate income taxes will increase. Tax exemptions for self-employed people and small businesses will end. Car taxes will rise, and technology companies will see their tax rate double from 7.6% to 15%. Asset seizures continue, reaching $50 billion by mid-year.
The new measures may further reduce demand and increase production costs. Small and medium-sized businesses are especially vulnerable. Experts warn that higher taxes and costs could push more activity into the underground economy. Meanwhile, the ruble has strengthened by 45% this year, creating problems for the military economy.
Analysts predict a growing conflict between authorities who want strict monetary policy to fight inflation and those who favor a weaker ruble to boost investment. Next year, Russia faces a challenging balance between funding its war, controlling inflation, and keeping the economy afloat.
Sources: Digi24
