Russian companies are bracing for tighter fiscal conditions after the Kremlin introduced new tax measures to offset falling energy revenues.
As the Russian invasion of Ukraine enters its fourth year, pressure on the Russian economy is intensifying. Oil and gas revenues — long the backbone of the federal budget — have weakened amid lower global crude prices and the impact of Western sanctions.
As the Institute for the Study of War reports, Russia’s Ministry of Finance indicated that federal budget income from oil and gas taxes fell by 24% in 2025, totalling 8.48 trillion rubles (£80.5bn), highlighting the impact of declining energy revenues on the economy.
Declining gas exports and price pressures have contributed to what analysts describe as the weakest energy revenue performance in five years.
At the same time, Russia’s budget deficit has widened, and the plateauing of military spending underscores the growing economic pressures that policymakers and business leaders must address to maintain stability.
In response, authorities have implemented comprehensive tax reforms that raise the burden on businesses and consumers, highlighting the crucial role of policymakers and business leaders in managing these significant fiscal adjustments shaping the economic landscape.
Key changes include a 2% increase in VAT and a significant reduction in the revenue threshold that triggers VAT liability, affecting a broad range of businesses and fiscal strategies.
The annual sales threshold for mandatory VAT registration has been lowered from 60 million rubles to 20 million rubles (£191,000) in 2025. It will further decrease to 10 million rubles (£95,000) by 2028, directly affecting small and medium enterprises and their strategic planning.
The reform’s effect on small firms under the “patent taxation system” is notable: businesses with revenue exceeding 20 million rubles now face at least a 6% tax and 5% VAT, which could significantly affect their operations.
Under the new rules, businesses with annual revenue exceeding 20 million rubles must pay at least 6% tax on revenue and a minimum 5% VAT.
Despite the changes, Vladimir Putin has stated that companies “should not, in any way, suffer with the transition to the new tax system”.
Analysts warn that lowering VAT registration thresholds to 10 million rubles (£95,000) by 2028 will bring more small and medium-sized enterprises into the standard tax regime, potentially increasing their tax burden and affecting market dynamics.
Economists warn that reduced energy income limits fiscal flexibility, and higher business taxes may suppress domestic investment.
Consumer prices could face upward pressure, and budget pressures may intensify if energy prices remain subdued.
Russia’s capacity to stabilise public finances relies heavily on global oil prices, sanctions enforcement, and wartime spending levels, highlighting the critical role of policymakers and economic stakeholders in managing these interconnected international and domestic factors.
