cross-posted from: https://mander.xyz/post/43082168
The Russian government’s tax initiatives are part of broader budget reforms proposed for 2026–2028. The new federal budget places the burden of military spending on the public and businesses — and the war will cost them dearly.
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The authorities had promised that the tax increase would affect only 4% of small and mid-sized businesses, but now they have decided to squeeze small enterprises to the fullest.
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[In addition to income and consumption tax increases] the government is also set to abolish the reduced social insurance contribution rate for SMEs. Such an increase in the tax burden of small companies will wipe out profits that were previously earned within the range of 10–12% of revenue. This measure will hit labor-intensive industries first — retail, catering, and construction — where payroll makes up a significant portion of expenses.
The tax authorities are also gaining powers to tighten oversight. They will be authorized to increase fines, write off taxpayers’ debts from bank cards without a court order, and bring in inspectors from other regions to conduct major tax audits.
Deadlines for paying taxes have also been tightened. Under the new regulations, if a payment deadline falls on a weekend or public holiday, the obligation must be fulfilled in advance, requiring businesses to plan more precisely if they are to avoid facing penalties for noncompliance.
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“If I have to start paying VAT, costs will skyrocket,” entrepreneur Vyacheslav Kopylov complained on Business FM. Kopylov runs a small grocery store in Krasnodar, operating under a patent system. He expects that next year could be the last for his business. Meanwhile, the trade sector accounts for the largest share of the gross regional product (GRP) in Krasnodar Krai. Even nationwide, it ranks just behind Moscow, St. Petersburg, and the Moscow Region. In other words, Krasnodar Krai is set to suffer the most from the tax hit.
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Importantly, while VAT goes entirely to the federal budget, 100% of revenues from the simplified tax system go to the regional budget. Therefore, small businesses that survive the tax hike will be paying into the federal budget instead of contributing money for use closer to home. Regional budgets will lose revenue and, by rough estimates, face a combined deficit of around half a trillion rubles ($6.5 billion). Only the budgets of Moscow and St. Petersburg will remain in surplus.
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The tax increase will also lead to rising costs throughout the supply chain, with each participant adding their share of the tax and their markup to maintain profit. The manufacturer includes 22% in the ex-factory price, the wholesaler adds a markup on that amount and applies VAT again, and the retailer repeats the process.
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The blow will be especially hard on regions with large populations and developed retail markets — Moscow, St. Petersburg, Krasnodar Krai, and Moscow Region. In these areas, a combination of intense competition and low margins could drive down turnover in multiple sectors, most notably in food retail and services (catering, beauty salons, dry cleaners). Any increase in the tax burden presents a critical threat to such businesses.
The ol' American approach