The Russian government’s efforts to address its growing budget deficit have placed a strain on state finances, with the conflict in Ukraine being one of the factors contributing to this issue. In August 2023, a government document revealed that Russia had doubled its original defense spending target to over $100 billion, which is about one third of all public spending. The government has already implemented several measures to raise revenue, such as introducing a windfall tax on big business and increasing mineral extraction taxes in the energy sector.

However, despite these efforts, it seems that another round of tax hikes may be necessary. According to Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs (RUIE), businesses are prepared to discuss increasing income tax with the government as long as there are clear and predictable investment deductions. Shokhin emphasized that while the tax system cannot remain unchanged, businesses need formulas that will allow them to understand how their financial situation will change when certain conditions vary.

Last week, Russian businessmen met with President Vladimir Putin and proposed that any increase in income tax be accompanied by greater long-term predictability in fiscal policy. A source close to the discussions told Reuters that business understands that taxes will continue but wants assurances that there won’t be any unexpected changes in the near future. This is an attempt to reach a gentleman’s agreement where both parties can come together and find a mutually beneficial solution.