Russia targets miners and savers with new taxes as war deficit reaches $72 billion

The budget, approved Thursday in parliament on the first of three votes, was accompanied by a proposed 20%–30% windfall profits tax on mining companies that have benefited from price increases since last year, targeting producers of iron ore, nickel and gold. Another proposal would raise rates to 13% to 22% on income from interest, dividends and proceeds from selling property, up from the current top rate of 15%. The government also proposes a 100-ruble per parcel charge and 22% VAT on formerly tax-free foreign goods worth less than 200 euros bought online, and a 35% tax on dividends paid into restricted accounts for foreign investors from countries Russia calls “unfriendly.”

These measures were announced after September’s parliamentary elections, following last year’s broad tax increases that raised value-added taxes and made more small businesses pay VAT.

The deficit through August was almost 50% higher than last year’s figure and above the revised target of 4.8 trillion rubles, according to the Kyiv School of Economics. It has been driven by lavish military spending, tepid economic growth under sanctions, high interest rates for non-military companies, labor shortages and Ukrainian strikes on oil refineries and export terminals.

Chris Weafer, CEO of the consultancy Macro-Advisory, said Russia has enough financing available to cover the deficit in 2027 and probably 2028, but at the expense of higher taxes and costs for households and businesses. The budget is increasingly funding the military while the rest of the economy struggles, he said. “While there’s still modest positive growth, it is coming from the state spending into these … state-linked industries, whereas the rest of the economy is struggling badly or even failing.”

People on the streets of Moscow expressed a mix of complaints and resignation about the tax burden. “They need money for state coffers, they need to collect more from people, from ordinary people,” said Denis Bystrov, 39. Nelly Godunova, 92, noted that her university education was free but she has given plenty to the country. Sergei Sukachev, a businessman who said he had suffered a little, added: “I clearly understand, it’s best to hang on and to get our way.”

A subsidiary of German retailer Metro was seized under a law allowing temporary administration of firms from “unfriendly countries,” and tapped for a billion-ruble ($12 million) contribution to a war support fund. Metro AG headquarters in Germany said it had no role in the donation, which “does not reflect our position or the way we run our business.”

Russia’s financing options are limited. Sanctions bar it from international bond markets, and domestic resources have been drawn down extensively. The government has borrowed from banks through bond sales. According to the Kyiv School of Economics, it has also shifted war costs to bank and state-controlled company balance sheets. The National Wealth Fund’s liquid assets have dwindled to 1.7% of GDP. The Kyiv School of Economics says that, as things stand, Russia will exhaust its financial buffers by early 2028 unless it implements further tax increases or social spending cuts. “The room for maneuver is limited: an adverse shock such as a drop in global energy prices or an erosion of confidence in the financial system could quickly destabilize the fragile equilibrium,” a KSE report said.