Moscow’s 2027 Budget Draft Targets Foreign Investors and Domestic Wealth to Cover War Deficit

Key points

• The draft budget increases the tax on dividends paid into 'C' accounts for foreign investors from 15% to 35%, targeting profits from the EU, UK, and US.
• Windfall taxes of 20% on gold producers and 30% on metals producers are proposed to capture revenue from elevated commodity prices.
• Passive income for individuals, including interest and share sales, faces a progressive tax scale rising to 22%, affecting approximately 4 million high-income citizens.
• The 2027 budget projects a deficit of 2% of GDP, assuming an oil price of $50 per barrel, while the 2026 deficit is expected to reach 3% of GDP.
• Military personnel are exempt from the new personal income tax increases, and the budget prioritizes 'national defense and security' alongside social support for soldiers.

Background

These measures follow a period of rising military costs and constrained oil revenues due to sanctions. Russia has already implemented a progressive personal income tax and increased VAT in recent years, which forced many small businesses to close. The current fiscal strain is exacerbated by heavy casualties and recruitment challenges on the battlefield, as noted in recent analyses of Russian military strategy. While Ukraine has explored alternative revenue streams, such as legalizing pornography to fund its war effort, Russia is relying on traditional tax extraction from its domestic and foreign economic base to sustain its operations in the fifth year of the conflict.

How outlets are covering it

The Financial Times emphasizes the impact on foreign investors, highlighting the doubling of the dividend tax as a squeeze on trapped capital from 'unfriendly' nations. The Moscow Times provides a more detailed breakdown of the domestic impact, noting that the new passive income tax scale will affect 4 million high-income Russians and that mutual investment funds will face a 15% tax on passive earnings. Marketscreener.com focuses on the macroeconomic outcome, citing the finance minister’s projection of a 2.2% GDP deficit for 2027. While the Financial Times and Moscow Times agree on the specific rates for foreign dividends and windfall taxes, the Moscow Times adds detail on the VAT application to cross-border online retail, a point not emphasized in the other sources. All outlets agree that the measures are a response to the widening gap between military spending and state revenue.

Why it matters

The tax hikes signal a deepening fiscal crisis for the Russian state as it enters the fifth year of the war. By targeting foreign investors and domestic wealth, Moscow is attempting to fund a military machine that is increasingly straining the economy. The projected deficit suggests that these measures may not fully resolve the funding gap, potentially leading to further economic instability or reduced public services. For global markets, the increased tax burden on foreign dividends may accelerate capital flight or further isolate Russian assets from international investment, while the windfall taxes on commodities could impact global supply chains for gold and metals.

What to watch

The draft budget must now be reviewed by the State Duma, with the deadline for submission having passed. The Kremlin has declined to comment on the specific proposals, but the political cover from the recent parliamentary elections may allow the government to push through unpopular measures. Investors will watch for the final legislation to see if the 35% dividend tax and windfall levies are enacted as proposed or modified. The actual impact on the 2026 deficit, currently projected at 3% of GDP, will determine if further fiscal adjustments are needed in the coming months.