Russia's 2027 Budget Draft Imposes New Tax Hikes to Cover War Deficit

Key points

• The draft budget introduces a progressive tax scale of 13%-22% on passive income, including bank interest, dividends, and securities trading, affecting approximately 4 million high-income individuals.
• A 35% tax is proposed on dividend payouts to non-resident 'Type C' accounts, up from the previous 15% rate, targeting foreign investors from 'unfriendly' countries.
• Windfall taxes of 20% on gold producers and 30% on metals producers are introduced to capture revenue from elevated commodity prices.
• The 2027 budget projects a deficit of 2% of GDP, based on an assumed oil price of $50 per barrel, while the 2026 deficit is expected to reach 3% of GDP.
• Military personnel are exempt from the new passive income tax hike, and the budget prioritizes defense spending and social support for soldiers.

Background

Russia has already implemented significant tax reforms since the full-scale invasion of Ukraine, including a progressive personal income tax and increased VAT rates. The 2026 budget raised VAT from 20% to 22% and lowered the revenue threshold for small businesses to pay VAT, though some measures were later walked back due to economic strain. The new 2027-2029 draft continues this trend of fiscal tightening to fund military operations.

How outlets are covering it

The Moscow Times emphasizes the broad impact on domestic high-income earners and the government's justification for the hikes as necessary to fund defense and social obligations. Ukrainian Pravda highlights the deteriorating economic outlook, noting that industrial output is expected to contract by 0.2% in 2026, the first drop since 2020, and capital investment could fall by 5.4%. The Financial Times focuses on the targeting of foreign investors from 'unfriendly' countries, noting that the new measures tighten the squeeze on companies whose profits are already trapped in Russia. All three outlets agree that the tax hikes are a response to mounting military costs and declining energy revenues, but they differ in emphasis: The Moscow Times and Ukrainian Pravda stress the domestic economic impact, while the Financial Times highlights the international dimension of the tax changes.

Why it matters

The new tax hikes signal a deepening fiscal crisis in Russia as the war in Ukraine continues to drain state resources. The measures may further strain the domestic economy, which is already facing declining industrial output and rising inflation. Additionally, the targeting of foreign investors could deter future investment and exacerbate the economic isolation of Russia. The success of these tax increases in closing the budget deficit remains uncertain, as analysts note that the revenue gains may be insufficient to fully offset the growing military costs.

What to watch

The draft budget must be approved by the State Duma, with the Finance Ministry required to submit the proposal by October 1. The Kremlin has not yet commented on the proposal, and the final budget may be adjusted based on political and economic developments. The impact of the tax hikes on the Russian economy and foreign investment will be closely monitored in the coming months.