The Ministry of Finance proposes increasing the VAT rate from 20% to 22%.

The Ministry of Finance is proposing to increase the general rate of one of Russia's main taxes, VAT, from 20% to 22%. The Central Bank assures that this increase will be inflation-neutral. At the same time, the Ministry of Finance will lower the income threshold for businesses paying taxes under the simplified tax system without VAT from 60 million to 10 million rubles per year. The corresponding amendments have been included in the budget bills for 2025 and 2026-2028. According to Alfa-Bank estimates, this increase could bring up to 1 trillion rubles per year to the budget. However, these funds will primarily be used to finance defense and security, the Ministry of Finance clarified in a press release. The preferential VAT rate of 10% will remain in effect for all socially significant goods, including food, medicines and medical products, children's goods, and others. The Central Bank has already stated that the VAT increase will be inflation-neutral, but promised to analyze its impact in its updated October forecast. "These initiatives are consistent with the budget preparation process, which was taken into account when deciding on the rate at the meeting on September 12. Financing additional spending through taxes, while maintaining the plan to return to a zero structural primary deficit in 2026, is generally neutral for inflation dynamics in its sustainable part. At the same time, we will take into account the short-term secondary effects of the VAT increase on inflation expectations. We will reflect this when updating the forecast on October 24," the Central Bank commented on the plans to increase VAT from 20% to 22%. Bank of Russia Governor Elvira Nabiullina asserted at a press conference on September 12 that a balanced federal budget is more important for decision-making than raising specific taxes.

Alfa Bank analysts note that the pass-through of the increased VAT to final product prices will lead to an increase in inflation of 1-2 percentage points. "This means that the 2026 rate forecast will likely be in line with the Central Bank of the Russian Federation's inflation scenario, which envisages a key rate range of 14-16%," Alfa Bank's review states.