Russia approves VAT increase to 20%
At a plenary meeting on Saturday, July 28, Russia’s Federation Council approved a bill providing for an increase in the value-added tax (VAT) from 18% to 20%, in addition to new social security tax rates.
The government of Dmitry Medvedev has claimed that the increase in the VAT will add 620 billion rubles to the federal budget each year.
At the same time, certain VAT benefits will remain. There is discussion of lowering the VAT rates to 10% for social goods: food items (with the exception of gourmet products), goods for children, periodicals and books related to education, science and culture, and also medicines and medical supplies. There is no VAT rate applied for interregional air transport.
Russian economist Vladimir Rozhankovsky has reported that the value-added tax increase in Russia starting January 1, 2019 will primarily help small businesses, including those located in annexed Crimea.
The Russian State Duma had already approved a bill to increase the value-added tax rate to 20% starting on January 1, 2019. The rate currently stands at 18%. The bill also extends a zero percent tax rate for air transport to annexed Crimea and Sevastopol until 2025.
The Russian Ministry of Economic Development has recognized that the VAT increase will lead to higher inflation: in 2019 it will exceed the 4% target set by the Central Bank of Russia. The growth of real wages will be less than 1%. Experts warn that in the first quarter of next year real incomes among the Russian population may go down.
The increase in VAT rates along with an increase in the retirement age has become a reason of protests in Russian cities that have continued from the second half of June.