Can Russia’s tax system withstand sanctions?

GIS – Comment by Evgeny Gontmakher*

Can Russia’s tax system withstand sanctions? Russia’s tax regime puts a heavy burden on labor costs and has done little to remedy the economy’s dependence on oil and gas exports.

Russia tax system
Can Russia’s tax system withstand sanctions? Under unprecedented sanctions after invading Ukraine, Russia saw the ruble plummet to record lows in March 2022. © Getty Images

The Russian tax system began to take shape after the collapse of the Soviet Union in December 1991. That month, a law “on the fundamentals of the Russian Federation’s tax system” was adopted, introducing a series of new revenue sources – including a value-added tax, income tax, excise taxes on alcohol and tobacco products, and other levies. In 1998, the rst part of the Russian Federation’s Tax Code was approved, followed by the second part in 2000. This code constitutes the main legislative act in the Russian tax system.

Like most tax systems in federal states, Russia is organized on three levels: federal, regional and local (or municipal). Of the country’s 14 varieties of taxes, eight are levied on the federal level (including state duty), three by the regional and three by the local authorities. Standing apart from this total are ve special tax regimes, along with mandatory insurance payments and a new, experimental tax for self-employed persons, introduced in 2019.

In terms of collection, almost all Russian taxes are direct, that is, charged on the income or value of the taxpayer’s property. The sole exceptions are VAT and excise taxes, which are included in the cost of goods, services or labor. In effect, these indirect taxes are paid by buyers of these goods, services or labor, with the seller acting as an intermediary between the taxpayer and the state.

Federal taxes

Federal taxes include a at personal income tax of 13 percent for annual incomes of up to 5 million rubles (approximately $45,000 after the ruble’s recent plunge following Western sanctions). For personal income above that level, the marginal rate rises to 15 percent. Of the revenue generated, 85 percent is transferred to regional budgets and the rest to local (municipal) governments. Corporate prots are taxed at 20 percent, with 15 percent of the revenue going to the federal budget, and 85 percent to the regions. The value-added tax (VAT) is set at 20 percent – 10 percent for food and medical products – and is fully paid into the federal budget …

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Can Russia’s tax system withstand sanctions


*GIS Guest Expert Professor Dr. Evgeny Gontmakher graduated from Moscow State University in 1975. He then worked as a researcher in the Central Economic Institute under the Russian Ministry of Economy. From 1992 to 2003, he held several positions, including Head of Department at the Russian Ministry of Labor, Deputy Minister of Social Protection, Deputy Chair of the Presidential Council for Social Policy, and Head of Department for the Russian Governmental Staff. From 2009 to 2006, he was Deputy Director and Chief Researcher at the Primakov National Research Institute of World Economy and International Relations (IMEMO) of the Russian Academy of Sciences. He has been a member of the executive board of the Institute of Contemporary Development since 2008. He has also held a professorship at the National Research University Higher School of Economics in Moscow since 2009. He has served as the academic director of the expert group European Dialogue since 2016.

GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world.