Russia Raises Taxes and Food Prices to Fund Military

The Federal Government of Russia implemented a wartime tax overhaul in early 2026 to offset a widening budget deficit caused by falling oil revenues and high military expenditures. Central to these reforms is a value-added tax (VAT) increase from 20% to 22% and a drastic reduction in the revenue threshold for VAT eligibility, which dropped from 60 million rubles to 20 million rubles. This threshold is scheduled to fall further to 10 million rubles by 2028.

These fiscal measures have triggered a sharp rise in consumer prices, most notably for basic goods. Cucumber prices doubled since December to average over 300 rubles per kilogram, becoming a symbol of broader economic strain. Overall supermarket prices rose 2.3% in less than a month, while dairy products saw a 41% increase between January 2024 and January 2026. The Ministry of Agriculture attributed the cucumber spike to seasonality and a harsh winter, but political opposition parties have demanded price caps on essential foods.

Small and medium-sized enterprises are facing a wave of bankruptcies and closures. In St. Petersburg and Kazan, bakeries and beauty salons have shuttered as they struggle with the new tax burdens and falling demand. Vladimir Putin defended the reforms as a means to combat illegal imports, though he promised to investigate the strain on small businesses following direct appeals from entrepreneurs. Meanwhile, the Central Bank of Russia reduced its reference rate to 15.5% to combat economic stagnation as GDP growth slowed to 1% in 2025.