The Russian State Duma and Federation Council have approved a tax reform bill aimed at boosting fiscal revenues on 10 July, 2024. Proposed by the Ministry of Finance and endorsed after rigorous debate, the legislation ushers in significant changes to both corporate and personal income taxes.
Chris Weafer, CEO of Macro-Advisory consultancy, characterised the tax increase as a strategic move by the government to lessen its dependence on oil revenues amid escalating Western sanctions targeting Russian oil exports.
He commented, “The aim is to diversify the tax base, reducing vulnerability to external pressures and enhancing economic resilience by prioritising domestic sources.”
The legislation introducing a progressive tax on personal income marks a significant departure from the flat-rate tax implemented in 2001, which was widely praised for enhancing revenue collections.
The reform entails a notable increase in the corporate income tax rate, soaring from 20% to 25%. For personal income, a new tiered structure will be implemented:
- Incomes up to RUB 2.4 million will face a 13% tax rate.
- Incomes exceeding RUB 2.4 million up to RUB 5 million will be taxed at 15%.
- Those between RUB 5 million and RUB 20 million will incur an 18% tax.
- Higher incomes ranging from RUB 20 million to RUB 50 million will face a 20% tax rate.
- Incomes surpassing RUB 50 million will be taxed at 22%.
Additionally, the revised legislation includes adjustments to the mineral extraction tax, affecting sectors such as iron ore, fertilisers, coal, diamonds, and gold. Furthermore, corporations investing in approved projects will benefit from new tax deductions aimed at fostering economic growth.
The tax reform is projected to generate an additional RUB 2.6 trillion in federal revenues in 2025. Before taking effect the bill must be signed into law and published in the Official Gazette.
The bill is expected to take effect on 1 January, 2025.
Earlier, Russia’s Ministry of Finance presented a set of draft laws to the Russian Government intended to enhance the tax system on 29 May, 2024. The package contained several major amendments to the Tax Code, Budget Code and Budget Law for 2024 and the planned period of 2025 and 2026. These amendments were reviewed and approved by the Government Commission for Law-Making on the same day.
