Putin Targets Miners for New War Taxes

Russian households and businesses face new financial burdens as the government seeks to fund its war effort in Ukraine. The proposed 2027 through 2029 state budget, scheduled for a vote in parliament on Thursday, introduces tax hikes for specific sectors. These measures target mining companies and wealthy individuals rather than applying across the board.

The state faces a widening fiscal gap. Through August, the budget deficit reached 5.8 trillion rubles, which equals 72 billion dollars. This figure is nearly 50% higher than the same period last year. It also exceeds the previously revised target of 4.8 trillion rubles. Contributing factors include heavy military spending, weak economic growth, high interest rates, labor shortages, and Ukrainian attacks on oil infrastructure.

The new tax code imposes a windfall profits tax of 20% to 30% on miners. This fee applies to producers of iron ore, nickel, and gold that have benefited from rising prices. Income from interest, dividends, and property sales will face rates between 13% and 22%. This is an increase from the current 13% rate for income under 2.4 million rubles and 15% for amounts above that threshold. Starting January 1, a 100-ruble charge and 22% value-added tax will apply to foreign online purchases under 200 euros. A 35% tax will also hit dividends paid to foreign investors from designated unfriendly countries.

Residents of Moscow expressed mixed reactions to the changes. Nelly Godunova, 92, said, "What can you do?" Sergei Sukachev, who described himself as almost 70, noted that the funds support the military. He added that the best approach is to hang on and get their way. Chris Weafer, CEO of Macro-Advisory Ltd., stated that Russia has enough financing to cover the 2027 deficit and likely 2028. However, this comes at the cost of higher taxes and expenses for households and businesses. Weafer described the budget as primarily funding the military, leaving less for normal development.

The government has also seized assets from foreign companies. A subsidiary of the German retailer Metro was placed under temporary administration. The firm was required to contribute 1 billion rubles, or 12 million dollars, to the war effort. Metro AG stated it had no role in the donation, saying it does not reflect the company's business practices. Metro Russia said the funds will buy vehicles, communications devices, and anti-drone equipment for soldiers. Weafer suggested these seizures may serve as bargaining chips for a deal on frozen Russian assets.

Official economic data suggests stability, with the government forecasting 0.6% growth for this year. Unemployment is at a record low, and public debt remains minimal. Oil export earnings have held steady due to higher global prices driven by the war in Iran. Finance Minister Anton Siluanov expects the revised deficit to be around 3% of GDP, up from 1.6% last year but near the EU average of 3.1%.

Financial options are becoming more limited. Sanctions block access to international bond markets, and domestic resources are heavily used. Banks resisted low rates on government bonds this summer before sales resumed with better terms. The liquid assets of the National Wealth Fund have shrunk to 1.7% of GDP. The Kyiv School of Economics describes Russia's finances as stable for now but warns that the room for maneuver is limited.