Nov 21 (Reuters) – Russian businesses understand that another round of tax hikes is inevitable as the government seeks to rein in a ballooning budget deficit, but they want more predictable fiscal policies, the head of the country’s top business lobby said on Tuesday.
The costs of the conflict in Ukraine have placed growing strains on state finances. A government document seen by Reuters in August showed Russia has doubled its 2023 defense spending target to over $100 billion, or a third of all public spending. The Russian government has already raised taxes, including introducing a one-off windfall tax on big business, aimed at raising 300 billion roubles ($3.34 billion) to help finance the budget deficit. It also hiked mineral extraction taxes on the energy sector and imposed export duties linked to the rouble-dollar exchange rate from Oct. 1.
Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs (RSPP), told a financial conference that businesses are ready to discuss with the government increasing income tax if there are intelligible, clear, and fairly systematic investment tax deductions. He said that while they understand that the tax system cannot remain unchanged, they need formulas that will allow both the finance ministry and business to understand how the tax situation will change when certain conditions vary.
Last week Russian businessmen meeting with President Vladimir Putin proposed that any increase in income tax be accompanied by greater long-term predictability in fiscal policy, Vedomosti newspaper reported, citing unnamed sources. A source familiar with the discussions told Reuters that “business understands that exactions will continue.” This is an attempt to conclude a gentleman’s agreement – we pay more but there are no unexpected changes in the near future.”
Russia’s economy is facing pressure due to high inflation rates and falling oil prices, which have affected consumer demand and reduced government revenue from oil exports. The Kremlin has announced plans for reforms aimed at increasing efficiency and reducing costs across various sectors of the economy as it seeks to maintain its position as one of Russia’s largest oil producers and exporters.