President Vladimir Putin explained that taxes and non-tax charges need to be raised even despite the fact that the Russian budget will have a surplus. He made this statement during his annual news conference.
The President justified the measure by the fact that the country’s budget is largely dependent on the commodity exports, oil and gas. Therefore, non-commodity revenues must be increased.
The value-added tax increase starting from January 1, 2019 is due to the need to limit the non-commodity revenue deficit, Putin explained. VAT will be increased from 18% to 20%. The President said he hopes no further increase will be necessary.
“I hope it is a one-off measure that will cause a slight increase in prices and inflation only in the beginning of the year,” the President said.
“Raising VAT, even if not repeated in 2019, cannot be a ‘one-off measure.’ This was admitted by the Central Bank,” notes tax expert and director of the Uproshchyonka (‘simplified taxation system’) website Nikolai Yepikhin. “VAT is included in the price of goods and services as well as gas, airplane tickets and other things. That is, it will be charged several times, which will lead to the price increase of more than 2%, more likely by 8% to 10%. Of course, companies will refuse to partly compensate for this additional burden, except for those who will resort to price dumping. Therefore, it will be consumers who will pay for the VAT increase.”