SVR: In 2026 Russia Will Face An Intensification Of The Economic Crisis

The Kremlin's decision points to budget shortfalls.

Russia plans to increase VAT to 22% from January 1, 2026, but this will not lead to an increase in budget revenues, but will negatively affect consumers. This is written by the Foreign Intelligence Service of Ukraine.

According to the SVR, in 2026, Russia's VAT revenues will be $6.1 billion less than the Russian Ministry of Finance forecasts.

Because of the VAT increase, domestic demand will decrease, which will reduce revenues from excise taxes and fees. High prices will reduce corporate income, labor remuneration fund and tax payments from personal income. Reduced dividends to shareholders will lead to losses for companies, and regions will lose a significant part of their revenues.

The VAT increase will increase inflationary pressure and force to keep the discount rate high. This will increase the cost of government borrowing. Note that only a few countries in the world have a VAT higher than 20%, for example, Hungary has a VAT of 27%.

The Kremlin's decision to increase VAT points to budget deficits resulting from lower foreign exchange earnings and increased spending on the military-industrial complex. Russian regions are now in a very serious budget crisis.

For example, the Arkhangelsk region, with an annual budget of 156 billion rubles, has only 50 million rubles left in its reserves, the Volgograd region has 100 million rubles, and the Belgorod region has 200 million rubles.

Because of the budget crisis, Russian regions are forced to cut spending on education and health care and postpone the repair of infrastructure facilities.

SVR believes that by the end of 2025, the budget crisis of Russian regions will worsen, as they have no new sources of income, while expenditures are increasing.

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