Tax Increases Will Not Save russia’s Regions from Deficits

russian regions are preparing to raise taxes and abolish tax breaks in an attempt to patch up the growing holes in their budgets. However, these measures are unlikely to have the desired effect – money won’t multiply, while the tax burden will further exacerbate the crisis.

Novosibirsk, Orenburg, Yaroslavl, Voronezh, and Ulyanovsk regions, as well as Dagestan and the Krasnoyarsk Territory, have already begun planning regional tax increases. In particular, transport tax will increase in three regions: in Novosibirsk region – by 10.9 %, in the Krasnoyarsk Therritory – by more than 10 %, and in Orenburg region – by more than 30 %.

Authorities of Novosibirsk also plan to abolish the reduction coefficient for personal income tax on real estate sales from 2025 – the tax will be calculated based on the full cadastral value. In Ulyanovsk region, it has been proposed to abolish the preferential rate of 1 % for small businesses under the simplified system. Similar steps are being prepared in Dagestan and Voronezh, while in Yaroslavl region, the governor has instructed that land and property taxes be raised to the maximum level.

The reason is an acute shortage of regional finances. The cumulative budget deficit of the federal subjects has increased 1.5 times – to 724.8 billion rubles, while the number of subsidized regions has grown from 45 to 68. Despite the planned increase in rates, budget revenues will not increase significantly: entrepreneurs will look for ways to avoid paying, while debts will grow.

Financial pressure is already forcing the authorities to cut back on everything, even on things that until recently were considered untouchable. Samara region has reduced payments under its contract with the ministry of defense fivefold, from 2.1 million to 400,000 rubles. Tatarstan, Ulyanovsk region, Chuvashia, and Mari El have already switched to the minimum level of compensation – another sign that the regions are simply running out of money.