MOSCOW: Russia on Wednesday proposed hiking sales taxes to raise funds for its military offensive on Ukraine amid a slowing economy and widening budget deficit.
After two years of robust growth, spurred by a massive ramp-up in spending on its army, Russia's economy is now slowing, putting pressure on tax revenue, and authorities are looking to tap the pockets of citizens and businesses to plug the budget gap.
With a budget deficit so far this year of around $50 billion, Russia's finance ministry proposed raising value-added tax (VAT) from 20 to 22 percent from next year.
The ministry said it was a necessary move "aimed first of all at funding defence and security."
But the proposal got a mixed reaction on the streets of Moscow.
"It's horrible. In my opinion, this rate increase is madness," Svetlana Vasilenko, an accountant, told AFP.
"I have many acquaintances who own businesses, and even at 20 percent, it is already very difficult for them," the 68-year-old added.
But some were ready to tighten their belts.
"If the state has nowhere else to get money, then there is no other option. What even to discuss?" Fyodor, a Russian soldier who fought in Ukraine in 2023, told AFP.
"If it has to be done, it has to be done."
Oleg, a 33-year old lawyer, said he didn't mind the proposal, but warned: "people are unlikely to be in favour of it."
Russian government spending has jumped more than two-thirds since the start of the Ukraine offensive, with military expenditure accounting for almost nine percent of GDP, according to President Vladimir Putin -- levels unseen since the Cold War.
That has helped Moscow avoid predictions that Western sanctions would collapse its economy, but led to a spike in inflation.
The $50-billion deficit in the first eight months of the year -- equivalent to roughly two percent of GDP -- is three times more than at the same stage of 2024.
While its deficit is low by international standards, Russia has been cut off from international capital markets and has had to rely on domestic bond investors and running down its sovereign wealth fund.
A similar hole is expected next year, according to the budget proposals published Wednesday.
Moscow is yet to unveil how much it plans to spend on its military and security next year.
Ukraine's economy has been decimated by the fighting with Kyiv relying on Western financial support to stay afloat.