Core Viewpoint - The ongoing Russia-Ukraine war has led to significant budget deficits in Russia, prompting the government to propose an increase in value-added tax (VAT) to bolster state revenue [3][6]. Group 1: Tax Policy Changes - The Russian Ministry of Finance has proposed raising the VAT from 20% to 22% starting next year, which is expected to generate approximately 1.3 trillion rubles annually [3][6]. - Essential goods such as bread, dairy products, meat, pharmaceuticals, and children's items will maintain a reduced VAT rate of 10% [6]. Group 2: Economic Implications - The increase in VAT is anticipated to have a moderate and limited impact on consumer prices, according to the Ministry of Finance [3][6]. - The Central Bank of Russia has expressed concerns that previous VAT increases have led to inflationary pressures, with a 2% increase in 2019 resulting in a 0.6 percentage point rise in inflation [6][9]. - VAT is projected to account for 40% of the Russian government's total revenue by 2025, highlighting the significance of this tax source [6]. Group 3: Broader Economic Context - Despite declining energy revenues and increasing budget deficits, President Putin remains committed to continuing the war, which raises concerns about the sustainability of Russia's economic situation [9][11]. - Initial economic benefits from the war, such as increased resource demand and low unemployment, are not expected to last, and there is a lack of dissent within the political sphere regarding the ongoing conflict [11].