Russia’s Wartime Economy Faces Cash Shift as Taxation Policies Intensify

The Russian government is intensifying efforts to combat the shadow economy, a priority for the Kremlin amid ongoing wartime economic challenges. Ahead of a value-added tax increase, President Putin emphasized that stricter regulations should not drive businesses underground and urged a “radical reduction in illegal employment.”

“One arm of the government is trying to squeeze as much money as possible out of people through higher taxes, fines and other charges,” Alexander Kolyandr, a non-resident senior fellow at the Center for European Policy Analysis, told the BBC.

However, competing priorities—such as measures to address perceived security threats—have inadvertently undermined tax collection strategies. Mobile internet shutdowns during heightened security periods, including Russia’s Victory Day celebrations in May, disrupted access to digital banking services.

Despite offering double-digit returns on deposits to combat war-driven inflation, the central bank reported that savers withdrew 550 billion rubles in May, with 200 billion rubles pulled from fixed-term accounts. A 100,000-ruble one-year deposit at state-owned Sberbank currently yields 10% interest, yet public preference for cash persists.

In Moscow, anecdotal evidence suggests businesses are incentivizing cash payments. A vinyl shop vendor reportedly offered a discount to a customer for using cash, citing tax pressures. During recent shutdowns, residents faced difficulties accessing ATMs, with one witness describing individuals hopping between machines to locate ones still dispensing cash at a central flower market.

Source link