Russian businesses face severe economic pressure as Ukraine war approaches fourth anniversary
Kremlin implemented new tax reforms increasing VAT and lowering revenue thresholds
Small business owners report declining demand and tax obligations tens of times higher
Industry associations predict mass closures as tax deadlines approach in April
Government's tax strategy aims to create stable income sources as oil revenues decline
📖 Full Retelling
As Russia's full-scale invasion of Ukraine approaches its fourth anniversary in February 2026, small businesses across the country from bakeries to beauty shops are facing severe economic pressure as the Kremlin implements new tax reforms to address dwindling oil revenues and growing budget deficits. Denis Maksimov, a Moscow bakery owner who gained national attention after appearing on President Vladimir Putin's annual call-in show, exemplifies the struggle as he faces dramatically increased tax burdens that threaten his business's survival. Business owners report declining demand, rising costs, and tax obligations tens of times higher than before, forcing some to close operations while others desperately seek government relief. The economic strain becomes increasingly visible as the Russian government has raised the value-added tax by 2% and drastically lowered revenue thresholds requiring businesses to pay it. The threshold for VAT payment was reduced from 60 million rubles ($783,000) annually to 20 million rubles ($261,000) this year and will further decrease to 10 million rubles ($130,500) by 2028. Similar changes affected small businesses using the 'patent taxation system,' which previously allowed fixed annual payments of only tens of thousands of rubles. Now, those exceeding the revenue threshold must pay at least a 6% tax on revenues plus a 5% VAT, creating an overwhelming financial burden for many small enterprises that previously operated profitably under the previous system. The impact is widespread and severe, with Darya Demchenko, owner of a chain of beauty salons in St. Petersburg, forced to close one location and sell another to remain operational. Meanwhile, pastry shop owners Ilsiya Gizatullina and Railya Shayhieva made the painful decision to shut down their Kazan business entirely after surviving the pandemic. Industry associations report approximately 10% of beauty businesses in St. Petersburg closed or were sold in December and January alone, with more closures anticipated this spring as tax deadlines approach.
🏷️ Themes
Economic pressure, Tax reform impact, Small business survival
The territory of present-day Ukraine, a large country in eastern Europe north of the Black Sea, has been either invaded or occupied a number of times throughout its history.
This matters because the financial strain on small businesses highlights the broader economic pressures Russia faces after four years of war in Ukraine. The government's shift of the tax burden onto small and medium enterprises (SMEs) risks widespread business closures, which could stifle economic recovery and innovation in the long term.
Context & Background
Russia's full-scale invasion of Ukraine began four years ago
Military spending initially fueled economic growth but has now leveled off
Government is raising taxes on SMEs to address a budget deficit and dwindling oil revenues
New tax reforms drastically lower revenue thresholds for VAT and patent system eligibility
Small businesses report falling demand and rising costs from suppliers
What Happens Next
The first major tax payment deadline in April 2026 is expected to trigger a wave of business closures and bankruptcies as owners realize they cannot pay. The tax thresholds will be lowered further in 2027 and 2028, extending the financial pressure to even smaller businesses.
Frequently Asked Questions
What are the main tax changes affecting Russian small businesses?
The VAT rate increased by 2%, and the revenue threshold for paying VAT was lowered from 60 million rubles to 20 million rubles in 2026, with a planned reduction to 10 million rubles by 2028.
Why is the Russian government increasing taxes on small businesses?
The government needs to create stable revenue sources to address a growing budget deficit and compensate for dwindling oil revenues, as military spending has leveled off.
How are small businesses responding to the new tax burden?
Many are downsizing, selling their businesses, or closing entirely due to the combination of higher taxes, increased supplier costs, and falling consumer demand.
Original Source
From bakeries to beauty shops, Russian businesses are feeling the pain As Moscow’s full-scale invasion of Ukraine marks four years, the pressure on Russia’s economy is starting to show By DASHA LITVINOVA Associated Press February 23, 2026, 12:11 AM Denis Maksimov’s bakery in suburban Moscow became famous overnight after he appeared on President Vladimir Putin’s annual call-in show in December . Standing in front of the bakery — called Mashenka, after his oldest daughter -– he pleaded with Putin via video to look into new tax reforms that are significantly increasing the burden on small businesses like his. “We understand very well that it’s not an easy situation for the country. We understand that raising taxes is necessary,” Maksimov said. “We’re looking ahead without optimism, frankly speaking. Many will close down.” As Putin's full-scale invasion of Ukraine marks four years, the mounting pressure on Russia’s economy is starting to show. Oil revenues are dwindling , the budget deficit is up, and military spending that fueled robust growth has leveled off. The Kremlin is now tapping consumers and small businesses for funds. The value-added tax has been raised by 2% and revenue thresholds for requiring businesses to pay it have been lowered drastically. Ordinary Russians appear to be feeling the pain. Business owners interviewed by The Associated Press described a steady decline in demand for their goods and services, a sudden increase in costs as suppliers adjust to the tax reform, and a tax burden that's now tens of times higher. Some said they downsized to keep operating, while others closed. A recent video on social media showed the economic fallout: Vacant commercial spaces on St. Petersburg's main street, Nevsky Prospekt, where shop after shop went out of business. “I’ve never felt so scared as this year, so unprotected, so anxious,” said Darya Demchenko, who owns a chain of beauty salons in Russia's second largest city. Maksimov’s plea to Putin failed to reve...
