Russia’s war-driven tax squeeze pushes small businesses to the brink

{"text":[[{"start":10.29,"text":"In 2021, Elena Valeeva and her husband opened a ceramics studio in the central Russian city of Perm. The business picked up and soon they had expanded to two other locations."}],[{"start":24.42,"text":"But five years on, their revenues have dwindled and the state has started raising taxes to fund its war effort in Ukraine. After several months of anguish, the couple decided to sell the business altogether and move abroad. "}],[{"start":39.410000000000004,"text":"“We are not closing out of weakness but because we can count,” Valeeva said, adding that many entrepreneurs in her circle were considering the same. "}],[{"start":49.440000000000005,"text":"A recent VAT increase from 20 to 22 per cent, along with a lower threshold at which small and medium-sized enterprises must pay it, has pushed hundreds of thousands of businesses to the brink."}],[{"start":63.02,"text":"Although Russia has benefited from a recent surge in energy prices and a global supply crunch triggered by the Iran conflict, the war continues to eat up most of those revenues, putting the squeeze on non-military spending. "}],[{"start":null,"text":"

"}],[{"start":79.01,"text":"The Russian budget deficit in the first quarter of 2026 doubled year on year, reaching Rbs4.57tn ($60bn) and overshooting the annual target by 20 per cent. "}],[{"start":96.41,"text":"Russian President Vladimir Putin was confronted about planned tax increases during his annual telethon late last year. During the choreographed Q&A, Denis Maksimov, owner of the Mashenka bakery chain, warned the measures would deal a fatal blow to businesses like his. Putin said he would help and asked the baker to send him “something nice to eat”."}],[{"start":120.86,"text":"The Kremlin released footage the next day of Putin drinking tea with Mashenka’s stuffed pies. The bakery also reportedly prepared a basket of muffins for US President Donald Trump’s special envoy, Steve Witkoff, when he visited Moscow in January."}],[{"start":140.06,"text":"The Russian government in early March proposed delaying the tax changes for cafés and restaurants until 2027. But for other SMEs, including Valeeva’s, the threat remains existential. "}],[{"start":null,"text":""}],[{"start":155.66,"text":"About 6 per cent of entrepreneurs have already closed their businesses, while only a quarter are confident they will continue operating, according to a report last month by Russia’s largest SME association, Opora Russia. "}],[{"start":171.65,"text":"Hundreds have taken to Instagram, rallying around the hashtag “I am Mashenka” as a symbol of resistance. “Mashenka stands for entrepreneurs across the country. It is the neighbourhood hairdresser, the small café, the workshop,” Darya Demchenko, an owner of a beauty salon in Saint Petersburg, said in an Instagram video."}],[{"start":193.49,"text":"In late 2025, restaurants began closing even on Patriarch’s Ponds, a central Moscow district known for conspicuous wealth. Media carried headlines such as “Restaurant apocalypse reached Volgograd” or “Cafés and restaurants in Novosibirsk are closing on a mass scale.”"}],[{"start":null,"text":""}],[{"start":212.98000000000002,"text":"According to Ivan Fedyakov, chief executive of analytics company Infoline, closures are anticipating the effect of the tax rises — as first payments are only due this month — and reflect accumulated pressures. “Many believe things will only get worse,” said Fedyakov."}],[{"start":233.12,"text":"Consumption, which was until recently one of the nation’s main growth engines, fell sharply in the second half of last year. In March 2026, consumer spending grew by only 5.4 per cent year on year, about half the average rate seen in 2025. Borrowing costs have climbed as the central bank kept its key rate in double digits to curb inflation. "}],[{"start":259.45,"text":"Entrepreneurs have suffered economically more than Russians on average, said Aleksei Miniailo, co-founder of Chronicles, an independent sociological group. In its latest survey, 45 per cent of business owners reported worsening finances and 22 per cent said they had lost savings. "}],[{"start":null,"text":""}],[{"start":280.09,"text":"Many are expected to move into the grey sector. Galina Polyakova, the owner of three beauty salons in Saint Petersburg, hoped “those in government will come to their senses and help”, warning that otherwise “everyone will end up serving clients at home”."}],[{"start":299.84,"text":"Putin has urged the government to boost tax collection with proposed fines five to 15 times higher for those failing to use cash registers. Signs reading “cash only” began to appear at tills nationwide, reversing years of efforts to build a system where most of the payments are cashless. "}],[{"start":320.78999999999996,"text":"“People are preparing for the future when they see they’re going to be squeezed,” state news agency quoted Mikhail Delyagin, the vice-head of the Russian parliament’s economic committee. "}],[{"start":332.78,"text":"The state also halted a range of SME support programmes. “They have run out of money for it — it has all gone to war,” said Alexandra Prokopenko, a fellow at Carnegie Russia Eurasia Center. "}],[{"start":358.24999999999994,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1776266580_3409.mp3"}