Russia's 2024 Tax Reform Explained: 25% Profit Tax, Five-Tier Income Scale and VAT for the Simplified Regime

In July 2024 the president of Russia, Vladimir Putin, signed a law that rebuilds the country's tax architecture from January 1, 2025 — the most consequential fiscal recalibration since the flat-rate settlement of the early 2000s. The package lifts the corporate profit tax from 20% to 25%, replaces the two-step personal income tax with a five-tier progressive scale topping out at 22%, brings value added tax to the simplified regime for the first time in its history, and rewires mineral extraction levies for rent-rich industries. By the Finance Ministry's own estimate, the systemic changes will add roughly 2.6 trillion roubles a year to the budget. This deep dive, based on the analysis published by Expert magazine on August 9, 2024, reconstructs the logic of the reform segment by segment: what changes for households, for large corporates, for extractives and IT, and for the millions of small businesses on the simplified regime — and why the state concluded that the era of cheap fiscal peace is over.

Why now: a budget with a chronic deficit

The timing is the first thing to understand, because the reform is less an ideological turn than a budgetary necessity. Vladimir Klimanov, director of the Centre for Regional Policy at the RANEPA presidential academy, frames it bluntly: the country has entered an era of deficit "of a chronic character". The federal budget closed 2023 with a gap of 3.2 trillion roubles, and 2024 was expected to end roughly 1.6 trillion roubles in the red; every additional rouble raised by the new rates flows to the federal treasury. Klimanov lists several roots of the chronic gap — tighter Western sanctions, spending linked to the special military operation, and the launch of a large-scale transformation of the economy — and adds one enabler that is easy to miss: the technological readiness of state information systems to administer a far more complex tax design than the flat-rate one they were built for.

There is also a political-calendar argument. The recalibration lands at the very start of a new six-year cycle and is meant to finance the programme announced in the president's 2024 address to the Federal Assembly; executing the instructions that followed it will require more than 1 trillion roubles a year, the Finance Ministry estimated. A tax system that had been tuned for surplus years simply did not have the revenue base for that agenda.

Households: five brackets instead of two

From January 1, 2025 the personal income tax (NDFL) moves from a two-step design — 13% and 15% on income above 5 million roubles a year — to a five-tier progressive scale. As before, elevated rates apply only to the part of income above each threshold rather than to the whole sum:

• annual income up to 2.4 million roubles — the base rate of 13%;
• the slice between 2.4 million and 5 million roubles — 15%;
• the slice between 5 million and 20 million roubles — 18%;
• the slice between 20 million and 50 million roubles — 20%;
• income above 50 million roubles — 22%.

The changes are deliberately not frontal. The Finance Ministry estimates that no more than 3.2% of working citizens will be touched by the deeper progression, and the law carves out explicit exemptions: it does not reach the income of participants in the special military operation, nor the northern top-ups and additional payments of people working in the Far North. Families with children receive a so-called tax cashback: where per-capita family income does not exceed 1.5 regional subsistence minimums, their NDFL rate is automatically reduced to 6%.

A tax on the wealthy — for now

Anton Prokurdin, chief macroeconomist at the Ingosstrakh-Investments management company, observes that in its current configuration the scale is effectively a levy on the affluent: in countries with comparable designs the progressive brackets cover at least 60% of citizens. Finance Minister Anton Siluanov defended the scale as competitive and reasonable, noting that the progression principle is used both by neighbouring states, where the top of the scale reaches 25%, and by distant ones, where top rates climb to 45–55%. For comparison: China currently operates seven personal income tax rates, Brazil five and India four.

The deeper question is indexation. The government has said nothing about a mechanism for adjusting the thresholds over time, Prokurdin points out, and without one the "wealth tax" will drift into an ordinary progressive scale within about a decade as nominal incomes grow through the brackets. Andrei Klepach, chief economist at VEB.RF, estimated that if thresholds stay frozen, some 13% of the population will fall under the progression by 2030. A tax on the rich today is, on that reading, a tax on the upper-middle class tomorrow unless the brackets move.

One deliberate asymmetry deserves attention: the deeper progression does not apply to non-labour income. Dividends, bank deposits, securities transactions and digital financial assets keep a 15% cap — but it now bites above 2.4 million roubles a year instead of 5 million. Artur Gafarov, head of the Institute for Entrepreneurship and Economics Development, reads the cap as a signal designed to keep household money on the domestic financial market and prevent its withdrawal abroad; Prokurdin adds that it sharply narrows the room for tax schemes built on reclassifying labour income. The policy backdrop is explicit: national development goals require the stock market's capitalisation to reach 66% of GDP by 2030, and, in Gafarov's formulation, whether the new rules deliver exactly that figure is hard to say — but at least taxes will not stand in the way.

Corporations: 25% and the end of turnover levies

The corporate profit tax rises by 5 percentage points, from 20% to 25%, on January 1, 2025. The state could afford the step because the corporate sector handed it a comfortable cushion: in 2023 the financial result of Russian companies grew 35.2% year on year to 33.3 trillion roubles, as the Finance Ministry pointed out. Crucially, the hike is paired with the abolition of turnover-based levies, above all the currency-linked export duties introduced across a wide circle of industries in 2023 and later extended to the end of 2024. Business endorsed the trade. Taxing the financial result is more efficient than taxing turnover, noted Alexander Shokhin, head of the RSPP employers' union.

Marina Belyakova, partner at the consulting firm B1 (B1), calls the increase "quite sensitive" — 5 points is a quarter of the previous rate — yet notes that B1's client survey found no fundamental change in corporate strategies or investment plans, and that 25% is not the world's highest rate, sitting only slightly above the 2024 OECD average of 21.7%. Rodion Latypov, chief economist at VTB bank, runs the arithmetic that underpins that calm: the Economy Ministry forecasts corporate-sector profit growth of about 4.8 trillion roubles in 2025, and the profit-tax hike removes 1.6 trillion of it — precisely the Finance Ministry's estimate of annual extra receipts from the rate. Profit therefore keeps growing, at roughly 6% instead of the expected 9–10%. Because the added burden is well below the sector's expected profit increment, it should not demotivate investment, he concludes.

The investment offset: FINV and the regional deduction

To soften the blow, the law makes the regional investment tax credit permanent — it had been scheduled to expire in 2024 — and introduces a new federal investment tax credit (FINV). Its parameters were still being finalised in the summer of 2024, with three designs on the table:

1. a deduction for manufacturing only, at 15%, 10% or 5% of the investment sum;
2. a deduction for manufacturing (excluding coke and petroleum products), hotels and catering, and research and development, at 17%, 11% and 5.5% of the sum;
3. a deduction spanning mineral extraction, manufacturing, air conditioning, hotels and catering, and professional, scientific and technical activities, at 9%, 6% and 3%.

The annual financing ceiling will be set with budget constraints in mind and, as Vedomosti daily reported, is unlikely to exceed 300 billion roubles a year. Belyakova argues that sum cannot satisfy the ambitions of every industry claiming the credit: spread across a wide circle of sectors, it compensates at most 20% of investment — many users, small cheques. Such a preference will not stop planned projects, but it will not become a stimulus for their serious expansion either; and any tax preference, she insists, must have a visible stimulating function.

Latypov puts the whole debate in perspective: the binding constraint on investment today is the labour market, not the tax code. Nominal wage growth of 17% in 2024 — VTB's forecast, driven by an acute labour deficit — costs companies 6–7 trillion roubles, several times the profit-tax increase. Dmitry Panov, chair of the St. Petersburg branch of the Business Russia association, expects the new deduction opportunities to push a significant number of companies into revising their development strategies, with more spending on investment programmes, labour productivity, digitalisation and automation of key processes.

Sectors: banks, rent-rich extractives and the IT carve-out

Predicting the sectoral incidence of a profit-tax hike is "difficult and not always possible", Belyakova concedes, but several patterns stand out:

• banks have no right to the FINV, so their burden rises by the full 5 points — against a backdrop of record sector profit of 3.1–3.6 trillion roubles forecast by the central bank for 2024, after 3.3 trillion in 2023;
• rent-rich industries — fertilisers, iron ore, coal, gold, diamonds and other gemstones — face a higher mineral extraction tax (NDPI) on top of the profit-tax hike, with some formulas re-linked to export prices and others simply re-rated; even after the increase, Siluanov said, their operating profitability stays above 20%;
• the raw-materials sector cannot be assumed immune: it is sensitive to such changes, cautions Vladislav Onishchenko, head of the Agency for Transformation and Development of the Economy, and the ultimate effect on margins depends on the balance of management decisions, state policy, international trade conditions and the rouble exchange rate;
• high-tech winners will be those that maximise the FINV, the double deduction for IT spending and other preferences: IT companies get a preferential 5% profit tax — up from zero, nonetheless — and, for domestic software and listed R&D, an amortisation multiplier raised from 1.5 to 2; the IT industry itself, however, warned authorities about possible price increases and a negative effect on small and mid-size developers.

Onishchenko reads the sectoral logic through the president's national-goals decree, where the accent falls on technological leadership, manufacturing, productivity and R&D: tax stimulation keeps its preferences for high-tech directions precisely because technological sovereignty — machine tools and means of production, robotics, all modes of transport, unmanned, aviation and maritime systems, the data economy, new materials and chemistry — is treated as a condition of economic stability. Dedicated national projects for these spheres were scheduled to launch in 2025.

Small business: VAT arrives on the simplified regime

The most debated novelty for small and medium-sized enterprises concerns the simplified taxation system (USN). From 2025, businesses with annual revenue above 60 million roubles become VAT payers for the first time in the regime's history, with a choice of two routes:

• a reduced VAT of 5% (revenue up to 250 million roubles a year) or 7% (revenue from 250 million to 450 million), without the right to input VAT deductions;
• the classical VAT computed at 20% on sales, with the full right to deduct input VAT on expenses.

At the same time the USN eligibility ceiling rises from the current 265.8 million to 450 million roubles of revenue, and the residual fixed-asset limit from 150 million to 200 million roubles. The elevated USN rates — 8% on the income base and 20% on income-minus-expenses, which applied above 199.35 million roubles of 2024 revenue or with more than 100 employees — are abolished altogether, so the entire regime converges on the base rates of 6% and 15%.

Andrei Shubin, executive director of the Opora Rossii (Opora of Russia) small-business association, calls the design a surprise. On one hand, statistics of recent years showed that USN payers almost never crossed the 60-million contour, so on dry numbers the new VAT should not touch the absolute majority of entrepreneurs on the regime. On the other hand, for those who do fall under VAT the change is a direct increase in costs and tax burden, plus new administrative overhead for accounting. His deeper worry is incentives: an extra tax sitting at the threshold "does not stimulate" companies to grow past 60 million roubles a year — it teaches them to stay below it.

Amnesty for business splitting

The USN changes arrive together with an amnesty for "business splitting" — the practice of dividing a single activity between formally independent entities in order to stay on preferential rates. The amnesty is expected to cover the 2022–2024 tax periods, and forgiveness of back-assessments comes only on condition of voluntarily abandoning splitting in 2025–2026. The law now defines splitting as the division of a single entrepreneurial activity among several formally independent persons, aimed at reducing tax sums through special regimes — a formulation that, Shubin notes, leaves the further refinement of the term to inspectors and enforcement practice rather than giving a clear interpretation.

The tourist tax

Another novelty of principle for small business is the tourist tax, given that SMEs account for about 70% of the tourism industry. Municipalities will set the levy and its size, replacing the resort fee that operated in some regions; the maximum rate in 2025 is 1% of the value of hotel accommodation services, rising gradually afterwards but never above 5%. Unlike the resort fee, it is charged not per person but per occupied room, from the hotel — a small line on a hotel's accounts that becomes a permanent feature of the hospitality business model.

The bottom line

Read as a whole, the 2024 reform is a rebalancing rather than a squeeze, and its internal logic holds together:

1. The burden moves from turnover to result. Export currency duties out, profit tax up — a shift business itself endorsed as more efficient, and one that taxes rent and record profits rather than revenue streams.
2. Progression is narrow by design — and by delay. A five-tier scale touching 3.2% of workers is a political compromise; without threshold indexation it becomes a mass tax within a decade, which is the reform's quietest long-term bet.
3. Capital markets get a shield. Capping non-labour income at 15% subordinates tax design to the 66%-of-GDP capitalisation goal: the state wants household savings on the domestic market, not abroad.
4. Investment support is real but capped. A permanent regional deduction plus a FINV limited to roughly 300 billion roubles a year cushions the hike without promising a boom; the labour deficit, not the tax rate, remains the binding constraint on expansion.
5. The simplified regime loses its innocence. VAT above 60 million roubles, a splitting amnesty and a municipal tourist tax together end the era in which small business lived outside the value added tax — the price of a higher eligibility ceiling.

The 2.6-trillion-rouble question is not whether the state can collect the money — the 2023 profit record suggests it can — but whether the offsets are generous enough to keep the investment cycle alive while the labour market stays overheated. The reform of 2024 answered the deficit question decisively; the growth question it postponed to the practice of 2025 and beyond.