Russia’s Healthcare, Infrastructure to Gain from VAT Hike, Government Says

The Russian government plans to use additional revenues from increasing the value-added tax (VAT) from 18% to 20% for financing infrastructure, health care, and education, Finance Minister Anton Siluanov said on Sunday in an interview with Channel One.

According to the preliminary calculations by the Ministry of Finance, the additional revenues will reach about 600 billion rubles ($9.57 billion) a year.

“The money … we will use first of all for health care, education, infrastructure projects,” Siluanov, who is also First Deputy Prime Minister, said, according to TASS.

According to the Ministry of Finance, increasing VAT will accelerate inflation by 1-1.5% in 2019 but take into account the current inflation forecasts of 3%, final inflation will fit into the target indicators of the Central Bank – 4%, Siluanov said.

According to him, after the increase, prices of goods will rise – except for those that will retain a 10% discount.

“These include food products based on a larger range of those that are consumed by citizens with low incomes. Medical products, medicine, and so on, the rate was 10%, and it remains. The goods that are socially very important,” Siluanov explained.

In a preliminary vote this month, Russian lawmakers backed a proposal to raise VAT to fund President Vladimir Putin’s pledge to increase social spending for the next six years.

According to a budget plan released in June, the VAT increase should generate around 630 billion roubles ($10.01 billion) of extra budget revenue in 2019, rising to 730 billion roubles in 2021. As a result, the government expects Russia’s debt-to-gross domestic product ratio will increase to 16.6 percent in 2021 from 14.0 percent this year.