Russia Considers New Industrial Tax to Protect Local Industry and Address Budget Deficit

Russian officials are considering implementing a new industrial tax designed to protect domestic producers from international competition while simultaneously addressing growing shortfalls in the federal budget, according to Industry and Trade Minister Anton Alikhanov.

This initiative arises in the context of the most significant decline in manufacturing activity since the onset of the extensive invasion of Ukraine, coupled with increasing fiscal pressures on the government.

While addressing the Federation Council, Alikhanov referenced a recycling fee that is currently applied to the automotive industry as an example of this strategy.

This fee, which was initially aimed at mitigating the environmental impact of vehicle disposal, is levied on both local and foreign manufacturers, although Russian carmakers receive state reimbursements.

“The recycling fee has successfully acted as a protection mechanism for the domestic automotive sector,” Alikhanov stated.

Nevertheless, Maxim Sokolov, president of AvtoVAZ and Russia’s leading car manufacturer, remarked that the recycling fee only offers minimal support and emphasized the need for further government assistance.

“Alongside existing macroeconomic challenges, domestic producers are also facing substantial threats from dumping practices by foreign importers,” Alikhanov noted, pointing to the sale of goods below market value by international companies in Russia, which creates an uneven playing field for local manufacturers.

High interest rates, too, have considerably diminished the demand for many products, particularly durable goods. Additionally, the strength of the ruble has further complicated matters for Russian manufacturers since a stronger ruble negatively affects exports.

“No matter how it ultimately materializes, the proposed industrial tax is expected to generate additional budget revenue and support the sustainability of local manufacturing,” Alikhanov explained, referring to it as a “protective mechanism” that facilitates the ongoing growth of domestic industries.

Russia’s federal budget is under significant pressure, with projections indicating that the deficit may exceed 3.8 trillion rubles ($48 billion), accounting for 1.7% of GDP.

Analysts from Gazprombank have suggested that the actual deficit may reach 4.3 trillion rubles ($55 billion).

First Deputy Industry and Trade Minister Vasily Osmakov identified the radio-electronics sector as a possible candidate for this proposed levy, though no definitive decisions have been made regarding which sectors might be included.

Sales of home appliances and electronics declined in nominal terms for the first time during the first quarter, as noted by Dmitry Alekseev, the founder of the DNS retail chain. Many consumers rely on credit for purchasing electronics and household goods, yet consumer lending has been decreasing for eight consecutive months.

The state statistics agency, Rosstat, reported a 25% drop in TV production during the first five months of 2025 compared to the same period in 2024, alongside a 3% decline in washing machine output and a 9% decrease in refrigerator manufacturing.

There have also been calls for the introduction of an industrial levy or similar supporting measures from various sectors, including shoemaking and manufacturers of LED lighting and fiber-optic cables. However, the ministry has so far refrained from implementing wider measures.