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Russia is already experiencing the consequences of a mass shift of small businesses into the shadow economy, with state revenues taking a noticeable hit, according to Ukraine’s Foreign Intelligence Service of Ukraine, UATV English reports.
According to the report, in the first quarter of 2026, Russia’s federal tax service recorded a sharp decline in revenues from small businesses and self-employed individuals — totaling $7.5 billion, down 16% year-on-year. The Ministry of Finance of Russia estimates the real drop could be as high as 22%, depending on the methodology.
At the start of 2026, Moscow introduced a series of fiscal changes, including raising VAT rates, removing insurance contribution benefits, and lowering the revenue threshold for simplified taxation schemes.
These measures were expected to generate approximately $2.7 billion in additional revenue, but instead triggered the opposite effect.
“Entrepreneurs responded by splitting businesses, minimizing official income, or disappearing from official registers altogether,” the intelligence report states.
The patent tax system, a key tool for small entrepreneurs, recorded negative revenues of $20 million. Inflation pushed nominal incomes higher, forcing many businesses out of preferential tax regimes whose thresholds had not been adjusted.
Meanwhile, revenues from the simplified tax system — the primary regime for small businesses — fell by around 9% to $2.1 billion.
The broader fiscal situation is described as deeply strained. In the first quarter alone, federal revenues dropped by 8.2% to $111 billion, while expenditures surged by 17% to $172 billion, resulting in a deficit exceeding $60 billion — already surpassing the planned annual deficit of $50.5 billion.
Regional budgets are expected to be particularly vulnerable, as they rely heavily on tax payments from small businesses.
Declining revenues are likely to increase financial gaps at the regional level, forcing local authorities to depend more heavily on transfers from Moscow.
“The Kremlin’s logic is to apply more pressure. But the tighter the fiscal control, the deeper businesses go into the shadow economy. The cycle has closed: reforms intended to fill the budget are draining it instead,” the report concludes.
The findings highlight structural weaknesses in Russia’s economic policy, as wartime pressures and fiscal tightening push more economic activity beyond the reach of the state.
