Russia's Federal Tax Service has pushed regional governments to consider higher taxes on residents and businesses as local budgets sink to record deficits, The Moscow Times reported. The move follows President Vladimir Putin's drive to shrink regional shortfalls, and it shows the financial strain Russia's war against Ukraine is placing on its provinces. Independent analysts expect the squeeze to deepen as the economy slows.

Tax service tells regions to find more money

The Federal Tax Service (FNS) instructed regional authorities to work out where they could raise taxes, The Moscow Times reported, citing RBC. The recommendations answered Putin's directive to cut regional deficits, and governors had to submit their proposals in early June.

The advice told regions to:

• expand the list of real estate taxed at cadastral, or market, value;
• raise transport-tax rates to the maximum;
• revise the benefits and rates on land tax and personal property tax.

To collect more, regions were also told to inventory real estate and to look for land used off-purpose, where the tax can rise several times over.

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A record hole in regional finances

Last year, Russia's regions closed with a combined deficit of 1.538 trillion rubles ($20.8 billion). The gap grew fivefold from 2024 and almost eightfold from 2023. Four regions ran deficits above 30% of their own revenue — Kemerovo, Vologda, Arkhangelsk, and Tyumen oblasts — and six more topped 25%.

Profit-tax revenue fell in 55 regions. It collapsed by half in the Komi Republic, dropped 40% in Orenburg Oblast, and fell 39% in Yamalo-Nenets. Overall, regions collected 9% less profit tax than in 2024 and 13% less than in 2023, according to the rating agency ACRA. The pattern fits a war economy that has turned predatory toward once-wealthy provinces.

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Reserves drained, debt climbing

To cover the shortfalls, regional governments spent every third ruble of their bank reserves — 1 trillion of 2.9 trillion rubles ($13.9 billion of $40 billion). They financed the rest with borrowing that pushed combined regional debt to 3.5 trillion rubles ($48.6 billion), ACRA reported — the highest in 15 years by Expert RA's earlier count. Expert RA projected the slowdown will continue this year, dragging revenues lower and lifting both the deficit and the debt burden.

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Russian Finance Minister Anton Siluanov earlier projected the regional gap could widen to 1.9 trillion rubles ($26.4 billion) in 2026. The crunch mirrors a federal budget that has run far ahead of plan as Ukrainian strikes cut into Russian refineries and oil income.

Moscow raised VAT in January and prepared a windfall levy on big business, both breaking Putin's 2024 pledge of no tax changes before 2030. Smaller firms have been squeezed first even as the Kremlin's own spending keeps climbing

Russians pulled a record 381.2 billion rubles (approximately $5.2 billion) in cash from the banking system in May 2026. It is the largest May cash outflow since the Russian Central Bank began publishing such data in 1995, The Moscow Times reports, citing RBK's analysis of Russian Central Bank data. 

The 30-year record adds to a sustained 2026 pattern of Russians pulling cash from banks: April saw $9.2 billion in cash outflows, and March saw $4.1 billion.

The cumulative $14.8 billion in banknotes added to circulation since January reflects what Russian financial analysts describe as a confluence of geopolitical and macroeconomic uncertainty, internet outages limiting access to online banking, and the Central Bank rate cuts that have made deposits less attractive.

The Central Bank itself responded on 1 June by tightening controls on ATM cash withdrawals, with banks now able to track monthly withdrawal limits and may suspend "suspicious" operations, such as large withdrawals after long pauses or multiple operations in short timeframes.

2026 cash-flight progression

The monthly Russian cash-circulation data published by the Central Bank of Russia shows a sustained increase in cash held outside the banking system across 2026. Lead analyst Natalia Milchakova of Freedom Finance Global, quoted by The Moscow Times, explained that Russians are increasingly choosing cash due to uncertainty and a desire to have money for unplanned expenses "here and now."

Milchakova also warned that the cash shift may signal small and medium businesses moving into the shadow economy. The Central Bank itself identified business adaptation to the new 2026 tax rules as a primary driver, alongside internet outages. Sberbank's deputy chair, Aleksandr Vedyakhin, said Russians worry that digital transfers make their transactions visible to tax authorities.

Internet outages and the banking system

Russian internet outages have played a significant role in the cash-flight pattern, depriving Russians of access to online banking and cashless payment systems, Milchakova said.

The outage pattern is part of a wider disruption to Russian mobile internet across 2025-2026, in which Russian authorities have repeatedly shut down regional mobile internet.

Those shutdowns cut Russians' access to banking apps, fuel purchases, navigation, and messaging, with watchdog estimates of economic losses of $290 million in July 2025 alone. Russian Central Bank rate cuts also factor in: lower deposit rates have reduced the attractiveness of leaving money in banks, pushing households toward cash holdings as a default.

Central Bank's response

The Russian Central Bank's 1 June 2026 tightening of ATM withdrawal controls marks an acceleration of Russia's wartime capital controls. Under the new rules, Russian banks will track each customer's monthly cash withdrawal limit. "Suspicious" operations, defined to include large withdrawals after extended pauses, or multiple withdrawal operations conducted in short timeframes, may now be blocked or suspended pending review. Such administrative friction on cash withdrawals is being deployed at the same time the central bank is cutting interest rates, suggesting the regulator's primary concern is bank-system stability rather than monetary tightening.