Potential VAT rate reduction: how the initiative could impact businesses

A bill to reduce the base VAT rate from 22% to 20% has been submitted to the State Duma. The initiative comes several months after the entry into force of major tax changes in 2026, which increased the tax rate to 22%. Although the document is still under review, the discussion of revising the tax burden is already generating significant interest among businesses.

The increase in VAT to 22% was one of the most notable changes in the current tax reform. For most companies, this meant higher costs for goods, works, and services, a greater burden on working capital, and the need to revise their financial models. The changes were particularly sensitive for organizations with long production cycles, high purchasing burdens, and limited ability to quickly pass on additional costs to the end consumer.

Against this backdrop, the proposal to return the rate to 20% is perceived as an attempt to partially mitigate the impact of the reform and reduce inflationary pressure on the economy. It is believed that reducing the tax burden could help stabilize prices, support purchasing power, and maintain a more favorable environment for entrepreneurship.

VAT and the new reality for business

However, a reduction in the VAT rate does not automatically reduce the administrative burden. In recent years, tax administration has become significantly more technologically advanced and detailed. Cash flow monitoring, supply chain audits, automated tax gap analysis, and digital document management remain key elements of the tax system. Therefore, even if the rate is adjusted, businesses will still need to pay increased attention to the quality of internal accounting and tax security.

It’s especially important to consider that changes to the VAT rate directly impact not only tax liabilities but also contractual relationships between counterparties. When revising tax conditions, companies often have to adjust supply costs, update contract provisions, change accounting policies, and adapt internal financial processes. In practice, such changes affect not only accounting but also commercial departments, legal departments, and pricing systems.

The initiative takes on additional significance in the context of changes for businesses using the simplified tax system. The reform included a gradual mechanism for lowering the income threshold after which companies using the simplified system are required to pay VAT. This effectively means the gradual inclusion of more and more small and medium-sized businesses in the full-fledged VAT administration system.

For many companies, this poses a serious organizational challenge. This involves not only calculating taxes, but also establishing electronic document management processes, counterparty verification, maintaining purchase and sales ledgers, and managing tax deductions. In this regard, the discussed rate reduction can be seen as an attempt to partially offset the growing tax burden on the business sector.

What rules are in effect now?

Currently, the basic VAT rate of 22% applies to most transactions involving the sale of goods, works, and services. However, certain preferential regimes continue to apply.

Currently saved:

• VAT rate of 10% for socially significant goods;
• preferential tax treatment for certain categories of medical products;
• special conditions for IT companies;
• declarative procedure for VAT refund without a bank guarantee in a number of cases;
• special rules for calculating penalties for organizations.

At the same time, changes to the rules for taxpayers using the simplified tax system continue.

The threshold for mandatory VAT payment under the simplified tax system is being reduced in stages:

• from 2026 – for income over 20 million rubles;
• from 2027 – over 15 million rubles;
• from 2028 – over 10 million rubles.

For businesses, this means the need to prepare in advance for the potential transition to a full-fledged VAT administration regime. This is especially relevant for rapidly growing companies, marketplace sellers, manufacturing organizations, and service providers.

What is important for businesses to consider now?

Even if the bill reducing the tax rate is passed, it’s important for businesses to consider that the tax system continues to move toward greater transparency and digital control. Under these circumstances, the following are particularly important:

• correct tax planning;
• audit of the contractual base;
• control of tax risks;
• verification of counterparties;
• setting up internal document flow;
• timely adaptation of accounting policies;
• assessment of the impact of tax changes on the company’s financial model.

Overall, the VAT reduction initiative demonstrates a desire to find a balance between budget revenue goals and the need to support business activity. However, for businesses, the key factor remains not only the tax rate but also the predictability of regulation. Frequent changes in tax regulations require companies to constantly adapt their processes and pay increased attention to financial stability and tax security.