Kirill Chernovol, Researcher of International Best Practices Analysis Department at the Gaidar Institute, commented for the RBC on the study by German economists on the impact of the VAT increase on the labor market and assessed the prospects of using these conclusions in Russia’s economy.
The expert agrees that theoretical mechanism by which companies offset the increased tax burden through staffing also works in Russia. However, he believes the magnitude of the effect (the extent to which profits and wages fall as a result of a 1% VAT increase) will vary greatly across markets and companies. "If a company can afford to raise prices by the amount of the VAT increase, the impact on profits will be less severe, and the pressure on wages will be reduced. If, however, prices cannot be raised (for example, due to weak demand, high competition or state-regulated prices), the company will offset part of the tax burden through wages. This does not necessarily mean a wage cut: bonuses may not be paid, new employees may not be hired, or wages may not be increased," explained Kyrill Chernovol.
He also highlighted serious methodological difficulties in attempting to accurately measure this effect in Russia. “It is nearly impossible to accurately determine the impact of the VAT increase on wages using national annual statistics, as there are very few observations available. During the period of calculations (2016–2024), Russia had one VAT rate change in 2019 by 2%,” emphasized Kyrill Chernovol.
Nevertheless, he believes that even rough calculations based on available data for 2016–2024 (taking into account the 2019 VAT increase) still allow for a certain conclusion. Kyrill Chernovol summarized: “Rough calculations show a weak correlation, but in this case, this likely means that even with such a small amount of data and with such limitations, it is still clear that the VAT increase in Russia is impacting wage reduction and employment.”