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Russia has increased alcohol excise taxes by 15% as of January 2025 in a move aimed at boosting state revenues to fund the ongoing war in Ukraine, according to a report from Ukraine’s Main Directorate of Intelligence (HUR).
The Ukrainian intelligence agency states the tax hike is one of several signs of deepening economic strain in Russia, as declining oil and gas revenues push the Kremlin to extract more from domestic consumption.
Tax Hike Hits Vodka, Brandy Production
Early economic indicators reveal immediate consequences:
- Vodka production down 22.7%
- Brandy production down 25% (Q1 2025 vs. Q1 2024)
According to HUR, the policy is a “desperate attempt to replenish war coffers” while pushing more economic burden onto an already strained Russian public.
“This is one of the manifestations of Moscow’s economic problems,” the agency said.
“The Kremlin has decided to dig into the wallets of its own population—who are consistently thirsty for vodka.”
Shadow Market Could Surge
Though alcohol prices have risen in retail shops, Ukrainian intelligence notes the effect is unlikely to reduce consumption—but rather increase demand for illicit, lower-cost alternatives, like the notorious bootleg drink ‘Mr. Cider’.
“The rise in alcohol prices is likely to scale up the shadow market,” reads the report.
“This will create new challenges for public health and law enforcement in Russia.”
Kremlin’s Fiscal Options Narrowing
The tax move reflects growing desperation within the Kremlin as conventional revenue streams such as hydrocarbons continue to underperform due to sanctions and reduced global demand.
In a recent statement, Oleksandr Ivashchenko, Head of Ukraine’s Foreign Intelligence Service, warned of “irreversible trends” in Russia’s economy heading into 2026. He cited resource depletion and prolonged war expenditures as key threats.
International Context
Excise taxes have historically been used as a wartime revenue mechanism, but analysts say Russia’s case is uniquely volatile given:
- Heavy reliance on alcohol taxes in past fiscal crises
- A resilient underground alcohol market
- Rising domestic discontent over living costs and mobilization
As the war enters its third year, Russia appears to be leveraging vice taxes as a lifeline to sustain its military ambitions, despite warnings of domestic blowback and potential unrest.
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