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Vladimir Putin has signed a new bill into Russian law that amounts to the biggest shake-up of the country’s tax system in a quarter of a century.

As the war in Ukraine drains the Kremlin’s coffers, the government has been looking to find new ways to finance it.

The answer is a new progressive income tax rate, as well as a rise in corporation tax.

“It seems like the tax reform is a tool to move the economy from butter toward guns,” Alexander Kolyandr, a non-resident senior fellow at the Centre for European Policy Analysis, said last month.

“The government is no longer concerned about you eating well, but rather about you producing more guns.”

The new bill, approved by both houses of parliament this week, marks a dramatic departure from Mr Putin’s previous tax policies.

Shortly after assuming office in 2001, the Russian president introduced a flat rate of 13% that was applied universally. Most Russians have been paying the same rate since.

The new law keeps a 13% rate for incomes of up to 2.4 million roubles (around £20,800) a year. 

For incomes over that amount, a steadily higher tax rate would apply.

Incomes between five and 20 million roubles (around £43,500 to £174,000) will be taxed at 18%, those between 20 to 50 million roubles (around £174,000 to £434,000) at 20%, and anything over 50 million roubles at 22%.

Mr Putin has said the increases will affect no more than 3.2% of Russian taxpayers.

Corporation tax will also increase from 20% to 25%.

The changes will come into force next year and are expected to generate 2.6 trillion roubles (£22.5bn) in additional federal revenues in 2025.

As well as helping finance Russia’s ongoing war in Ukraine, the Kremlin hopes the tax reforms will help make the country less reliant on the revenues generated from oil exports amid continued Western sanctions.