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RUSSIA, November 21 (Reuters) – The head of Russia’s top business lobby has warned that the government must introduce more predictable fiscal policies as it seeks to cut its budget deficit.

The Russian government has been hit with growing strains on its finances due to the conflict in Ukraine, which has led to a doubling of the country’s 2023 defense spending target to over $100 billion, or around one third of all public spending.

To finance this increase in spending, the government has already introduced a windfall tax on big business and hiked mineral extraction taxes on the energy sector. It also imposed export duties linked to the rouble-dollar exchange rate from October 1.

However, Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs (RUIE), said that his group is ready to discuss raising income tax with the government as long as there are clear and consistent deductions for investment.

“We understand that the tax system cannot remain unchanged,” said Shokhin. “But we need some formulas that will allow both the finance ministry and business to understand how the tax situation will change when certain conditions vary.”

Last week, Russian businessmen met with President Vladimir Putin and proposed that any increase in income tax be accompanied by greater long-term predictability in fiscal policy. A source familiar with the discussions told Reuters that this was an attempt at a gentleman’s agreement: “Business understands that the exactions will continue,” he said. “This is an attempt to conclude a gentleman’s agreement – we pay more, but there are no unexpected changes in the near future.”

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