Despite the appearance of increasing effectiveness in the Russian state’s ability to monitor economic activities within its territory and impose taxes, fees («sbory»), and levies («pobory») on them, one reassuring constant remains: the unstoppable force of the fiscal state—and now a fiscal-military state—continues to collide with an immovable object in the collective person of the Russian people themselves. As individuals and as groups, they resist and defy any final push to «enwhiten» (i.e., make visible and taxable) their incomes and wealth. More than six years ago, observers described a qualitative shift in the Russian state’s fiscal stance with the pithy slogan «People are the new oil.» Re-reading my own piece for Riddle from early 2019, it seems little has fundamentally changed.
Indeed, nine years ago many experts predicted the continued flourishing of the «illegal» economy because of excessive regulation and persistent market failures in Russia. If roughly 16.3 million people worked informally at the sector’s peak in 2016, the figure in 2024 stands at around 15.8 million. What the war has done is sharpen the contradictions at the heart of this unwinnable battle, and it has done so on multiple fronts.
First, what is called «economic informality» takes concrete form in the opaqueness of incomes and livelihoods, and it is extraordinarily difficult to eradicate even partially. A significant portion of poor and middle-class incomes remains invisible and untaxed, and this invisibility functions as an economic stabilizer in a country that remains extremely unequal, with high poverty rates and low wages by the standards of other high-income countries. The widespread practice of dual wages (an official «white» part and a shadow part) indirectly reduces political tensions. If Russians’ real incomes were fully taxed and citizens were forced to bear the true cost of the state services they consume, serious unrest would be likely.
Second, wartime conditions have produced emergency schemes of parallel imports and a deliberate lessening of attention to collecting excise duties and customs on goods entering the country. As a result, a significant part of retail trade has de facto become «grey”—a situation the state has had to tolerate, and occasionally even endorse, in order to keep clothes, food, toys, and electronics affordable at a time of acute economic stress and inadequate domestic production. Even if the war ended tomorrow, this grey zone would continue to benefit consumers—especially lower-income ones—as well as small- and medium-scale businesses. Some segments of trade and services have actually blossomed amid the creative destruction initially caused by sanctions and broken supply chains.
Thirdly, the so-called «shadow economy» should not be viewed solely as a tool employed by low- to middle-income individuals —the plumber who works only for cash and never pays income tax; the teacher who earns an extra $ 200 a month tutoring in the evenings; the factory worker who receives an official salary of $ 1,500 (from which tax and social contributions are deducted) but then gets a brown envelope containing another ten crisp 5,000-ruble notes ($ 640). The shadows are also an integral part of what Alena Ledeneva famously called Russia’s «sistema» of governance. For every plumber who earns 50% more in reality than Rosstat believes, there is a well-connected elite figure collecting fees, «contributions,» and tolls in the form of questionably justified economic rents—often worth millions of dollars per year. These rents are not only super-profits that would not arise in any system of fair tenders and genuine consumer protection; they frequently fail even the low bar set by Russia’s own audit and antimonopoly bodies.
The ludicrously expensive and poor-value road-toll system, for instance, siphons off into yet another shadow economy a large share of the proceeds that are supposed to fund road investment. Poor auditing and opaque ownership structures are designed features of this sistema of extravagant rents. The Platon truck-tolling system—exposed by Alexei Navalny in 2015 as essentially a scheme to enrich insiders—has, over more than a decade, delivered only modest contributions to the federal road fund (roughly $ 3 billion in total, less than one year’s state spending on roads) while transferring far greater value to its private controllers. Road construction itself—where costs in the Moscow region can reach $ 30 million per mile (roughly double the cost of highway building in expensive Germany)—remains exceptionally fertile ground for skimming and kickbacks, with corruption cases and audit scandals regularly reported even in the Russian press.
Let us examine in more detail how each of these three contradictions is exacerbated by wartime economic conditions.
«People as the New Oil»: Fiscal Expansion Meets an Old Problem
The fiscal-military logic of the Russian state in 2025 has reached new heights more than five years after the slogan «People are the new oil» first gained currency. With hydrocarbon revenues declining and sanctions tightening, the government has shifted decisively toward internal extraction: taxing citizens and small businesses ever more heavily to finance wartime spending. Many of these new burdens are indirect taxes or not taxes at all, but fixed service charges—such as the forthcoming «electronics tax» scheduled for introduction in 2026.
Attention has been paid to the drastic reduction in VAT-exemption thresholds for small entrepreneurs (from 60 million to 10 million rubles), effectively ending significant tax privileges for the self-employed and micro-businesses—privileges that had previously encouraged many to emerge from the shadows. Few observers acknowledge, however, that this change will simply drive many of these vital small enterprises to raise prices or slip back into informality. In other words, fiscal tightening itself enlarges the very informality the state claims to be fighting.
By mid-2025 the federal budget deficit had already exceeded 2 trillion rubles (c. $ 26 billion). Financing it through government bonds has become unsustainable because of high yields; debt-servicing costs alone now consume 7−9% of GDP—a burden comparable to advanced economies with nominal debt ten times larger than Russia’s. The liquid portion of the National Wealth Fund has shrunk to around 3.4 trillion rubles, underscoring how deeply the government now relies on regressive, population-based taxation (VAT alone finances nearly half the budget) to sustain the war economy.
The Russian state is opportunistic and clever in responding to micro-economic trends. The explosion of Amazon-style marketplaces—dominated in Russia by Wildberries and Ozon—has been a boon for small sellers, yet the tax authorities overreach by requiring tax on gross sales even though the platforms themselves take up to 40% in commissions. Russia’s freelance economy is enormous by any international standard. The state once tried to bring it into the light by offering a generous 4−6% tax regime (payable via app) for registered self-employed people in trades, tutoring, IT, and consulting—far lower than rates for ordinary individual entrepreneurs—and set a relatively high income ceiling of c. $ 31,000 per year. Yet the scheme has captured only a modest share of actual activity; in 2022 some 30% of those registered reported zero income. Current inter-ministerial discussions suggest even this concessionary rate may soon be raised to align with standard wage-tax levels.
Unstoppable Force: The Fusion of Global and Domestic Informality
If the fiscal state is the unstoppable force, then places like Moscow’s Sadovod market—recently documented in detail by economist Rafael Abdulov—remain the quintessential immovable object. Despite the rollout of digital product-tracking systems such as «Honest Sign,» designed to follow every item from factory to checkout, Sadovod’s 9,000 trading pavilions and 100,000 daily visitors continue to operate predominantly in cash, bypassing electronic payments, receipts, and almost any paper trail.
The market’s persistence reveals the state’s deep ambivalence toward informality: enforcement raids are rare, rents are collected in cash, and «regulation» effectively operates as a private tax paid to landlords and compliant officials. The Bank of Russia has itself flagged Sadovod and similar complexes (Food City, the Moscow Trade Center in Lyublino) as major hubs of illegal cash turnover. Yet these spaces endure because they provide livelihoods for hundreds of thousands and affordable goods for millions.
Sadovod also exemplifies the growing fusion of global and domestic informality. Counterfeit and parallel-imported goods from China, Turkey, and Central Asia flow through improvised «cargo» logistics networks in which bribes, deliberate undervaluation, and misclassification replace formal customs procedures. As Abdulov notes, «everything rests on a merchant’s word of honour.» Paradoxically, the introduction of «Honest Sign» has not reduced counterfeiting; reported violations rose 20%, because the system itself spawned new rent-seeking opportunities for intermediaries who «mark» goods for a fee without genuine certification.
The overall effect—both stabilizing and destabilizing—of this broad spectrum of informal behaviour and folkways is crucial to understand. The sistema is caught in a self-reinforcing paradox: every effort to formalize economic life through wider VAT, digital tracking, and stricter enforcement simply incubates more sophisticated evasion techniques while adding bureaucratic bloat and reporting burdens. Traders abandon registered individual-entrepreneur status for informal arrangements; small manufacturers depend on parallel imports and «cargo» middlemen; consumers flock to grey markets for affordability.
Mainstream Russian press and researchers grudgingly acknowledge the informal economy’s positive role in cushioning the sanctioned, disrupted economy since 2022, while lamenting lost tax revenue. The war also abruptly ended the long-term decline (previously noted by the Central Bank) in «suspicious transactions characteristic of capital outflows.» Yet analysis rarely goes further. Most sources avoid highlighting the huge gap between official Russian estimates (c.12% of GDP according to Rosstat) and international ones (up to 40% according to the World Bank). The deeper problem, as marginalised voices such as Rafael Abdulov argue, is not weak enforcement or insufficient technocratic incentives, but fundamentally misaligned incentives: under conditions of low wages and high costs, formalisation is simply irrational. Until taxation, credit access, and regulation serve productive rather than extractive purposes, the «immovable object» of popular resistance to fiscal visibility will remain both the cornerstone of Russia’s social stability and the source of Russia’s enduring economic dysfunction.
Of course, any state—regardless of its real capacities—can always try to intensify tax collection, and the widening fiscal gap plus the long-term decline in hydrocarbon dependence make such attempts imperative. But in most of the global north there is no comparable scale of resentment and entrenched avoidance. Other countries may have pockets of informality (men’s barbershops in the Nordics, for example), but Russia is different: elements of informality penetrate almost every sector, and informal earning opportunities exist in the majority of professions—from nannies to university professors, from drivers to doctors. This society-wide phenomenon simultaneously cushions low incomes for the poor, facilitates sub-elite rent circulation, and protects elite extraction. It is therefore far from clear how, even in a prolonged crisis, the Russian state could genuinely move the needle without resorting to levels of coercion that are currently unthinkable—coercion that would shatter the unspoken compact of «leave ordinary people alone in exchange for political compliance.» In extreme crises states sometimes attempt far more muscular policies, but in Russia’s case that would risk accelerating an already evident erosion of regime legitimacy.
