Russian lawmakers today passed a bill raising value-added tax (VAT) from 18 to 20 per cent from next year to help finance President Vladimir Putin’s plan to improve healthcare, education and infrastructure.

The legislation was approved on third and final reading by the ruling United Russia party even though the tax hike is expected to stoke inflation and affect consumer demand. The authorities said the measure would bring in 620 billion rubles (USD 10.3 billion, 8.8 billion euros) a year.

“These funds will be used to solve problems in healthcare, education and infrastructure,” said Andrei Makarov, head of the budget and tax committee at parliament’s lower house.

Putin, who secured a fourth Kremlin term in March elections, has promised to raise living standards, modernise healthcare and education and upgrade the country’s Soviet-era infrastructure.

Last week lawmakers approved another unpopular bill, voting in favour of a government plan to hike the state pension age to 65 years for men and 63 years for women. Most Russians are against the proposed reform which has led to protests and a record slump in Putin’s approval ratings.

A legacy of the USSR, Russia’s retirement age -- set at 55 for women and 60 for men since Stalin -- is currently among the lowest in the world.

Putin has said he disliked the controversial reform but insisted action must be taken because the burden is simply too great for the country’s stretched finances.