Is It Worth Getting Tough on Forcing the Transition to Domestic Software?

Tax incentives for software producers and stimulus benefits for buyers of domestic software should work to redirect purchasing preferences toward local products. But do these methods actually work when it comes to boosting demand for Russian solutions? And what could support hardware manufacturers?

The government has decided not to touch the VAT benefit for Russian software. This means that the sale of domestic programs from the Ministry of Digital Development's registry remains exempt from this tax, and accordingly, the overall rate increase from 20% to 22% starting January 1, 2026, will not affect this market. The effective rate is zero.

Prime Minister Mikhail Mishustin has also confirmed that buyers of software from the registry receive a double coefficient for deducting expenses from the corporate income tax base.

All of this strongly encourages potential consumers to have access to IT solutions with strong localization in the domestic market.

However, there's something else. The Ministry of Digital Development hinted: if companies delay in transitioning critical information infrastructure to Russian IT solutions, the ministry will propose introducing fines. The logic is clear: Russian domestic IT products must be purchased.

Not Just Software

Looking at the situation more broadly, it becomes clear that to support domestic producers, not only "carrots" in the form of tax incentives are used, but also "sticks" for buyers. Sometimes this "stick" takes a veiled form, as in the case of the sharp increase in recycling fees for imported powerful vehicles. The media does not skimp on epithets, calling its size "draconian."

Indeed, a barrier has been created that should work, among other things, to redirect purchasing preferences toward locally assembled/manufactured vehicles.

They also want to push the purchase of Russian software through a variety of measures. But whether this will be able to drive demand is the big question.

Focus on Exports

By and large, if a product has an excellent price/quality ratio, it only needs good marketing and PR support to stand out. What could be an indicator of excellent quality? I recall that back in 2019, Russian President Vladimir Putin articulated a thesis that remains relevant to this day when discussing import substitution and the development of domestic production: "It is only important to ensure quality, and quality can be ensured if we enter third-country markets. Then it will not be some kind of 'jingoistic,' purely Russian product, but one of international standard."

Interestingly, the situation with both domestic automobiles and IT products created in Russia is similar. Russian car exports to foreign markets amount to several tens of thousands per year, which cannot play a significant role in capturing a serious share of the global market.

Exports of Russian software and computer services, according to the Bank of Russia, fell by almost half — from $2.9 billion in 2023 to $1.9 billion in 2024.

Of course, there are other estimates pointing to export growth. For example, experts from the audit and consulting company TeDo calculated and published at the Kazan Digital Week 2025 international forum data showing that in 2024, Russian software exports increased to $5.9 billion, exceeding 2023 figures by 7.7%. The company forecasts that by the end of 2025, software exports could grow by more than 10%, reaching $6.5 billion.

But even if we take the maximum figure — $5.9 billion — it is still less than 1% of global sales, according to WIPO experts.

The situation has not fundamentally changed in 2025 either. Revenue for the domestic IT industry as a whole, according to Cabinet forecasts, could grow by +20% compared to 2024. And even more conservative estimates, predicting a slowdown in the IT market, still forecast growth rates in double digits. But the same percentage growth in exports is not yet possible. And to gain a noticeable share of the global IT market, export sales would need to grow manifold — every single year!

Are There Any "Perks" for Hardware Manufacturers?

It is also worth noting that most of the measures mentioned at the beginning of this article keep software producers in Russia in focus. Accredited companies pay 5% corporate income tax this year (instead of 25%), and insurance contributions are 7.6%, rising to 15% from 2026. But that is still half the usual rate. And what about hardware? Can its creators count on support? The volume of equipment sales for the IT industry in 2025, according to Euler estimates, is growing at half the pace of the software and IT services segments. Everything is quite modest, and there are objective reasons for this. Software is easier to create than hardware, which requires advanced chips. Some production support is provided within the framework of the state program "Development of the Electronic and Radio-Electronic Industry." The volume of tax benefits for manufacturers in 2024, according to Ministry of Industry and Trade estimates, amounted to 100 billion rubles. This applies to corporate income tax — the rate is 8% — and insurance contributions, the percentage for which was set at 7.6%, as for software producers.

Nevertheless, if we compare the figures, even for accredited software companies in Russia alone, their revenue (12 trillion rubles) exceeds the total turnover of hardware manufacturers for the IT industry in Russia by 3.4 times.

What Is to Be Done?

It is obvious that in terms of hardware, the domestic IT industry is lagging behind. Further economic warming between Russia and the United States could help close this gap. Hardware value chains could emerge in Russia within the framework of international cooperation, but all of this needs to be worked out. In software, competition will intensify. Popular US software products may once again become in demand. Yes, protectionism of local IT solutions is possible, but domestic demand needs to be supported delicately — not with "heavy-handed" methods and without creating a feeling among consumers that something is being imposed on them. This approach has not worked perfectly in the domestic automotive industry, and similarly, it cannot be 100% effective in the IT industry.

A significant part of the value of global IT solutions comes from systematic, strategically calibrated work on their promotion. The Russian sector should give top priority to this aspect — the communication component of the solutions it produces.

From my experience in banking and fintech, I can say that no matter how excellent the software is, it is very important to have reliably functioning hardware and, preferably, your own corporate data centers.

But even this is not the key to the desired financial results. The main thing is effective communication with the client. No amount of convenient "two-click-to-service" software will solve anything. Moreover, I am convinced that the path to the client is not about speed of access to services, but about a shared journey with them in the financial world.

And this approach, which has proven itself globally, if absorbed by the Russian IT industry, will lead to success and sustainable sales growth not only domestically but will also allow it to take a key place in the global IT market.

And what about protectionism? Of course, all countries want to support their players in one way or another. The United States, for example, is prepared to fiercely defend the interests of its IT services. And this must be taken into account when formulating protectionist policy in Russia: Washington will react sharply to tough measures, including blocking, against American IT solutions.

I am convinced, therefore, that the necessary protectionist policy should not create frictions in the economic dialogue between the two countries, on which great hopes are pinned on both sides of the Atlantic.