Major Progressive Tax Reforms in Venezuela Start to Bear Fruit

Caracas, April 15th 2015 (venezuelanalysis.com) – Latest figures in Venezuela show that the country’s total tax revenue almost doubled in the first three months of 2015 thanks to government efforts to tighten up a progressive taxation system over the past 6 months.

According to the Venezuelan tax authority, SENIAT, ongoing reforms to Venezuela’s fiscal system have started to have a substantial impact on the country’s revenues, with the institution collecting over 200.9 billion Bolivars (USD31.64bn) in tax in the first quarter of 2015. The figure is more than 87 billion Bolivars above the goal of 113.5 billion Bolivars set by the institution and brings Venezuela’s earnings from tax collection to first place amongst non-oil revenues.

A breakdown of tax revenue over the past quarter shows that 64.4 billion Bolivars came from income tax, applicable to all individuals and businesses who earn over 150,000 Bolivars per annum (just over twice the minimum wage), surpassing the SENIAT’s stated goal of 39.10 billion Bolivars. The number  of businesses paying income tax also increased by approximately 30%. 

The windfall has been attributed to major progressive tax reforms initiated by Venezuelan President, Nicolas Maduro in November last year, as well as to a government-led campaign stamping down on tax evasion. 

The fiscal shake-up follows a global slump in the price of oil, Venezuela’s principle source of revenue, obliging the country to look for alternative ways to fund the social programmes which have characterised the Bolivarian Revolution and which are responsible for the huge reduction in the country’s levels of poverty and extreme poverty over the past fifteen years. 

Although the progressive overhaul of the nation’s taxation system began under former Venezuelan President Hugo Chavez, it was kickstarted again last year by Maduro in a process that has seen several reforms to Venezuelan tax laws. 

Last year’s restructure included the implementation of a luxury goods tax for the purchase of items such as champagne and yachts, as well as a 200% increase on tax for conglomerates. Other changes included the introduction of a streamlined process for collecting business tax, as well as the elimination of an exemption clause on income tax for foundations, associations and cooperatives which had become a major form of tax evasion. Banks and security companies were also prevented from adjusting the amount of tax that they pay to annual inflation rates.  

“It’s about progressive changes to the laws being addressed, which are not directed at all Venezuelans. What we are trying to do is make sure that those who earn more, pay a fair amount in tax,” explained Venezuelan Finance Minister, Rodolfo Marco Torres at the time. 

Most of the country’s tax laws had remained untouched since the era of Venezuela’s former political regime, the Fourth Republic (1958-1998). Nonetheless, head of the SENIAT, Jose David Cabello, highlighted that the government had made significant progress in diversifying Venezuela’s national income over the last fifteen years.  

“When President Chavez took over the reins of the country, the contribution from non-oil revenue to the national budget was barely 22%, whereas now, thanks to the socialist policies of our supreme commander which have been continued by Nicolas Maduro, the contribution this year is 68.8%,” he explained. 

Earlier this year the government announced that internal taxation would be taking a leading role in generating the funds to meet around 70% of its 741 billion annual budget for 2015, with just 17% of the overall budget expected to come from oil exportation. 

Revenue from tax is principally invested in national social programmes and projects led by local government, mayorships, communal councils and communes. This year alone will see over 274 billion bolivars invested in social programmes, more than 90 billion in education and 50 billion in national production.

Maduro also recently announced the creation of a special monetary fund that will be financed by contributions from the SENIAT. Its first projects will be the construction of a Children’s Rehabilitation and Chemotherapy Centre in Vargas and a headquarters for the Children’s Symphonic Orchestra. 

“In this way, our institution can promote humanist economic policies characterised by an important social investment carried out through the different programmes and missions headed by the revolutionary government of Nicolas Maduro,” stated Cabello.