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News: Economy

Venezuela Implements New Taxes on Businesses, Cigarettes, Alcohol

Caracas, October 9, 2007 (venezuelanalysis.com)- The Venezuelan government implemented several new taxes this week, in an attempt to curb inflation and to reduce alcohol and cigarette consumption among the Venezuelan population. The new taxes include a new tax on company bank transactions, starting in November, as well as an immediate increase of taxes on alcohol and cigarettes. President Hugo Chavez also announced earlier this week that a luxury tax is being studied.

"There are people who spend what is necessary, but then there are some who spend and spend. I am looking to put a tax on this," said Chavez on his TV and radio show Aló Presidente on Sunday. In the last several weeks Chavez has repeatedly criticized consumerism and excessive consumption among the Venezuelan population. He has assured that the government will slow down or stop the importation of luxury goods such as Hummer vehicles and whisky.

"In the United States if you have a car that costs so much they hit you with a tremendous tax. In Europe too," said Chavez "We aren't talking about communism, these are financial mechanisms that are just as valid in capitalism as in communism."

On Monday, the national tax collection agency SENIAT announced changes regarding taxes on alcohol and cigarettes in an attempt to reduce their consumption. SENIAT Superintendent Jose Vielma Mora explained that the new increases in taxes on these goods are aimed at "lessening the moral, economic, and social consequences of their use." Mora added that the communal councils will be consulted before granting liquor licenses in order to prevent alcohol consumption near schools, churches, or cultural centers.

But these fiscal mechanisms are not just about curbing excessive consumption. Many of the changes in the nation's tax system also aim at controlling inflation and lowering the tax burden on the poor. The government lowered the value-added tax this year from 15 percent to 9 percent, which meant a sacrifice in fiscal revenue, according to Chavez. But new taxes aimed at luxury goods and bank transactions should reorient the nation's taxes toward wealthier sectors.

Starting November 1st and going until the end of the year the government will charge a tax of 1.5 percent on bank transactions for all businesses. During these two months the government hopes to collect a total of Bs. 930 billion (US$ 433 million) from taxing business transactions, a measure which is meant to soak up liquidity in the economy and control inflation.

"The intention of the tax is to soak up liquidity in the national economy with the objective of regulating inflation, especially taking into account the increase in imports that happen during the Christmas season," said Mora.

He said the tax would also contribute to making the tax system more progressive and equitable as part of "the socialist state that is in construction," as well as allow the government to evaluate economic growth per sector.

"The tax is different than other taxes of a similar nature in the past in that it will only apply to financial transactions carried out by companies and businesses, putting no burden on individual citizens," he said.

The new taxes should make up for the lost tax revenue due to the decrease of the value-added tax. This tax, which is applied equally to all citizens, is being slowly reduced and Chavez has said it will be eventually eliminated completely as it is "unfair" for the poor.

With new taxes on luxury and excessive consumption, Chavez has said he hopes to fight the "capitalist values" of consumption and instill some "socialist" values and morals in the Venezuelan people.

"This society would benefit from socialist values, but it is very difficult to change this culture," he said.

Published on Oct 10th 2007 at 2.13pm