Venezuela Implements New Taxes on Businesses, Cigarettes, Alcohol

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.
A waiter carries Scotch whisky to customers at a bar in Caracas (AP/Fernando Llano)

Caracas, October 9, 2007 (
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.