Venezuelan government increases taxes on private companies and charges for public services in response to tighter US sanction and the significant decline in oil revenues.
Reuters reports that economists and business leaders are concerned about the impact of this policy shift on companies who already struggle in a difficult economic climate.
US sanctions were lifted until February to allow companies like Chevron, which export Venezuelan crude oils. Other purchasers of Venezuela’s crude oil were targeted with secondary sanctions.
Analysts estimate that these changes could reduce the oil revenue of this country, estimated at $15 billion by 2024.
Venezuelan authorities are increasingly looking to private companies for money as oil revenue declines.
Businesses claim that they are being bombarded with audits and fines. They also say early payments of taxes have been mandated.
The fees charged by local governments and providers of public services have been increased, increasing the burden placed on businesses.
The private sector is under increasing pressure
In April, Nicolas Maduro, the president of Venezuela, declared a state of economic emergency. This allowed him to eliminate tax exemptions.
He instructed his officials earlier to raise tax revenues to $10,4 billion in this year’s fiscal year from the $5.2 billion they had been receiving.
Government data revealed that tax collections increased by about 20 percent in the quarter January-March 2020 compared to the quarter January-March 2019.
These initiatives come at a cost. Business owners claim that the tax system is not stimulating growth but rather stifling jobs and investment.
Conindustria, a trade group that represents the business community, published a survey in May showing 77% of respondents ranked taxation as the top obstacle to their operations.
The majority of respondents (two-thirds) said they had no or modest plans for increasing production over the next few months.
Conindustria President Luigi Pisella said that any additional taxes paid would come out of working capital. He believes the tax base needs to be expanded in order to prevent putting pressures on existing enterprises.
Larger organisations are reporting a decline in job creation.
The government can survive on tax revenues
Analysts see this measure more as a short-term fix than a strategy for long-term budgeting.
Taxes are a lifesaver for the government according to Luis Barcenas, an economist with local consultancy Ecoanalitica. He estimates that companies could pay as much as $13 billion this year in taxes, which is half their earnings.
Entrepreneurs claim their efforts to improve the situation have not been rewarded.
Businesses are also faced with an increase in fiscal requirements, including municipal taxes, that have a major impact on their operational costs.
Particularly, retailers highlight the closing of stores that are not profitable. Customers are charged for higher taxes and services costs.
A merchant in central Venezuela said that a large portion of the price for every product is used today to pay government taxes.
Subventions to public services have ended
Economic stress has been exacerbated by the elimination of funding for public services that are critical, but not reliable.
According to Venezuelan Finance Observatory, with fewer revenues from oil to finance them, services like electricity and water, which were heavily subsided in the past, have now seen their prices quadruple over the past year.
Most manufacturers with multiple locations face overlapping tax systems and pay higher taxes than foreign companies that have limited infrastructure or import finished goods.
Business leaders say that local investments are disadvantageous for businesses.
Businesses must navigate a hostile environment where rising prices, increasing regulatory requirements, and decreasing consumer spending are all at odds.
As new information becomes available, this post Venezuela shifts the tax burden on private sector amid declining oil revenues could be updated.
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