EspañolExactly one year after the implementation of the Enabling Act in Venezuela, which granted special legislative powers to the president, Nicolás Maduro has decreed 45 reforms that will increase the government’s role over the economy.
Maduro’s changes focus on increasing state revenue through tax increases, and the removal of tax payment grace periods. The reforms also include a luxury tax, and eliminates tax exemptions for nonprofit organizations and cooperatives.
The sudden and massive changes to the law have raised public awareness over the worsening economic situation in Venezuela. The president signed the reforms into law just two days before the expiration of the Enabling Act, and as the government’s revenues have diminished due to falling oil prices. The price of a barrel of Venezuelan crude oil has plummeted from US$96.14 in July, to $68.97 as of November 21.
For Alicia Sepúlveda, economist and coordinator of the CEDICE Legislative Economic Observatory, the approval of more than two dozen laws at the “last minute” indicates the finalization of former president Hugo Chávez’s Plan for the Homeland.
In her opinion, the latest fiscal measures will far from solve Venezuela’s many economic problems, which are punctuated by an inflation rate projected to reach 80 percent by year’s end.
Under the Radar
Sepúlveda affirmed that it is customary for Venezuela’s National Assembly to approve last-minute legislation under the radar. “This just indicates that the laws were not properly consulted over, and that the constitutional process was skipped. There has been no study conducted to confirm the economic benefits of these laws,” she criticized in an interview with the PanAm Post.
Rodolfo Marco Torres, vice president of the Economic Area of the National Executive, has indicated that these reforms will generate resources earmarked for the social development of the nation. Sepúlveda, however, isn’t buying it. The economist believes the laws to be little more than an effort to offset huge government spending at the expense of Venezuelan tax payers.
According to Venezuelan newspaper El Universal, the Venezuelan government has been relentlessly increasing public spending in an attempt to increase quality of life since 2013. Over the past year, the Venezuelan government has increased wages, awarded scholarships and pensions, hired more government workers, and implemented costly subsidies.
In June, a Barclays report indicated that through the first five months of 2014, the Venezuelan government had spent 79 percent more than the same five months in 2013. Inflation in Venezuela is already above 60 percent, and scarcity of goods has increased by over 30 percent since last year.
Control on Top of Control
The tax reforms are intended to increase government revenue through the creation of a luxury tax, an increase in fines and sanctions, and the elimination of tax exemptions — especially for cooperatives and nonprofit organizations.
The situation that Venezuelan businesses face will continue to worsen with dwindling investment opportunities.
The Venezuelan Value-Added Tax (IVA) maintains a rate of 12 percent on all goods, but the new tax levies an additional 15 percent on all purchases that exceed $30,000.
The modification of the Original Tax Code also aims to increase fines by 200 percent for tax violations, and allows for the confiscation of goods and businesses that Venezuelan state tax agency has declared bankrupt.
“These are progressive reforms,” said Torres. “He who earns more, pays more. These actions are going to ensure that tax payers pay the appropriate amount. They are a set of reforms that do not affect the average citizen. They simply ensure that everybody pays their fair share.”
Sepúlveda, however, indicated that the changes will have a severely negative impact on companies struggling to survive in Venezuela.
“They are not taking steps to correct the structural problems that are distorting the Venezuelan economy, which are simply the result of direct government intervention and controls that limit businesses’ ability to invest,” affirmed the economist, adding that the average Venezuelan will indeed be affected by the reforms. “More scarcity and shortages will come as a result.”
Sepúlveda says that the reforms will do little more than further provide disincentive for investment in Venezuela and worsen the quality of employment. “The situation that Venezuelan businesses face will continue to worsen with dwindling investment opportunities. It will take a long time for businesses to adjust their production models to accommodate these reforms.”
Beer for the People
The modified laws increase taxes on both cigarettes and alcohol. The reform increases the tax on wine from 15 percent to 35 percent, while other alcoholic beverage taxes now fluctuate between 20 percent and 50 percent.
All products sold in the country will need to include the price printed on the good.
However, despite tax increases levied on other alcoholic beverages, the brewing industry remains exempt from the changing Alcohol Tax Law. “Beer is the most popular drink among the common people,” said Cabello in a press conference on Wednesday. “This is a reform that is not going to affect the common people. It will affect those who can afford to purchase luxury items. Those who have more money, need to pay more taxes,” he said.
Meanwhile, the Cigarette Tax Law has been amended to suspend the 30-day grace period previously enjoyed by tobacco companies while importing and producing goods.
Among other reforms Maduro passed, without parliamentary approval, are the Illicit Exchange System Act, the National Agrarian Food Law, the Promotion of Small and Medium Industry Act, the Anti-Monopoly Law, the Foreign Investment Act, the Central Bank of Venezuela Law, the Banking Sector Institutions Law, and the Organic Fair Prices Act.
Fair Prices or Illegal Exchange
With regards to the Organic Fair Prices Act, Maduro established the Superintendency for Salary Defense Against Speculation, which creates a framework for the confiscation of all products and goods destined for “contraband” and redirects them to the “working class.”
Additionally, from November 19 onwards, Venezuelan importers and distributors will have 30 days to implement the “Fair Sale Price” (PVJ), which requires them to print a government-mandated price on all product packaging.
According to Superintendent of Fair Prices Andrés Eloy Méndez, the measure will allow consumers to see the maximum sale price of any given product countrywide.
— José David Cabello R (@jdavidcabello) November 21, 2014
Elisa Vásquez contributed to this article.