The mysterious 30%

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30 percent signThe government plans on setting a maximum profit of 30% for everyone and everything in Venezuela. Funny enough, Maduro says he is doing so to preserve people’s economic freedoms.

Hmm, let’s see…

  • how do you calculate the 30% profit for a free-lance journalist? A hairdresser that makes house calls? A pet groomer? A cleaning lady?
  • An airline buys an airplane – how do you estimate 30% Does depreciation enter into the equation? Do you calculate it over the total cost of the airplane?
  • How do you calculate the maximum profit a bank can make? Over its entire portfolio? Over the value of its assets?
  • What about lotteries – do they get the 30% rule applied to them?
  • What about universities? Are they allowed to make a 30% profit? Profit above what, exactly?

Ultimately, the 30% rule will be selectively and arbitrarily applied to punish certain companies or individuals, because that is the only way it can be applied.

1 COMMENT

  1. This sounds a lot like: “Para mis amigos todo, para mis enemigos la ley”

    Though la Ley is completely arbitrary, how convenient!

  2. So, if I make my living writing and talking, is my profit 30% of my expenses (i.e. paper, a phone and a laptop)? I just want to understand how liberated we would be under this system.

  3. Better to be an unemployed bum and mooch off the government. All you have to do is show up to vote rojo occasionally. The incredibly brilliant economic strategies that come from Marxist dogma never cease to amaze. 30% was probably Fidel’s idea.

  4. That same rule should be applied to PDVSA: there should be a profit of no greater than 30% on the price at which PDVSA sells oil. Adding a 43% surcharge to the cost of production would give a 30% profit on the export price of oil. Any selling price for oil resulting in a greater than a 30% profit would be price gouging. We wouldn’t want the PDVSA- and by extension the GOV- participating in price gouging, would we?

    • Cost of production from 2009:

      In Venezuela, where fields tend to be mature and small and
      it is difficult to make new discoveries, production costs were
      generally estimated at $20 a barrel (operating and capital
      costs).

      Those figures do not include the more expensive Orinoco oil
      from the country’s sand deposits.

      One analyst said the extraction of one barrel of Orinoco was
      around $30 (operating and capital costs).

      For 2013, there is a price adjustment for heavy oil:At the Wellhead: Venezuela’s upgraders are maxed out to handle its heavy oil.

      he special handling also has boosted the cost of production in the Belt to an average $10/barrel, plus an upgrading cost of $30/b, still a very competitive cost level compared with other global producers.

      With oil @ $100/bbl, that means that conventional oil in Venezuela is sold at at 80% profit, and heavy oil is sold at a 60% profit. This is a quick estimate, which can certainly be made more accurate.

  5. I’m not an accountant, but I studied finance at a major American University, so I understand the concepts of accounting. Profit applies to mark-ups to “goods” sold. It doesn’t normally apply to “services”, except under very specific circumstances. In addition, when accounting for mark-ups, it is generally not on an item-by-item basis. It usually is on a period basis, i.e. by month, quarter, or by year. This is because some types of goods have a high “turn-over” rates. That is, the item is sold over and over in a given time period. For example, a super market might have daily deliveries of onions, such that each onion that is sold each day is replaced each day. That would be daily “turn-over”, and the monthly profit would be roughly 30 times the mark up of each onion sold. If each onion was allowed a 30% markup, that would allow for 30 times 30% profit each month, or 900%. The monthly profit is typically shown on the “income statement” (also called the “Profit and Loss Statement”, is the total revenues minus the cost of goods. The profit is used to pay all the bills, i.e. payroll, rent, utilities, interest on loans, etc., and anything left over is called “income” or if it is a negative amount its is called a “loss”. The regime is apparently is not concerned about whether the business has an income or a loss, and it is also apparent if you are having losses, you are not allowed to dismiss employees.

    It seems very strange that the limit does not specify a time period. It is quite probable that a bus driver doesn’t understand this.

    • My take is that Chavismo is trying to out-law inflation, and they haven’t figured out yet that certain things cannot be controlled by making laws!

    • On the other hand, if this is just premeditated and deliberate propaganda to misinform the public, then one must conclude that we are seeing a rational plan to create a Cuban-style economy in Venezuela under military rule to serve Cuban interests only.

    • “It seems very strange that the limit does not specify a time period. It is quite probable that a bus driver doesn’t understand this.”
      That is only strange if you think they seriously thought about everything you are explaining to us. Had Juan asked those questions to Maduro in a press conference he would have looked in despair to Giordani and then told you the details are going to be published soon.

    • @ Gordo; ¨It seems very strange that the limit does not specify a time period. It is quite probable that a bus driver doesn’t understand this.¨ ¿¿By bus driver you mean Maduro?? FUNNY!!!

    • If anyone really had the time and money to do so you could expect all sorts of creative accounting akin Enron: start satellite companies to serve as middlemen, and buy from and sell to each other ramping up the price 30% each time.

  6. This is so stupid. So Seniat will collect less taxes and the government will have less money to pay the millions of employees sucking from the state. Bet it’s just mumbo jumbo of the good, populist type.

  7. Not only is this made for punishment, it’s also made to further plunge Venezuelans deeper onto the whole freelancer everything, oficios, unlicensed taxi drivers, selling parfumes bought in Aruba over the weekend, tiger-killing businessess and the most lucrative gestores.

    There’s just no point in studying,in science,in ethics and in honesty.

  8. This 30% is a magic number taken out of a hat , there are a thousand different ways for calculating that 30% so that in practice the figure lacks all meaning .
    One big problem is the cost or contingencies , of costs that are probable but not certain and that must be paid for to keep a business running , usually contingencies are represented by a percentage separate from profits so that depending on their amount they may hike profits or squash them , and often they are devilish hard to estimate, Contingencies represent the risk of costs being more than you estimated because un plannned costs are part of any operation.
    The other thing is that a flat 30% profit accross the board for all products and services is irrational , in some cases its too much in others too litlle , much depends on the kind of business and the resources it requires to function and the risks inherent to carrying it out .
    Also if you want to promote productivity profits ought to be able to reward higher productivity and efficiency so that if a business is able to make better use of the resources it uses it should be able to get a higher profit than the average , if an inneficient businessman whose costs run higher than they should gets the same profit than a good business man whose costs are kept in tight control get the same profit what the use of running a business with optimum efficiency .
    If inflation is running at 50% and shortages abound and imported items have to be bought with forex which price cannot be guaranteed because the govt cannot guarantee its supply, or the cost of buying it then targeting a 30% profit becomes well neigh impossible .
    If you make a law mandating people to do impossible things then the law cannot be enforced except in an absolutely arbitrary and unjust way . If the government makes laws that cannot be met , that must be broken then what it really wants is to play up its role as the Grand Mighty Just avenger of the poor exploited by the fiendish business class for attemting to impose gouging prices , and thus gain its sympathy . The whole idea of a 30% profit ceiling in todays conditions is preverse !! .

  9. I love the confidence Chavistas have when discussing things in general.

    Take the Work Minister, for example, who recently praised the founder of Polar, Eugenio Mendoza[sic], for taking care of his workers. He put it as an example for public companies, since Mendoza provided housing, fair salaries and other benefits.

    http://www.elmundo.com.ve/noticias/negocios/gerencia/ministro-del-trabajo–empresas-estatales-deben-apr.aspx

    Only detail? The founder of Polar is Lorenzo Mendoza Fleury; while Eugenio Mendoza Goiticoa (Leopoldo Lopez’ maternal granduncle), founder of Grupo Mendoza (Protinal, Venezolana de Pinturas, Venepal, etc.)

  10. Pardon my french, but how incredibly stupid. If profits are upsetting you, why not just tax profits like any normal country?? Oh, yeah, lack of transparency, capable bureaucrats, over-the-top corruption etc etc make it impossible for the government to institute taxes in any orderly constructive way. So go back to the source and try to put a plug in it.

    Aside: at least the news of Maduro’s announcement of a suggested gas price increase made some sense (yes, if only on the screen): take the “profits” from the increased gas prices and funnel the additional income to fund social programs for the disadvantaged.

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