Photo: retrieved

“Not only do they change the bolivar and increase the wage to an amount nobody can pay, but now they’re forcing us to pay more taxes? Prices will go through the roof!”

That’s what Mercedes Uribe, school teacher in one of Caracas’s most populous areas, said after hearing Nicolás Maduro’s mandatory broadcast on Friday, August 17. Along with reforms to tackle the crisis, he presented a series of tax reforms that, although delicate, went unnoticed.

Maduro presented a series of tax reforms that, although delicate, went unnoticed.

First, there’s an increase of the Value-Added Tax (VAT) from 12% to 16%, the second highest aliquot in Venezuela since 1993 and, second, Income Tax (ISLR) collection has been modified, thus affecting two of the most important taxes of the national collection system.

The presidential decree for the VAT increase, published in Extraordinary Official Gazette N° 6.395, will come into force on September 1, and will apply for the remainder of 2018 and 2019. The reform of 2014 already established that the figure should remain in a range between 8% and 16% (so they just fixed it to the legal maximum), but the resolution wasn’t enough: the chavista National Constituent Assembly (ANC) approved, record-fast and without discussion, the country’s tax reform.

The measure seeks to collect the highest amount of income in bolivars for the State, trying to reduce the fiscal deficit: since the country is in hyperinflation, the National Tax Service (SENIAT) has a limited collection capacity. The consultant agency Ecoanalítica said that income through VAT payments between January and June this year dropped by over 74%.

Since the country is in hyperinflation, SENIAT has a limited collection capacity.

Leonardo Palacios, lawyer and head of the Venezuelan Tax Law Association, explains that such a reform doesn’t comply with any of the postulates established in the Constitution. Beyond generating higher fiscal income, reforms should focus on benefiting the people, guaranteeing investment, respecting property rights and boosting a progressive economic system. “The tax reform must be simple, transparent and sufficiently clear for any contributor to understand how, when and where to pay,” he says. In his view, this isn’t the case: it was published with a vague language, illegally, unconstitutionally and violating judicial security, since it was approved via constituent decree (and not the National Assembly).

One example of this can be found in the effects the VAT increase is supposed to have: initially, Maduro said the rate hike would only apply to sumptuary or luxury goods. Days later, Communications and Information Minister Jorge Rodríguez said that “mass consumption goods, goods people need, like food, medicines and agroindustrial goods” would be exempt. But in the presentation before the ANC, Tareck El Aissami, vice-president for the economic area, said the VAT would only apply for luxury expenses.

“Since there’s a contradiction in the gazette, what the president and even what the Seniat announced is incorrect,” said tax expert Camilo London. He explains that the 16% aliquot applies to all goods and services taxed by VAT, and that directly applies to price tags of all products. “As soon as September starts, prices will be adjusted with those percentages.”

As soon as September starts, prices will be adjusted with those percentages.

The VAT Law reform also specifies that the acquisition and import of goods and services considered sumptuary must be paid at 31%, 16% of the general VAT increase plus an additional 15%. This replaces the Tax Unit for the American dollar as an exclusive reference. “We could say that the VAT was dollarized, at least on these items,” sais London in his website Gerencia y Tributos.

None of this, mind you, is discussed on the streets. “I know nothing of numbers or economy,” said Ernesto Pulido, an elderly citizen, “I just know the government wants to screw us however possible. They said so many things that we don’t know what’s the worst.”

Early payment

“The proposal is to establish a 1% payment on daily sales for special contributors,” said El Aissami, “except in the financial and insurance sectors, which will pay 2%. Payment for monthly Income Tax advances is set to a range between 0.5% and 2% for large contributors.”

Leonardo Palacios says that, with ISLR advances, the government seeks to protect itself from the hyperinflation ravaging the country, through the advance payment of money collected over long periods of time. “That will affect cash flows, the money set for investment, payrolls and the day-by-day of shop owners. The government says ‘pay in advance, we’ll see later if you owe me or if I have reimburse you’.”

Camilo London agrees, “advance payment in an inflationary economy will substantially increase the tax load of companies. The tax hasn’t even been generated and you have to pay anyway,” including companies that aren’t producing earnings.

Advance payment in an inflationary economy will increase the tax load of companies

Palacios notes that, previously, the category for special contributors grouped together large companies with important resources and incomes, which is a minority group in moderate inflation. Today, “everyone’s a special contributor” because of hyperinflation. A small contributor becomes a large contributor, which increases the number of special contributors. More daily tax advances, more money for the State.

Fiscal deficit down to zero

“We’re heading to what we’ve called ‘Zero Fiscal Deficit’, we’ve made the right decisions in this regard, with fiscal discipline, eliminating the issuance of inorganic money. We’ll support the issuance based on the country’s production,” said Maduro.

But every time the State assumes expenses and its income doesn’t grow at the same rate, there’s deficit, made worse by the drop in oil production (even though oil barrel prices are currently above budget). To get more money, there are three possible solutions: increase taxes, ask for loans or issue inorganic money, an option forbidden by article 320 of the Constitution.

Nicolás Maduro himself has admitted that they’re printing inorganic money to finance public spending: “We had to just print money to support socialist programs, housing, bonuses, the bimonthly wage increases.”

Maduro has admitted that they’re printing inorganic money to finance public spending.

Lawyer Juan Cristóbal Carmona says that this situation shows that the Central Bank “has no administrative autonomy” and complies with the Executive’s every instruction. Similarly, he distrusts the promise to bring fiscal deficit down, when the State assumes so many expenses. “The government’s message is contradictory: they say they’re going to scrap inorganic money but they’re taking on extra obligations they didn’t have. Maduro increased salaries, offered a reconversion bonus, said he’d finance salaries for 90 days. Where’s that money coming from? They create money with no relation to the country’s wealth or production,” says the specialist in financial law.

For Leonardo Palacios, far from reducing hyperinflation, these measures will accelerate it. “Everything translates to the final prices of goods and services.” In an interview with Fedecámaras, he mentioned that “the reform could be beautiful if it was coherent, integrated and timely. If they considered that there can’t be an effective fiscal reform if the State isn’t reorganized. That’s something the government hasn’t done.”

At the end of the day, he says, the conclusion is what you expect: citizens will be the most affected, regardless of social class.

Caracas Chronicles is 100% reader-supported. Support independent Venezuelan journalism by making a donation.
Previous articleMocking the Old
Next articleThe Petro that Wasn’t There
Venezuelan journalist from UCAB. Patea la calle with a bag full of notebooks and curiosity, eager to ask questions. Her passions are writing and photography, which allow her to tell stories that move her, both with words and many clicks.


  1. I am self employed. Have been for over 25 years.

    Not once have I as a business person paid a tax. My business doesn’t pay a dime in taxes ever. Hyperbole?

    Not at all. Every tax foisted upon my business is transferred to either my customers in higher costs or to my employees in reduced wages. This is true for not just my business, but every business, whether it be a hot dog stand or Cargill.

    The question to ask therefore is, “is the tax collected being used wisely. Is the government being a wise steward with the wealth they are taking outof the consumers and the workers pocket?”

    • And how are your schools, roads, highways, etc? You have lights and garbage collection? These are also social taxes unless you have your own dump and electric generator. You support the military, who may someday save the once beautiful Venezuela while in the meantime protecting the US from enemies both foreign and domestic? Even your local police, sheriffs, highway patrol, SWAT and National Guard are paid with your taxes. Your local, state and national election boards, the foundation of our electoral system are paid with YOUR taxes.. be proud of that.

      Yes, you do pay taxes, whether you admit or not, and for good reason, because good stewardship of the taxes we pay help make America great, and safe.

      I was stunned when I first worked in Venezuela, and NO ONE I worked with paid their taxes..

      So, EG you were saying what about being proud of not paying your taxes?

      • I’m a big fan of good financial stewardship. Unfortunately, “good financial stewardship” and “US government” don’t belong on the same page, let alone the same sentence.

        I personally pay taxes. My business does not. In a previous post (below), I wrote that my employees have an opportunity to make an easy $100 from me. Would you like to try an win the $100? All you have to do is find a tax/tariff or fee that my business pays that isn’t passed on to the consumer in higher costs, or my employees in lower wages.

        I haven’t been to VZ in a few years, but I was in Greece last year. Dodging taxes is the national pastime. I can’t tell you the number of times I got a 30%-40% cash discount, providing I didn’t ask for a receipt. I imagine it is similar all over the world… but I think Greece takes it to the next level. Naturally, these businesses have no problem with such antics… its always the business guy next door who is dodging taxes!!!

        I pay may taxes. Have I given the impression that I don’t?

    • SR Guapo, I’ll dig a bit more… you post often about the ignorance of Venezuelans. Why are they ignorant? How would you propose educating them, or at least future generations? Free home schooling? Private schools the poor uneducated can’t afford? Public schools funded by whom/what? Maybe.. you paying your share of taxes maybe. Would like to hear your thoughts.

      • I would say that 70% of Venezuelans are as ignorant as about 50% of Americans. My personal view. Anecdotal. I think a walk into any American convenience store would bear this out.

        How would I educate them? I would allow parents who want their child to be educated well to take the taxes wasted on government education and allow them to spend it on a private education. (vouchers) The poorer the family, the larger the voucher. A. It rewards excellence, and B. allows the mediocre to aspire.

        Of course, you will always have some parents who don’t give a shit about their kids education. But, the world needs ditch diggers too.

  2. If only your words were widely understood. Personal tax increases are unpopular but too many have no problem with tax increases for businesses which as you correctly state the consumer pays for. Why is that simple fact so difficult for so many.

  3. Who pays taxes in Venezuela?
    My friend was former business tycoon selling John Deere machines in Venezuela and he said that only small people pay taxes.

    • Your friend is right. (if by “small people” your friend meant workers and consumers)

      When I hire employees, part of the first half day orientation is that I sit down with them and spell out exactly where their paycheck goes. I also explain to them, in as much detail as needed, why the 6.2% that “the employer” pays to Social Security doesn’t come from the employer, but comes from their wages that I would ordinarily pay them.

      I then ask them to come back the next day and, for a bounty of $100 cash, tell me which employer tax doesn’t get passed on to the employee in the form of reduced wages or higher costs to the company.

      Curiously, I have kept that $100. But, its a lesson that is rarely taught in government schools.

      • No exactly.

        A great deal of businesses in Venezuela are checked by the Seniat frequently.

        Not because they want to be efficient, but to charge some lechugas, if you aren’t compliant with something to make it go away.

        Keeping your companies in Venezuela active and compliant is a giant pain in the ass. Ask anyone who actually runs businesses in Venezuela.

        • I have two uncles (wife) who ran a successful business in Venezuela until it was usurped by Chavez in 2003. Payoffs and bribes were apparently very common in the construction business, but that was the cost of expedience.

          Under the table payoffs are a common thing in some US cities. Try and get anything built in Portland, Oregon without a “contribution” to the reelection campaign of the city commissioners.

  4. Love the article, the dictatorship is going strong fucking every Venezuelan still living there and absolutely LOVE the fact that el pendejo cobarde pueblo takes it up the ass without vaseline with a smile on their face. VIVA CUBAZUELA!! I’m loving it (y)

  5. Because of the extreme loss of oil revenue they need to replace it with whatever new source of revenue that may be available while trying to have the newly created revenue streams appear as if they dont affect the common guy…., not easy to understand is how they are going to take up the funding of so many new obligations …….. The following is a list of what they are planning to do to replace the loss in oil revenue :
    1. raising the vat to 16%
    2. the financial transaction tax of 1%
    3. hiking the amount of taxes which are collected in advance
    4. hiking the price of gasoline (for most everybody) , by doing so they reduce the volume of gasoline they have to import and get rid of a subsidy they could no longer maintain .
    5. converting the dollars of oil revenue they continue to get at a 6.000BS per Dollar rate (thousand of time higher than the old rate)
    6. pressing people who get money transfers from abroad to do so thru a system which allows them to retain part of the value being transferred .
    7. quietly raising the cost of public services .
    8. For all practical purposes they have stopped payment on most of their foreign debt so that leaves them with more money to use in other things.
    9. putting procedural barriers for people to collect the newly announced benefits .
    If you add up all of the above then the effect of the catastrophic fall in oil revenues may be partially cushioned . They also may wager that they may convince some investors to come and invest in the country by giving them temporary special tax breaks or special licenses and concessions to exploit the countries natural riches , The exemption of oil industry activities from income taxes may have the purpose of convincing them to make investments to raise or at least maintain the current production …..thus Maduros invitation for Shell to invest in the country….!! This of course is highly delusional..!!

    • Bill B,
      Only no. 6 on your list “raises” any money for the regime. Printing and handing out Bs, then collecting some of the Bs you just printed and handed out, does nothing. You can argue Nos. 4 and 8 “raise money” by virtue of spending less money. But, that is like my wife saying she made money because the shoes she bought were on sale.

      Venezuela needs to produce. Printing Bs is not producing. But, they cant produce for all the reasons you have explained to me in your past comments. So, all they’ve got left is to try and go back to oil rents. And you are correct no serious oil company would trust this regime or want anything to do with being responsible for the environmental clean up that will be needed due to the lack of any investment or maintenance for the last 20 years.

    • You forgot the new scam. They are selling pieces of paper that promise gold. They want their seniors to cash out they savings for these gold ingot “certificates”.

      You don’t get the actual gold. You get a VZ backed certificate that says there is a 1.5gm or 2.5gm ingot of gold sitting in the government’s vault with your name on it.

      Who on earth would be dumb enough to buy that?

      • Yes forgot about that one although the idea that people are capable of saving any money on todays hyperinflationary conditions is comically delusional , they need every cent they get to try and survive ….!! Understand that part of the idea as that people never see any of the gold they buy , they get a kind of token and the BCV stores it for them and then 3 months after their purchase they can trade the gold for ‘money in the bank’…….

  6. The government says ‘pay in advance, we’ll see later if you owe me or if I have reimburse you’.

    Hmm let me see, where have I heard of this system before? Interest free loans to governments that do so much good with the money.

  7. Maybe they can use some of this new tax revenue to eradicate the CIA trained iguanas infesting the country. Maracaibo power grid got “hit” again today . Northern part of city without power again. Damn those crafty iguanas, damn those sneaky gringos!

  8. Guapo, thanks for the link! Some good pics! I would say the iguana must have strapped a couple sticks of dynamite or a block of C4 to his own back and then ran straight for the power station.

    • Did you watch the video at bottom of the article? Succession of transformers exploding. That is some serious shit going on. No doubt due to overloading with trying to shove too much current through transmission system not up for the task.

      What sinister elements will the Minister of Blackouts blame? Probably Julio Borges seen running from the scene holding a pair of wire snips, and getting into a car with Colombian plates.

    • Also, the “cap on profits” that states that nothing can be sold at a profit greater than 30% of the price it was bought, is officialy set to be forcefully lower than the VAT.

      Another enslaving strike against the people.

    • That’s the nice thing about living in Chavismo ConspiracyLand. The conspiracy is so deep and so pervasive, that its impossible to prove… THUS PROVING IT!

  9. After the Ley de Precios de Justos came out I tried comparing the profit levels provided in the law with the actual profit levels of US corporations and to my surprise they werent that different , of course the language of the law isnt that precise but I slogged thru and got an approximate result that sugggested both profit levels were comparable . Problem in venezuela is that after a law comes out nobody bothers reading it with any care so the official who is encharged with its enforcement will apply not the law as written but an interpretation of the law which usually is more punitive and restrictive than the law allows ……. Remember going thru the Ley de Ilicitos bancarios after it came out and discovering that because of shoddy drafting it wanst nearly as tough as popular imagination made it out to be ….it allowed many transactions that people thought were punished by the law ……!!

  10. The regime does not understand that creating money does not create wealth.
    Production that creates value creates wealth.
    Every factory that was nationalized and now produces nothing. Every acre of once productive farmland that now sits idle. The loss of billions of tourism Dollars. The inability to maintain oil production and deliver a product that will be accepted by customers. The reliance on imports negatively impacting the balance of payments. The loss of all direct foreign investment that would create jobs. The inability of the regime to maintain infrastructure. Last but not least, Corruption that has resulted in the loss of hundreds of billions of Dollars from the Venezuelan economy.
    This is why Venezuela is broke.
    The ongoing deterioration in health care and nutrition negatively impacts the country in many other ways.
    Rampant crime and the regime’s collusion with criminal elements creates human rights abuses that are immeasurable in monetary terms.
    Hyperinflation caused by the never ending creation of currency exacerbates the crisis by the refusal of trading partners to accept worthless Venezuelan currency.
    No amount of Petros, gold certificates, new currency or taxes will get the regime out of this hole.
    Venezuela needs an infusion of capital from outside the country. As long as the corrupt regime maintains control of the country, any rescue from the IMF is off the table.
    The establishment of an internationally recognized legitimate government is the first step on the very, very long road to recovery for Venezuela. Without a legitimate government and the establishment of the rule of law, Venezuela stands a very good chance of becoming the Somalia of the Americas.
    The competing interests among the military may bring about “warlords” controlling separate areas of the country. Oil production, mining, drug smuggling, piracy and other activities funding rival factions within the country is a real threat to regional stability.
    As the country continues to deteriorate, the flood of refugees into neighboring countries will increase. This will have a destabilizing effect on Venezuela’s neighbors. None of which have the resources required for such an onslaught of people. Isolation of refugees into camps may be required. This will allow the authorities to evaluate health and other risks to their citizens. As the refugee crisis expands, citizens of neighboring countries may push back and force their governments to limit / stop the flow of refugees.
    This scenario has played out many times throughout the world. It is obvious to many people that the lack of foreign intervention will result in more death and suffering. The regional leaders that were so quick to condemn President Trump when he mused about military intervention are now facing a dilemma. These leaders were playing to their voters. I doubt they would have been as opposed to foreign intervention if they were living the nightmare that is the Venezuelan experience.
    At some point, somebody needs to decide that enough is enough. I am certain that the Trump administration is receiving increasing calls for aid and other assistance from the countries that are being overwhelmed by the refugee crisis. It is in the interests of American and regional security for some type of intervention to occur.
    The “You broke it, You bought it” concept means a long term commitment for any countries that become involved in intervention in Venezuela. The risk / reward evaluation of military intervention will soon tip the scales toward some type of action.


Please enter your comment!
Please enter your name here