New foreign currency tax in Venezuela hurting business

By Carlos Seijas Meneses

Caracas, Apr 4 (EFE).- In Venezuela, where more than 50 percent of all payments are made in foreign currency, a new tax has been imposed on “large financial transactions” (IGTF) which takes up to 20 percent of the value of payments made in foreign currency, but most businesses neither know how to process it nor have the means to comply with the government order.

The Official Gazette says that the IGTF affects “natural and legal persons and economic entities without legal personage, on payments made in money different from the legal tender in the country, or in cryptocurrencies or cryptosecurities different from those issued by … Venezuela.”

But the widespreadlack of knowledge and information about the new measure, combined with the fact that the tax system is not adapted to ensure compliance with the new rule have led some establishments to temporarily suspend taking payments in foreign currency.

A national fast-food chain released a statement to inform its customers that it will find it impossible “for the moment, to receive payment in foreign currency.”

The firm justified its move by saying that it was in the “final phase of adapting and updating all” its systems with an eye toward “faithfully complying with the … rule.”

In addition, the administration of a private parking service at a Caracas mall informed its customers that it was not accepting foreign currency in payment.

Tiziana Polesel, the president of Consecomercio, a national business services council, said that 75 percent of businesses are reporting “that they are not able to receive payment in foreign currency because they have not been able to complete the process of adapting their systems to the new tax.”

She said that the machines at some companies “are not able to adapt or modify their configuration to collect the tax,” and so the equipment must be changed, which can cost “from $600 to more than $1,000,” an expense that is difficult to cover due to the lack of loanable funds, and therefore she called for the suspension or postponement of the order.

At least until March 31, national supermarket, pharmacy, clothing, hardware and food chains, along with other businesses, still have not begun collecting the tax because their systems have not been updated, mainly because the companies that perform that work “have collapsed,” a restaurant manager told EFE.

Nicolas Chirinos, the manager of a hardware store in the capital where the tax is still not being collected, said that the authorities “are trying to get control” of dollarization (that is, payment for goods and services in US dollars), which – although it is not official policy – has spread to almost all businesses.

“The public is asking whether we’re collecting (the tax). In fact, people from Seniat (the National Integrated Service for Customs and Tax Administration), confirmed the (cash register) machine and asked us if we were clear about everything. There are people who are going crazy with this,” Chirinos told EFE.

According to the new rule, anyone making a transaction in foreign currency via a bank will pay between 2 percent and 8 percent tax depending on what the government decides in the future, while transactions in foreign cash, in certain circumstances will be taxed at between 2 percent and 20 percent.

But, the order says, “the government may establish a different amount,” and will collect 3 percent on all payments in currencies other than the Venezuelan bolivar.

Economic experts say that with the new tax on foreign currency transactions the government is, on the one hand, trying to legally take advantage of the growing dollarization in Venezuela and, on the other, trying to incentivize greater use of the bolivar as a means of exchange to the detriment of the dollar.

The experts see no possibility that the measure will revive the Venezuelan currency because of the sheer prevalance of foreign currency payments in the country and the scarcity of bolivars due to the fiscal and loan restrictions implemented by the government.

Norexa Contramaestre, a 71-year-old customs official, said that the new tax is “rather confusing” and represents “a big problem for the common citizen,” not only “because it costs something” but also because bolivars, whereby people could avoid the tax, “are not showing up.”

“If the resources that are in the market can be acquired with foreign currency, which is what prevails, and bolivars are (scarce), we’re strangled. We don’t have bolivars, we can’t get them, and now (we pay) 3 percent for foreign currency (transactions). It’s very difficult to keep going like this, (to get) food, medicines and basic services,” Contramaestre told EFE.

The value of the bolivar has declined precipitously over the past few years, losing 73 percent of its value in just the past year, a trend that is accelerating. Venezuela issued new currency last year cutting off six zeroes from the denomination of the bolivar after high inflation devastated its value.

EFE csm/sb/bp