Girish Gupta

HOME

BY COUNTRY

Brazil
Colombia
Cuba
Ecuador
Egypt
Guyana
Iraq
Jordan
Lebanon
Mexico
United Kingdom
Venezuela

BY MEDIUM

Text
Photo
Radio
TV/Video

BY PUBLISHER

Al Jazeera
BBC
BuzzFeed
CBC
Christian Science Monitor
CNN
Daily Mail
Datum
Ecologist
Economist Intelligence Unit
Emerging Markets
Financial Times
Foreign Policy
France 24
Fusion
GlobalPost
Guardian
Independent
La Prensa (Panama)
LatinFinance
Mancunion
Monocle
National (Abu Dhabi)
New Internationalist
New Statesman
New York Times
New Yorker
NPR
PBS
PRI
Radio France Internationale
Reuters
RTE
Sky News
Sun
Sunday Times
Telegraph
TIME
Times of London
USA Today
Vice
WLRN

ABOUT

About
CV
Contact (PGP Key)

Twitter
Facebook
LinkedIn
Chávez to Heavily Tax Oil Income
Apr. 28, 2011

Published by Minyanville

Looking to profit from current high oil prices, Venezuelan president Hugo Chávez announced late last week that he will charge oil companies as much as 95% on income from oil when the barrel price exceeds $100.

With the conflict in Libya and unease in many oil-producing nations, the president himself suggested that oil prices are likely to remain high. The tax is likely to bring between $9 billion and $16 billion into government coffers with the timing perfect for Chávez who is looking to invest in social projects in the run-up to next year’s presidential elections, in an attempt to bolster his core vote.

The windfall tax in 2008 called for 60% of profits to be sent toward government coffers when a barrel is above $100. The new legislation calls for 20% of income when Brent is priced between $40 and $70 a barrel, 80% when over $70, 90% when over $90, and 95% when it breaches $100.

As always, government subsidies are in effect for friendly nations such as China and Cuba. It will also not apply to domestic use, meaning that nearly half of oil the produced, thought to be 2.7m barrels a day, will not be taxed. Venezuela's 2011 budget was calculated with a baseline oil price of $40 per barrel.

The move is not likely to help the country’s sovereign debt ratings, according to the Wall Street Journal. The government’s lack of transparency coupled with its likely increase in spending before next year’s election “are likely to continue to weigh on the oil-rich country's ratings,” according to Moody’s and Fitch. Moody’s puts the sovereign credit rating at B2, five notches below investment grade, while Fitch rates the country at B+, four notches into junk status.

The concerns are leveled at the diversion of money to Fonden, a social development fund set up by Chávez. The fund is "off-budget" and so state oil company Petróleos de Venezuela is likely to contribute less to the central bank.

"Due to the opacity and lack of transparency, it's difficult to discern the financial strength of Venezuela," Erich Arispe, a director in Fitch's sovereign ratings group, told the Wall Street Journal. "In the past, high oil prices led to higher growth and higher central bank reserves. Now, higher oil prices don't really translate into that.”

The state oil company is already under considerable criticism for its lack of transparency and falling oil production. With fatter profits now being channeled away from the central bank, investors will be even more concerned about the country defaulting on international debts.

"This tax change is likely to have a chilling effect on private sector investment," Boris Segura of Nomura said. "This new tax regime borders on confiscation whenever oil prices surpass $70."

JPMorgan has recommended that investors keep away from Venezuela’s high-yield debt, citing concerns over the central bank’s declining foreign reserves. Coupled with the oil windfall tax, the bank said in a note to clients that it expects the coming months to increasingly challenge bondholders.

Also worrying the bank is Petróleos de Venezuela’s dispute with Exxon Mobil (XOM), after the company’s oil project was nationalized by the Venezuelan government in 2007. It is thought that the World Bank will order that $7 billion is paid in compensation.

Perhaps in an attempt to sweeten voters, the minimum wage in Venezuela is set to rise 26.5%, beginning on International Workers’ Day, May 1. The first 15% hike will take place then with a second 10% rise in September. This will bring the minimum monthly salary to $360. Public employees were also given a whopping 45% raise.

While high, the increase is still lower than the country’s inflation rate of 27.4% in the year to March. It is also lower than minimum wages in Argentina and Chile. The wage hike is expected to raise inflation figures, and newspapers in Caracas complain that it is still not enough to buy food for the average family.

While they may not be able to afford food, a Gallup poll recently placed Venezuela in sixth place (of 124 countries) in a well-being poll. This prompted a quick response from Chávez: “This means we are on the right path, even with all the errors that we have to put right. Nonetheless, this is the right path, the path of socialism, the redistribution of income."




More...

Crisis-hit Venezuela halts publication of another major indicator
Mar. 21, 2017


Back in Venezuela, 'world's worst skier' proud of his performance
Feb. 26, 2017


Some poor Venezuelan parents give away children amid deep crisis
Dec. 15, 2016


Desperate to dump soon-worthless cash, Venezuelans flock to banks
Dec. 13, 2016


Inflation-hit Venezuela to pull largest bill from circulation
Dec. 11, 2016


Venezuela confirms bigger bills amid world's highest inflation
Dec. 04, 2016


Venezuela PDVSA awards $3.2 bln oil service contracts, protest brews
Sept. 21, 2016


Maduro revels in support from Zimbabwe, Iran as critics decry failed summit
Sept. 18, 2016


Venezuela summit draws few leaders in blow to Maduro
Sept. 17, 2016


Near Venezuela summit, pots-and-pans protest showed domestic tumult
Sept. 17, 2016


Once 'Pearl of Caribbean' gets new shine for Venezuela summit
Sept. 16, 2016


Maduro boasts start of Venezuela summit despite 'gringo pressure'
Sept. 13, 2016


Venezuela's troubles overshadow Non-Aligned Summit
Sept. 11, 2016


Venezuela renews drilling tender after earlier collapse - sources
Aug. 26, 2016


Hungry in a Venezuelan slum, a Facebook Live video
Aug. 04, 2016








© Girish Gupta