Last Friday and very quietly, the Government published
a “new” financial transaction tax, which is just the revival of the old
debit tax, except that this time around individuals, “the people” are
exempt from it. This time around the level of the tax is huge, a full
1.5% tax for any transaction made by any company. This
is a variation on the debit tax, a tax used by countries when they run
out of money. And that is what this tax mysterious: How can the Chavez
administration need money at a time that oil prices are pushing an all
time record, Fonden and Bandes have lots of money and “published”
numbers claim that the Government is running a surplus and not a
deficit? Therein lies the magical and mysterious aspect of today’s announcement. On
top of that, the Government sneaked up the tax. The only suggestion of
its existence was Chavez’ one that he was going to tax “spending”. But
financial transactions are not spending, they are reality. Of you have
to pay your payroll, you have to pay it, nothing you can do about it. Even weirder, the new tax is announced as an anti-inflationary measure in order to absorb liquidity… Say what? How
can adding 1.5% of all financial transactions of companies be
anti-inflationary? Aren’t companies going to turn around and pass the
added cost, which will end up being more than just 1.5%, to consumers?
There is no such thing as a free lunch and even if individuals are
exempt from it, they are going to pay for it in higher prices for goods and
services. And the cost will be higher than 1.5%, because when a product
is made, for example, every step of the process will have to pay 1.5%.
It is not like the VAT, which can be deducted from the chain of
commercialization. Brilliant Mr. Watson! Or whoever was the tropical version of him that came up with this idea. Even
worse, this has nothing to do with absorbing monetary liquidity, as the
tax office will transfer the money to the Treasury, which will proceed
to spend it, nothing anti-inflationary about this. In fact, it is that
same spending that is driving inflation anyway. The mystery part is that there have been reports
that despite the published numbers, spending is so out of control and
inefficient that Chávez threw a tantrum because he could not get
funding for some pet project or other last week. I had
heard about such reports earlier, but dismissed them as public numbers
would appear to contradict this. The question is why then is this new tax being
imposed, given its inflationary impact? Could it be that Chavez’
capricious and non-technical cut in the Value Added Tax has made the
fiscal situation untenable? We might never know. What we do know is that this new tax is huge, its timing is certainly peculiar and by November 1st.
when it goes into effect, companies will start looking at the few ways
that exist to bypass it in certain transactions. They do exist by the
way. It still leaves two mysteries: One, who was
the genius behind the idea? Two, how did he sell it to the autocrat?
Three, is there an ulterior motive behind it? No matter what the answers, this news robolutionary invention will only create inflation and uncertainty going forward. As if we did not have enough of that!!!
1:40:37 AM 
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