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The economy in Venezuela was dollarized by way of events.
Judging by its name, it should only affect “big” financial transactions.
However, the new tax applied by the government of Nicholas Maduro In reality, it affects operations in dollars and other foreign currencies -and also cryptocurrencies- that are carried out in Venezuela, regardless of their amount.
The de facto dollarization in Venezuela has been a relief to many given the hyperinflation and devaluation of the national currency, the bolívar, in recent years.
In general, citizens will have to pay an additional 3%, although with some exceptions.
The new tax came into force on March 28, when there was still a lot of confusion in Venezuela regarding its application, something that led some companies -such as the fast food chain Arturo’s- to temporarily suspend receiving payments in foreign currency to the waiting for the panorama to be clarified on the so-called new Tax on Large Financial Transactions (IGTF).
In social networks, numerous voices have complained regarding this IGTF, equating it to an increase in the Value Added Tax (VAT, a 16% tax that Venezuelans must pay each time they purchase a non-exempt product or service).
However, some analysts such as Luis Vicente León, president of the Datanalisis consulting firm, have pointed out that this new measure might help boost the bankarization of the country’s economy.
But what is this new tax and how can it affect Venezuelans?
Confusion and de-dollarization
When the Venezuelan authorities announced last February that this new tax would be applied with a rate that can range between 2% and 20%numerous criticisms arose to the measure that was classified as “confiscatory”.
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The vice president of Venezuela, Delcy Rodríguez, said that 2022 will be the year of the “recovery” of the bolivar.
At that time, this new tax was also criticized for the effect it might have on an economy like the Venezuelan economy, which just at the beginning of this year had considered a long cycle of hyperinflation that began in 2017 had closed and which has timidly been recovering from the economic crisis. severest it has known in decades.
From the government, it was pointed out that the objective is to encourage the recovery in the use of the bolivar, the devalued official currency of the country that in fact has been increasingly displaced by the growing use of the dollar.
“2022 will be the year of definitive recovery of the bolivar as the national currency”had anticipated last December the executive vice president, Delcy Rodriguez.
However, many experts questioned this objective, considering that the timid economic improvement in Venezuela is a consequence of the liberalization of the severe price and exchange controls that have governed the country’s economy since 2002, for which they saw this new tax as a recoil.
In any case, the panorama of uncertainty cleared up when it became clear that transactions between natural persons were not going to be subject to this new tax and that the rate that would be applied to most transactions would not be 20% but 3 %.
“If that tax had been or is located at the upper limit (20%), in reality, it would be disastrous. Not because foreign currency transactions would not be made, but because they would be made on the black market,” said Luis Vicente León in a video posted on YouTube.
More costs and drawbacks
Although formally, the new IGTF falls mainly on legal persons and entities considered by the authorities as “special taxpayers”, in practice this tax will have a direct impact on consumers Well, within that category there are numerous retail sales businesses including supermarkets, pharmacies and bakeries, among others.
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It is estimated that 40% of the transactions made in Venezuela are in cash.
Thus, when a Venezuelan goes to one of these businesses and makes a purchase using dollars or other currencies in cash, he must pay this additional 3% for his purchase.
If the person does not want to have to pay this tax, they have the alternative of making their payments directly in bolivars or opening a type of account denominated in dollars in a Venezuelan bank that at the time of purchase automatically changes the required amount to bolivars. in such a way that the payment is not charged.
At present, however, There are many Venezuelans who, counting on dollars, do not have a foreign currency account.
“Nearly 40% of the transactions that are made in Venezuela are made with cash currencies, the majority in dollars. That obviously represents a problem for many Venezuelans. There are many people who are not banked, who do not have the opportunity to place the dollars in a bank and be able to use a debit card,” explains economist Luis Oliveros to BBC Mundo.
For the expert, this new tax will cause greater inconveniences to Venezuelans, including a 3% increase in purchase prices in operations that are subject to the new tax.
It is worth noting that The IGTF makes no distinction between the amount of the purchase or the type of product or service that is being paidbut simply on the type of currency used and whether the supplier is a “special taxpayer”, so it doesn’t matter if you buy some headache pills or a fancy car.
Billions in circulation
By creating a new tax on foreign currency transactions, Venezuelan authorities are targeting an important area of that country’s economy.
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The constant devaluation of the bolivar made Venezuelans turn to other more stable payment methods.
According to the consulting firm Ecoanalítica, 60% of the payments made in stores in Venezuela are in foreign currency, 65% of which are handled in cash.
This company also estimates that Some US$2.6 billion circulate in cash in Venezuelaan amount equivalent to 24% of the international reserves deposited in the Central Bank of Venezuela (BCV).
Now, the government will be able to charge 3% on many operations in which these dollars are used in cash.
“The government is seeking, first of all, to increase revenue,” says economist Luis Oliveros.
“Obviously, if that was the only objective, they might have increased VAT to 19% and with that they would have increased collection, but they are also seeking to encourage the use of bolivars, but that is not achieved by forcing people to pay in bolivars. “, adds the expert.
Analyst Luis Vicente León also questions the use of this strategy to favor the circulation of the Venezuelan currency.
“I understand the BCV’s desire to rescue the use of the bolivar as a common currency. It is one of its functions. But the strategy of ‘forcing’ its use, limiting transfers in foreign currency without solving the problems that pulverized the functions of the bolivar is counterproductive” , he wrote this Friday on his Twitter account.
“The use of the dollar in Venezuela was not widespread because there were financial mechanisms that stimulated it, but because distrust in the bolivar and the demonetization of the country forced the economy and the BCV itself to seek alternative mechanisms in hard currency“, he added.
Thus, the attempt to prop up the use of the Venezuelan currency by putting a tax on transactions in dollars is judged a premature move.
“This economy needed more time to settle down, to stabilize, to find a better time to carry out the de-dollarization of the economy. This is not the best way to do it,” warns Luis Oliveros.
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