Venezuelan President Hugo Chavez ratcheted up an oil windfall tax in a move that raises government income ahead of a presidential election, but puts a heavy load on oil companies in the OPEC member state.
Chavez, who will seek re--election next year, predicted oil prices will keep rising and said extra income from new tax rates will be transferred to a development fund for social spending.
“The decree is to increase the fiscal contribution and the contribution of petroleum resources to development,” he said in a late night telephone call to a television chat show on Thursday, adding that the war in Libya was driving prices higher.
US oil futures settled at US$112.29 on Thursday, while Brent crude was US$123.99. US markets were closed on Friday for a holiday.
FAST-TRACKED
The new law was created under fast-track powers that allow the president to bypass the Venezuelan congress for several months and rule by decree.
Chavez first introduced a windfall tax in 2008 of up to 60 percent on revenues from oil prices higher than US$100 a barrel, based on the ideas of Nobel Prize winner Joseph Stiglitz. Under the new rules, the government will take as much as 95 percent.
South America’s biggest oil producer, Venezuela pumps almost 3 million barrels a day and has enjoyed sharply higher income from its main export in recent months.
Despite the rising prices, already large transfers to the government mean state oil company PDVSA suffers cashflow issues and its profits fell sharply last year. The original windfall tax kicked in when prices rose above US$70 a barrel in November last year.
Under the new decree, PDVSA and its foreign partners will have have to pay the government 80 percent of income from sales of oil at more than US$70 a barrel, rising to 90 percent when prices reach US$90 a barrel. All income from prices more tan US$100 per barrel will be taxed at 95 percent.
In 2008, companies complained the windfall measure was too harsh because it taxed gross income rather than net profits.
Between November and January, Venezuela collected US$800 million from the windfall tax Venezuelan Oil Minister Rafael Ramirez said in February.
The OPEC member’s oil sector has been the driving force of Chavez’s revolution, contributing funds from everything to education, health and sports programs.
POPULATIRY BOOST
Chavez’s popularity ratings have improved in recent months to more than 50 percent as Venezuela recovers from a long recession and spending increases. However, many economists warn his bare-knuckle approach to the private sector makes it hard for business to contribute to growth.
Meanwhile, Venezuela said on Friday it formally left the Andean Community of Nations, a customs union that includes Bolivia, Colombia, Ecuador and Peru.
The foreign ministry said it will maintain trade relations with its South American partners “under other rules and principles.”
Venezuela said in 2006 it would leave the Andean trade group because of a disagreement about free-trade agreements with the US signed by pact members Peru and Colombia.
In recent weeks, Caracas signed trade agreements with Bolivia and Ecuador to promote “joint investments” and “fair trade.”
However, some Venezuelan business leaders fear that withdrawing from the Andean Community will make imports more expensive and lead to shortages of some goods.
Venezuela is awaiting approval from Paraguay to join Mercosur, another South American trade bloc that includes Brazil, Argentina, Paraguay and Uruguay.
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