Venezuela came out of hyperinflation just a month ago, falling just a few months short of breaking the historical record for the longest price crisis in history. One of the keys was the effective dollarization of the economy: for years, most of the country’s citizens and companies have operated openly with dollars, which has helped calm price increases. But now, the country’s de facto president, Nicolás Maduro, threatens to reverse the solution that has stabilized the economy, by approving a tax on operations with dollars to discourage its use.
Last week, the country’s Chavista Parliament approved a tax that penalizes operations with dollars, whether in cash or through the banking system. All companies that charge in dollars must add a surcharge of 3% to 20% to “special taxpayers”, a category that includes all people with an annual salary of 150 bolívares (approximately 33 dollars). A category that includes absolutely the entire population. That would be added to the 16% VAT that all products already pay.
The measure is an attempt to stop the rapid decline in the irrelevance of the national currency, the Bolívar, which the government has had to redenominate several times in the last two decades, until removing 14 zeros, the last time last year. According to the latest data, 71% of workers in Caracas are paid in dollars, and almost all supermarkets in the city accept payment in foreign currency. Even some gas stations of PDVSA, the state public company, already charge real prices in dollars.
With this new law, banks will add a 3% commission to all payments in dollars, which will skyrocket to 20% on purchases from foreign companies using international payment methods, such as PayPal. Neighborhood stores must also add a 3% surcharge to cash payments. The effect could be so harsh that the Government is still reluctant to publish the law already approved in the Official Gazette, so the country’s citizens hold their breath waiting to find out when the tax will come into force.
The greatest danger of this measure is that a large number of operations are transferred to the black, to avoid the tax, which would mean a drain on the tax collection of a Government that has to reduce the deficit as much as possible to curb inflation, which is still very high . The economy, of course, is not for jokes: according to official data, GDP grew last year for the first time in almost a decade and gained 4%. At this rate, it would take 32 years – until 2054 – to recover the wealth that the country had when Maduro took power in 2013, according to calculations by economist Manuel Sutherland.
The most significant thing is that this step may be a self-amendment by Maduro to his own opening steps. The dollarization of the country and the end of price controls, at least in practice, have made it possible to reduce the images of product shortages and allow goods to approach their real market value. The other side of the coin is that the impoverishment of the population caused by these measures in recent years has left millions of people in poverty. Forcing citizens to choose between using a currency that continues to lose 6% of its value each month or receiving a 3% tax on each purchase will not help reduce that poverty.
Venezuela ends hyperinflation after four long years
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