Bolivia's New Oil And Gas Tax Cuts Deficit

by Mike Godfrey, Tax-News.com, Washington

17 January 2006

Helped by a swingeing new tax on hydrocarbon production introduced in 2005, Bolivia's fiscal deficit fell to just 1.6% for the year, down from 5.5% in 2004.

The new tax, adding 32% to the existing 18% royalty paid by foreign energy companies operating in Bolivia, was hurriedly enacted last May by the government in order to fend off popular pressure for nationalization of the country's gas industry.

The government had planned to double energy output over the next few years, but oil and gas companies said that the tax made this unachievable. However, the government made the companies sign new contracts when the tax was introduced in an attempt to lock in the future investments that are required by expansion.

Brazil's Petrobras, which had been planning a $1.3 billion gas-chemical complex, said it would slow down its investment plans after the tax was imposed. Brazil imports large quantities of gas from Bolivia, and many Brazilian cars have been converted to run on it.

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