Venezuela Ready To Axe Bank Transaction Tax

by Mike Godfrey, Tax-News.com, Washington

10 February 2006

With surging oil prices swelling the state's coffers, lawmakers in Venezuela have approved a proposal to eliminate a tax on banking transactions that was imposed in 2002 by President Hugo Chavez to help re-balance the government's books.

The 0.5% bank debit tax affects transactions involving checking and savings accounts with deposits above 620,000 bolivars ($288,324).

While the move will reduce tax revenues for the government by about 2.7 trillion bolivars ($1.3 billion) in 2006, Rodrigo Cabezas, the National Assembly's Finance Committee chief told lawmakers that the elimination of the tax would help cut business costs, reduce inflation and put more money into the hands of families, thus boosting consumption.

Moreover, sky high oil prices have allowed the government to eliminate its budget deficit and have given it more fiscal room for manoeuvre. As the world's fifth largest oil exporter, the energy sector accounts for one-third of Venezuela's gross domestic product and 40% of the government's income.

The measure will come into effect when published by the government in the official gazette.

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