Venezuela everyday more like Cuba, will smell like it soon

RNV not even hinting at Polar as a target of Chavez wrath

Yesterday Chavez gave yet another cadena of 5 hours where he said his usual inane stuff and then some more.  I will pass on his usual provocations such as the armed forces being chavista.  What I think was the worst this time around was his latest discovery that taxes and mandatory employee payment are not business expenses.  True, it maybe a provocation also but in this case I am afraid that there is more to it: either he truly does not understand how a business is run, or worse, he wants to end all private business once and for all and is not even waiting for October 7.  I became twitterless under the shock.

In Venezuela businesses pay a lot of taxes and are constantly audited so fiscal evasion is rather difficult, no matter how much you bloat your expenses.  After all the SENIAT (our IRS) only accepts bills that are made at the business name and tax number, and under strict guidelines of presentation if not they are deemed not valid no matter the amount.  The only small exceptions are some tolls, and food bills for very small amounts, considered in the global travel allocation of a given employee.  So, from personal experience, I can tell you that one of Chavez accusations is an outright lie: it is nearly impossible to over-report sales tax (VAT).  It is true that the system allows you not to pay all the VAT on raw material and services but you still pay a significant portion of it.  Thus if it is also true that the final customer pays the bulk of it, it remains that intermediate VAT during the process are genuine business expense.

But that is not all: in the agricultural business a lot of food items are VAT free at customer level even though that business must pay a lot of VAT for their raw material and services.  The government, in a commendable effort to minimize inflation, allows for the trading of VAT between businesses that pay too much and those that do not pay enough.  It is a complicated issue so I am not going to go into details.  The point is that if you are a food seller who is supposedly tax exempt, like many of my customers, you may recover that tax you overpaid through a swap with another company which needs to pay the SENIAT something.  This is allowed because there is no such a thing as tax refund in Venezuela: at best whatever excess you have you can discount it, or part of it in the coming fiscal year, taking the inflation surtax on yourself, a 30%+.  The problem is that the other company which is no hurry usually since it can keep writing for later taxes (complicated again) will not "buy" all of your tax credit.  In fact, depending on the moment some of my customers may fail to recover as much as 35% of what they were supposed to recover.  And yet that 35% cannot be included in the tax deduction because on paper you did recover 100% even if you were not able to do so because the other guys basically were able to take advantage of you.

And yet, if one can forgive up to a point Chavez's confusion on VAT issues, the other stuff he said cannot be forgiven whatsoever.  He said that some of the mandatory payments that business must do for their employees cannot be counted as expenses!!!  and one better, that income tax could not accounted as expense because it was paid AFTER the products were sold.....  That was when I tuned off the cadena in shock, stopped tweeting and hit the bottle of wine to finish my diner.

An employer in Venezuela must pay to each employee: the larger share of social security, food stamps/tickets, the larger share of housing subventions and more depending if there is working contract with a trade union.  Those expenses, trust me on that one, do add up quite a lot at the end of the year.  And since they are all indexed on the paycheck any decree from Chavez for mandatory pay raise is automatically reflected and sure enough contributes to inflation.  Well, Chavez said that that was the cause of Venezuelan structural inflation and as such he would not recognize these expenses anymore.

I am stopping here because I think you get the idea: Chavez is only going to recognize the costs of raw material, certain services and the basic payroll.  And he will control final prices thus limiting the amount of money a business can make.  That the new organism in charge, SUNDECOP, is late in fixing prices by almost two months does not seem to matter, they excuse themselves saying that the final decision comes from the vice-presidency, confessing thus that all is about politics in an election year.  Bankruptcy or nationalizations is thy name.

These delays do not stop Chavez from announcing that the prices of personal hygiene products and laundry detergents will go down (they were the first lot to be "audited"), nor the state media to start already a nasty campaign against all the affected companies that played fair when SUNDECOP started its audits knowing full well that they could not hide much.  The Venezuelan National Radio, RNV, went as far as publishing the picture above of Polar products in a store, the major target of Chavez which cannot find a way to take over that giant since he cannot risk its immediate decomposition.  So, little by little he keeps trying to take bites out of it.  Meanwhile, even without prices fixed, SUNDECOP is already creatively trying to find fault with business it already visited, revisiting them and looking at small decimal point changes in price stickers....

Conclusions?  Chavez is scared of inflation in an election year that shows all signs to be higher than in 2011.  So he creates an artificial situation where some prices will go down, hopefully enough to limit the inflation rate for a couple of months during the campaign.  That this false sense of inflation abatement will result by the end of the year in an catastrophic inflation rebound accompanied by the absence on the shelves of these personal hygiene products and detergents and that we will start smelling like unwashed Cubans that would kill for a roll of toilet paper, is not his problems.  After all, what he wants is us to become impoverished like Cuba, without any private business and himself alone as the dispenser of all goods.

But the scariest thing of all is that he seems to actually believe his words on that matter.  What can you possibly expect when such an ignorant lunatic is in charge?  Money falls from trees....

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PS: I forgot to include that there is also possibly a corruption undertow in these attacks of yesterday and Chavez confessed it by telling foreign companies that do these products and are not happy with SUNDECOP law that they could leave the country, that they are plenty of companies from other countries willing and eager to do business in Venezuela.  Sure enough, if your competition is killed in advance, why not export to Venezuela your products?  The more so that you do not need to produce in Venezuela since all the corruption money is in importation licences and currency control.  Unbelievable the chutzpah of these corrupt military and politicians and Cubans in charge of CADIVI, harbors,  et al.