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Viewing cable 07CARACAS1449, POLITICS AND TAXES

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Reference ID Created Released Classification Origin
07CARACAS1449 2007-07-20 20:57 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Caracas
VZCZCXRO8666
RR RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHNG
RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHCV #1449/01 2012057
ZNR UUUUU ZZH
R 202057Z JUL 07
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 9325
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEHNSC/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY
RUMIAAA/HQ USSOUTHCOM MIAMI FL
UNCLAS SECTION 01 OF 03 CARACAS 001449 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR KLINGENSMITH, NGRANT, AND MMALLOY 
COMMERCE FOR 4431/MAC/WH/MCAMERON 
NSC FOR JCARDENAS 
HQ SOUTHCOM ALSO FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECON EFIN VE
SUBJECT: POLITICS AND TAXES 
 
------- 
SUMMARY 
------- 
 
1. (SBU) The BRV's tax authority, SENIAT is taking the lead 
role in going after many of Chavez' political and economic 
opponents while at the same time taking positive steps to cut 
down on tax evasion and improve the government's tax base. 
The SENIAT Superintendent, Jose Vielma Mora has become more 
politically active in recent months, and SENIAT often acts as 
the government's storm troopers targeting specific sectors to 
provide legitimacy to Chavez' claims of negligence or 
intransigence.  The government's worsening fiscal situation 
driven by stagnating or decreasing oil revenues and 
increasing costs has made SENIAT's role more essential. 
Recent results paint a rosy picture of government tax 
receipts, but belie underlying causes for concern. 
 
--------------------- 
AUDITS OF CONVENIENCE 
--------------------- 
 
2. (SBU) During the second week of January 2007 Chavez 
announced that the BRV would nationalize the Avila Magica 
cable car system in Caracas that takes visitors to the top of 
the Avila mountain.  The cable car system was run by a 
private Venezuelan consortium and was in the sixth year of 
its thirty year concession.  The consortium had restored the 
previously defunct system and invested large sums in its 
maintenance  On May 2, the creation of a commission to 
inspect and control the cable car concession was announced in 
the BRV's Official Gazette. On July 12 the National Assembly 
passed a law transferring the cable car systems in Merida and 
Caracas to the BRV's tourism company.  Concurrent with the 
announcement, SENIAT announced that Avila Magica was 
delinquent in its taxes, an announcement that was used by BRV 
officials to defend that expropriation. 
 
3. (SBU) On February 14, Chavez threatened to nationalize the 
country's supermarkets and food distributors for contributing 
to the shortages and inflation.  SENIAT closed the 
supermarket chains Unicasa and Central Madeirense on April 13 
for 48 hours for accounting irregularities.  SENIAT and 
consumer "protection" agency INDECU routinely close 
individual stores for selling items above regulated prices. 
 
4. (SBU) RCTV officials have described a variety of BRV 
harassment against the station, including almost daily visits 
from SENIAT tax inspectors looking for irregularities in 
their books.  RCTV has been the subject of numerous fines by 
SENIAT, INDECU, and other BRV agencies and most recently, 
SENIAT charged RCTV  a fine of Bs. 1.7 billion for back taxes 
on July 3 (adding insult to injury over a month after it was 
closed by the BRV, and less than a week after it had 
announced plans to return to Venezuelan homes via DirecTV and 
cable). 
 
5. (SBU) On April 2, 2007 Chavez threatened to nationalize 
the nation's health care sector (Venezuela currently has a 
hybrid public/private system), noting that "if the private 
clinics, for example, continue speculating, increasing 
prices, we will have to regulate them...if the private 
clinics don't comply with the regulations...well we will have 
to nationalize them."  The cost of health care is one of the 
fastest growing components of the inflation index, which BRV 
officials attribute to speculation and price gouging.  Sector 
contacts explain the increase in prices as a natural result 
of a decreasing supply of doctors lost to brain drain and 
materials unavailable due to currency control restrictions 
coupled with increased demand as more Venezuelans can afford 
to move from the public to private system. 
 
6. (SBU) On April 16 SENIAT deployed 8,000 tax inspectors to 
audit all of the private clinics in the country and announced 
a new 1-800 phone number for citizens to denounce excessive 
medical costs.  On April 22 Vielma Mora announced that they 
had fined 179 private clinics and closed an additional 123 
for evading taxes.  Since April, Chavez, Vielma Mora, the 
Ministry of Health, and other state actors have continued to 
denounce the private health care system, and as recently as 
July 17 SENIAT announced another sector-wide audit. 
 
7. (SBU) The BRV's slow takeover and nationalization of the 
 
CARACAS 00001449  002 OF 003 
 
 
petroleum industry during the past two years has been 
accompanied by SENIAT's tax inspectors.  During the past 
year, post has tracked the following fines and back taxes 
claimed by SENIAT on the international oil companies (IOCs) 
operating in the Faja belt: USD 200 million combined from the 
faja belt companies in July 2007, Chevron USD 43.13 million 
on May 15, Petrozuata USD 465 million on May 11, 2007, Exxon 
Mobil USD 3.8 million on May 4, 2007, Cerro Negro closed for 
48 hours on March 8, 2007, Petrozuata USD 98.1 million on 
December 14, 2007, Sincor USD 880,000 on December 7, 2006, 
Texaco Orinoco Resources USD 4 million on November 14, 2007, 
Phillips Petroleum Co. USD 7.2 million on November 14, 2007, 
Chevron USD 19.4 million on September 21, 2006, British 
Petroleum USD 37.2 million on September 21, 2006. 
 
-------------------------------------------- 
A SOCIALIST TAX, BUT NOT A TAX ON SOCIALISTS 
-------------------------------------------- 
 
8. (SBU) SENIAT is currently drafting a new "socialist" tax 
code, which is expected to be released in August.  Planned 
revisions to the current tax code include an increase on sin 
and luxury goods, including cigarettes and alcohol, a change 
in the calculation of income tax, and the creation of a 
capital tax, which would tax a percentage of individuals' net 
worth exceeding USD 465,000 (not including their principal 
residence).  This capital tax would supposedly tax total net 
worth, including assets held abroad.  How SENIAT intends to 
enforce this concept remains difficult to foresee.  Econ 
section contacts already admit to moving assets into 
children's' and family member's names to reduce the amount of 
property they "own." 
 
------------------------ 
A SOCIALIST BUSINESSMAN? 
------------------------ 
 
9. (SBU) Vielma Mora participated in the May 9 inauguration 
of the National Confederation of Socialist Businessmen (CESV) 
in Caracas.  The event was covered by the major daily papers, 
most of which included a photograph of the group with the tax 
authority superintendent front and center.  The group, 
destined to compete with the country's Chamber of Commerce 
FEDECAMARAS is small and fairly inactive, though could 
potentially be seen by the BRV as a replacement to the 
"oligarchic coupsters" at FEDECAMARAS.  (COMMENT: With the 
tax authority on board (literally as a member of its board of 
directors), the confederation also benefits from its 
appearance as a protection racket from BRV intervention.  END 
COMMENT.) 
 
----------------- 
SHOW ME THE MONEY 
----------------- 
 
10. (SBU) Roughly half of the BRV's funding comes from oil 
revenues and half from tax revenue.  SENIAT has succeeded 
admirably in recent years in cutting down on tax evasion (a 
competitive sport in Venezuela) and in increasing the 
government's take from 2.3 percent of GDP in 1999 to 12.4 
percent of GDP in 2006.  SENIAT also routinely exceeds its 
quotas (an effect both of lowballing estimates and profiting 
(in nominal terms) from inflation and economic growth, which 
is raising incomes, consumption, and the taxes associated 
with these activities).  Revenues grew 44 percent in the 
first half of 2007 versus the same period in 2006 and SENIAT 
has already met 60 percent of its 2007 goal, even as spending 
and revenue growth tend to accelerate during the second half 
of the year. 
 
11. (SBU) Recently, however, the government has become more 
dependent on oil income to fund itself.  A recent Citibank 
report accurately notes that oil tax revenues for the first 
half of 2007 grew to 19 percent of total tax returns, from 12 
percent in 2006.  At the same time, income from the value 
added tax (IVA) is dropping due to the BRV decision to lower 
the rate in an attempt to fight inflation from 14 percent to 
11 percent in March and 9 percent in July.  Should oil prices 
or production fall and/or economic growth falter, SENIAT may 
be hard pressed to make up the difference. 
 
------- 
COMMENT 
 
CARACAS 00001449  003 OF 003 
 
 
------- 
 
12. (SBU) Vielma Mora, a retired Navy captain and participant 
in the 1992 coup, clearly knows where his bread is buttered. 
A two-story billboard at the entrance to Maiquetia airport's 
cargo terminal features Chavez and Vielma Mora promoting 
SENIAT's new customs house.  Vielma Mora can frequently be 
seen at Chavez events, such as his weekly "Alo Presidente" 
television program.  As SENIAT's activities become more 
politicized, it risks undoing much of the praise it has 
earned locally and abroad for combating evasion and improving 
Venezuela's tax base.  It may also call into question the 
disposition of foreign institutions to work with SENIAT in 
transnational matters such as money laundering and IPR 
protection.  Virtually any financial transaction today in 
Venezuela requires the purchaser to give the seller his/her 
national identity number, name, address, and phone number for 
submission to the tax authority.  While the value of this 
data is questionable (and the BRV's ability to store and mine 
it even more questionable), contacts happily admit to 
submitting the number 1-2-3-4-5-6-7-8-9 when asked for their 
identification. 
 
FRENCH