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Another populist program in Venezuela

By Veneconomy

The Council of Ministers has approved the exoneration of products included in the Family Basket Program from VAT, the purpose being to encourage the production and sale of household furniture and white goods.

In other words, this is a version of the “popular car” –which does not pay VAT or import duties- that will apply to furniture, refrigerators, cookers, washing machines and other white goods with the idea of benefiting the most needy sector of the population.

No one could possibly be against helping the country’s poorest people, who continue to be the majority, yet after taking a look at the new exoneration program it is quite clear that it will not benefit the most destitute, but the middle classes. Although that is not questionable either, because this sector has also been hard hit as a result of the administration’s bad economic policies. What is objectionable is the inefficient way of going about it.

With the “popular car” scheme, which was promoted by former Development Minister Haydée Castillo during Rafael Caldera’s first administration, it was the middle classes that benefited from the program. The market for this Family Basket will probably have a similar make-up; in other words the program will not reach those it is intended to help.

Moreover, applying the exoneration to only certain products will simply make collecting the tax more complicated, making it difficult to administer and increasing opportunities for tax evasion. So, it looks as though the State will be sacrificing tax revenues and tying its tax collection system in knots, but without achieving the goal it has set itself.

Once again, the logical thing would be to eliminate the different exonerations under the VAT Law and bring down the rate to 10%. This would make administering the tax simpler, make collecting it easier, and reactivate the productive industry, jobs and consumptions, so benefiting the entire population.

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