World
Institutional
links
Welcome back on
26 -29 August,
ONS 2008
Bridging
the energy gap
is ONS 2006 theme,
from 22-25 August,
in Stavanger, Norway
Petroleumworld
Business
Partners:
Centre for
Global Energy
Studies
  |
|
Editorial Commentary
VenEconomy :
Scraping the bottom of every barrel
The new “Tax Law on Extraordinary Prices of the International Hydrocarbons Market” (Windfall Profit Tax), will be “urgently” submitted to the (ultra chavista) National Assembly for its second round of discussions this Thursday, April 17th.
This Tax (better know as the Ganancias Súbitas-IGS Tax), would tax 50% of windfall gross revenues earned when the price of Brent crude oil goes over $70 per barrel, and 60% of any windfall earned when the price goes over $100/barril.
At VenEconomy, we think that this Tax is absurd.
In the first place, this Tax would violate (again) international agreements and complete disregard the Foreign Investment Protection Law, which doesn’t allow the State to modify any taxes involving foreign companies during the first 10 years after an investment has been made. This type of behavior on the part of the Government only increases the chances that Venezuela’s “risk country” rating, which is already at 638.00 basis points and one of the highest in South America, be bumped further up.
In the second place, this Tax would be discriminatory since it only affects foreign companies associated with PDVSA, in other words, former service contracting companies and Orinoco Oil Belt crude oil upgrading companies, now known as mixed companies.
The Tax doesn’t affect PDVSA, in other words, the State, because the company’s total revenues (made up by the sum of taxes, royalties, dividends, and withheld profits) will continue to be the same. The only thing that will change in this case is the distribution of the revenue, from one pocket to another, within the same company.
But, for foreign shareholders, the new Windfall Tax would mean a drop in their profits. The new Tax would affect production that relates to foreign investments, which is around 250 thousand barrels a day (or 10% of domestic production).
Furthermore, the Windfall Tax would confiscatory and there unconstitutional. For example: Supposing you have “windfall revenue” equal to $10/barrel. If this revenue is subject to -$3.33/barrel for royalties; -$3.34/barrel for Income Tax (= 50% of profits); and the -$5/barrel (= 50% of the “windfall”), the end result would be that shareholders will have registered a loss of -$1.67/barrel.
There is still the chance (next to none) that the National Assembly will revise the language of the tax law in order to make it clear that the tax only applies to profits and not to gross revenues. In this case, the tax would be less arbitrary and shareholders will only be taxed $1.67/barrel, which would leave them with $1.66/ barrel in profits.
Introducing this Law proves how desperate the Government is for added fiscal revenue and how it is making sure to scrap the bottom of every possible barrel it can find.
VenEconomy is a Venezuela's leading specialized publisher in the economic and financial area. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.
Editor's Note: This commentary was originally published by VenEconomy, on 04/08/2007. Petroleumworld reprint this article in the interest of our readers.
All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.Fair use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.
All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator.
Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.
Internet web links to http://www.petroleumworld.com are appreciated
Petroleumworld welcomes your feedback and comments: editor@petroleumworld.com. By using this link, you agree to allow E&P to publish your comments on our letters page.
Petroleumworld News 04/09/08
Copyright© 2008 respective author or news agency. All rights reserved.
We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors.
Send this story to a friend
Your feedback is important to us!
Readers' comments: share your thoughts on this article.
We invite all our readers to share with us
their views and comments about this article.Write to editor@petroleumworld.com
Any question or suggestions, please write to:
editor@petroleumworld.comBest Viewed with IE 5.01+
Windows NT 4.0, '95, '98 and ME +/ 800x600 pixels