Venezuela increases income tax on oil projects

April 20, 2005

I don’t know why I had missed this item, but Venezuela on Sunday announced
that it was increasing the income tax rate on all operating oil
projects from a 34% to a 50% rate effective when all companies are
notified. The increase will apply only to operating projects and not to
joint ventures such as Cerro Negro, Petrozuata, Sincor and Hamaca.

This will, of course, increase income for the country. It does create
two problems which in the end affect the credibility and attractiveness
of the country: First of all, all of these projects were planned when
the tax rate was 34%, which was ratified three years ago when the new
Hydracarbons Bill was approved with the majority of this Government.
Most of these are marginal fields which are very old and yes, they make
money today at high prices, but what if they do go down. The second
problem is that it is a very high rate. This is the income tax on the
earnings fo the companies, on top of the royalties. This implies that
there will be reduced inetrest in other such agreements and these
projects may not get loans form their home companies if they were
needed when prices go down if the rate of return is not adequate.

This entry was posted on April 20, 2005 at 5:10 pm and is filed under Venezuela.

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