Every day, I read local newspapers with eagerness. Reading the paper has become an adventure into the unknown, I no longer read it to see what’s new, but is more like reading it to find out what is nutty, dumb, stupid or shocking, even if by now very little seems to be shocking Venezuelans accustomed to a daily barrage of ever increasing crazy, strange or weird ideas and announcements.
There have been many of these items in the last week, I lose track of them, let alone blog about them. But the intensity is increasing so much that I can remember many of the interesting items I found in the last two days. I wil write a few posts about them:
—Supreme Court rules that only regular income is taxable: This is truly a weird one and may have far reaching consequences.
Someone asked the Supreme Court to issue an injunction on a tax case. The Court rejected the injunction, but since it was looking at the case, decided to take a look at the concept of “net taxable income”, perhaps concerned that Chavez cut their salary by implementing a salary cap. Thus, the Justices suddenly remembered Article 317 of the Venezuelan Constitution which says:
Artículo 316. El sistema tributario procurará la justa
distribución de las cargas públicas según la capacidad económica del o la
contribuyente, atendiendo al principio de progresividad, así como la protección de la
economía nacional y la elevación del nivel de vida de la población, y se sustentará
para ello en un sistema eficiente para la recaudación de los tributos.
which loosely translates as:
Article 316. The tax system will try to justly distribute the weight of public charges according to the economic capability of the taxpayer, addressing it using th principle of progressivity, as well as the protection of the national economy and the increase in the standard of living of the population and will sustain it on an efficient system for the collection of taxes”
Basically, the Court is ruling that because of this mandate of the Constitution, then only regular income can be taxed when you work for someone and any “irregular payment”, to use the words of the Court, will, not be taxable. Thus, most lawyers interpret bonuses, profit sharing and anything given to the worker in an irregular fashion is no longer taxable.
And here it gets even weirder. You see, Venezuelan law does not allow for any new law to be applied retroactively, but the Constitution is not new, it has been around for seven years, thus it should apply retroactively. But the Superintendent of Taxes is asking for a clarification from the Court, saying he believes it should only apply starting with the 2008 taxes, since the ruling began last week.
While I understand the problem Superintendent Vielma Mora finds himself in, there is no precedent for his novel interpretation. In fact, in the case of the CANTV pensioned workers, the company was forced to pay back at least minimum salary all the way back to the new 2000 Constitution, as it should be since it was a new interpretation.
But the Court has opened a true Pandora’s Box with the ruling. To begin with, clearly income tax collection will suffer, the last thing the Government needed at this time of lower oil prices, higher expenditures and a 5% in the Value added tax. But it would become much, much worse, if on top of that it is retroactive, because it would mean that the Government would owe all employees that do pay income taxes, any money paid on these “irregular” payments. While I do not relish calculating my income taxes all the way back five years, I would do it if it implies, like I think it does, that I will not pay taxes for the next two.
But the biggest and more serious long term problem is how the ruling could be used to help workers take home a bigger pay than they do today. Basically, you could divert any new salary increases into “irregular payments”, making sure they are truly irregular, like, for example, using a random number generator to decide on what month or day of the month you will pay it.
In any case, I am not a lawyer, but this is really tricky for the Government and I can not help but wonder how come the Justices focused so much on the “justice” part of the tax system, but they seemed to have ignored the part about the “protection of the national economy” in the article.
In the end, that is precisely what is at stake. Stay tuned…
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