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Chavez: Venezuela May Charge Oil Companies Back Taxes

THE WALL STREET JOURNAL: Chavez: Venezuela May Charge Oil Companies Back Taxes

Posted 8 May 2005

DOW JONES NEWSWIRES

CARACAS — Venezuela may charge private oil firms a retroactive tax on some fields in the latest attempt to squeeze more money from the oil industry, President Hugo Chavez said Friday evening.

Last month Venezuela adjusted the income tax rate on 32 operating agreements to 50% from 34%, saying the oil firms were paying a cheap industrial rate.

“The billing in this case could be retroactive,” said Chavez during a televised address Friday, referring to the recent tax increase.

Chavez criticized previous administrations for charging the contracted oil firms a 34% industrial rate. Chavez said the 50% rate was “fair,” and that tax authorities may have to begin calculating the amount oil firms avoided paying in the past.

“They were paying (a rate) as if it were an electrical product,” said Chavez.

The head of the nation’s tax office, Jose Vielma Mora, said last month the office would begin charging the new 50% rate as of April 18. He also told reporters it would not be charged as a back tax, indicating a possible change in policy by Chavez.

The increase, government officials have said, will only apply to the 32 operating agreements that were signed in the 1990s; heavy oil projects in the Orinoco tar belt are still exempt from the tax increase.

The tax hike on operating agreements is not the first in Venezuela. Last year Venezuela hiked the royalty tax on Heavy oil operations to 16% from 1%, scrapping the preferential rate included in the original contracts.

The tax hike on operating agreements hits a number of foreign companies including ChevronTexaco (CVX) and Royal Dutch Shell (RD,SC), among others.

If Venezuela chases off private oil investment, analysts warn Venezuela will have difficulties meeting its target of nearly doubling output to 5 million barrels a day by 2009. Oil Minister Rafael Ramirez said Friday that private firms were eager to invest in Venezuelan oil and natural gas projects despite the tax changes. He spoke before Chavez’s comments on the retroactive billing.

Venezuela did not fully recover from a two-month strike that ended in early 2003. The country pumped more than 3 million b/d heading into the strike, but since then output has leveled off at around 2.6 million b/d, according to market estimates. Ramirez says Venezuela pumps 3.3 million b/d, a figure analysts disagree with.

Venezuela is the world’s fifth largest oil exporting country and a member of the Organization of Petroleum Exporting Countries.

-By Peter Millard, Dow Jones Newswires, 58-414-249-6821; [email protected]

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