TAX COLLECTION PLAN: A SERIOUS EFFORT OR

C O N F I D E N T I A L CARACAS 003015

SIPDIS


STATE FOR WHA/AND
NSC FOR CBARTON
TREASURY FOR OASIA-GIANLUCA SIGNORELLI
HQ USSOUTHCOM FOR POLAD

E.O. 12958: DECL: 09/20/2014
TAGS: ECON EFIN PGOV VE
SUBJECT: TAX COLLECTION PLAN: A SERIOUS EFFORT OR
HARASSMENT?

REF: CARACAS 2365

Classified By: ECONOMIC COUNSELOR RICHARD M. SANDERS FOR REASON 1.4 B A
ND D

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SUMMARY
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1. (SBU) The head of the Venezuelan tax authority (SENIAT)
announced on September 7 that the GOV's goal for 2005 tax
collections (including taxes on oil revenues) would be 56%
higher than the 2004 goal. This comes at a time when tax
collection methods, particularly a program called "Plan Zero
Evasion," have come increasingly under fire from the private
sector. There are no indications that the Plan has uncovered
any actual tax evasion, but has generated limited revenue
through fines. The fines are often accompanied by temporary
business closures, which the business sector argues are a
violation of due process, but SENIAT officials assert
(without providing specifics) that the Plan is a rousing
success. The raids underscore the business community's
vulnerability to heavy-handed government interference. END
SUMMARY.

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THE PLAN - ZERO TAX EVASION
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2. (C) In May 2003, the GOV introduced a program to increase
tax collections, called "Plan Zero Evasion." Jorge Molina,
the Chief of SENIAT's "fiscalizacion" (on-site audit)
division, told econoff on September 15 that Plan Zero Evasion
had two main objectives. The first was to create what he
termed "subjective risk," i.e., to put people "on alert" and
create the impression that payment was absolutely expected,
something he said has never been the case in Venezuela. The
second objective was three-fold: to inform the public about
expectations and the law, to verify fulfillment of formal
record-keeping obligations, and to perform complete audits
when necessary.


3. (C) To carry out the plan, SENIAT auditors, accompanied by
National Guard troops, visit several businesses of the same
type throughout the country simultaneously. The decision as
to what type of business will be audited next is made outside
of the audit division, which Molina did not clarify further.
(Comment: We would bet that SENIAT head Jose Vielma Mora
makes these decisions himself, perhaps following
consultations with higher political levels in the GOV. End
comment.) He stated that an audit could be organized in as
little as two days. SENIAT launched a new tactic the second
weekend of September, when students were sent into local
malls armed with the authority to assess fines of up to USD
64.32 to customers who left stores without a legal receipt.
Molina said that "many" fines were assessed.

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THE METHOD - THE STORY OF AN AUDIT
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4. (C) Ronald Evans, a tax attorney at the Caracas office of
leading U.S.-based international law firm Baker & McKenzie
(and also the President of the Venezuelan Financial Law
Association and a member of the VENAMCHAM tax committee),
told econoff on September 10 about the audit of his firm by
SENIAT, which began in May 2004. SENIAT auditors appeared
unannounced with six National Guardsmen, along with cameras
from the state television station. They brought personal
computers, expecting to download all data from the firm's
computers. After protest that this would violate client
confidentiality, a compromise was reached, that four

SIPDIS
attorneys would preside over a file-by-file review to
determine which contained the firm's own tax information. A
complete one-day computer shutdown was required to accomplish
this, during which the firm had to rent hotel space to
continue basic operations. After the review, SENIAT assessed
a fine of USD 7800, not for tax evasion, but rather for
failure to properly fulfill all formal tax accounting
requirements. A 48-hour closure was mandated, along with
another one-day computer shutdown. Employees were allowed to


work, but all public contact was prohibited. The computer
shutdown fell on the day when Baker & McKenzie was to perform
its end of fiscal year accounting. It requested a one-day
postponement, which was denied because the closure was
already "programmed."

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THE RESULTS - LOTS OF BUSINESSES CLOSED, VERY LITTLE MONEY
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5. (C) SENIAT's Molina stated that about 3300 businesses had
been audited under the Plan in 2004, and that about 70% of
those visited in the greater Caracas area had been closed
(from one to three days),but only about 50% nationally. He
said that the closures were - as in the case of Baker &
McKenzie - for failure to fulfill formal requirements rather
than tax evasion, and that the main problem was not having
the complete accounting ledgers on site as required. He
indicated that personal knowledge of the business/owner by
the auditors was sometimes a factor in a decision not to
close a business, which he used to explain why the closure
rate was lower outside of Caracas. Molina estimated that
2004 collections from the Plan were in the range of USD 1.9
million, which is less than .03% of total SENIAT collections
for the year. (NOTE: statistics from the Venezuelan-American
Chamber of Commerce - VENAMCHAM - state that 66% of audited
businesses have been temporarily closed as a result of the
Plan, and that the total of fees collected since the Plan
began was USD 1.7 million.)

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THE COMPLAINTS - ILLEGAL AND EXCESSIVE
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6. (C) Based on his contacts with other businesses, Evans
said that the circumstances of Baker & McKenzie's audit were
fairly representative. However, it is the only law firm (and
as far as he knows, the only business) that has protested the
closure and fine in court. It argued that the closure
violates its right to due process, that it is
disproportionate to the alleged offenses, and that it
violates the constitutional principle of efficient tax
collection. Evans says other companies agree with those
charges, but seem to consider the fines not worth the trouble
to fight, or prefer to keep things as quiet as possible. He
has spoken publicly about the audit issue, once commenting on
the SENIAT audit of bakeries, pointing out that they were
already struggling to make a profit because of the price
controls on bread products. Vielma Mora sent Evans an email
which, though not overt, Evans considered threatening. He
showed econoff the email, where Vielma declares "there is a
gigantic breach of evasion" by bakeries - before any audits
were completed. VENAMCHAM Executive Vice President Antonio
Herrera, in a letter dated July 6 that he provided to post,
complained to Vielma Mora that SENIAT's actions had created
an impression of unequal treatment, harmed the rule of law,
and discouraged investment.


7. (C) The GOV has responded to some of these complaints.
According to VENAMCHAM Finance Committee staffer Maria
Angelina Velasquez, Vielma Mora, in an August 4 meeting with
the VENAMCHAM tax and foreign trade committees, promised to
"tone down" its audits by no longer bringing camera crews and
possibly reducing the number of National Guard troops who
accompany the auditors. Molina, however, told econoff that
there were no plans to stop audits with troops, as some that
had taken place without any such protection resulted in
"cacerolazos" (pot-banging protests) and physical abuse, as
in one incident in which a woman (not from the business being
audited) kicked him. Molina also disputed the charges of
illegality and inefficiency, claiming that the process was
completely justified in the tax code, and was much more
efficient and effective than ever.

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COMMENT
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8. (C) The stated purpose of Plan Zero Evasion is laudable -
to reduce tax evasion in a country where such behavior is
rampant. However, the fact that the audits continue without


change when SENIAT is not discovering evasion and generating
minimal revenue suggests that the purpose is different. The
raids underscore to the business community its vulnerability
to GOV harassment and the importance of staying in its good
graces. Targeting multinational and prominent local firms
also helps bolster the GOV's image as a "revolutionary
government" unafraid to take on vested interests. The much
ballyhooed Plan Zero Evasion also, of course, heightens the
profile of Vielma Mora, a former military officer and
participant in Chavez's failed 1992 coup.
Brownfield


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2004CARACA03015 - CONFIDENTIAL