Venezuelan Congress OKs New Oil Tax On First Reading

CARACAS, April 3, 2008 (Dow Jones Newswires)

Venezuela's lawmakers approved the first reading of a new tax on oil companies that will take as much as 60% of the gains they derive from sudden increases in world oil prices.

The "sudden gains tax" proposal will kick in when the average price for Brent crude exceeds $70 a barrel in a particular month, according to a copy of the law proposal obtained by Dow Jones Newswires.

Once oil prices meet that threshold, oil companies that export "liquid hydrocarbons" from Venezuela will pay 50% of the difference between that $70 average and the actual sale price of every barrel, according to the document. If the average price of Brent crude exceeds $100 in a month, the tax will rise to 60%.

The new levy is the first such move to demand more gains from oil companies since President Hugo Chavez decided to nationalize key heavy oil ventures last year.

"This new tax will allow the government and the people to enjoy these extraordinary gains that are generated from increases in oil prices," Luis Tascon, a lawmaker, said in a televised congressional debate about the law. Members of the National Assembly gave the initial nod to the levy in an early morning session and a second approval is expected in days, possibly as soon as next week.

Foreign oil companies operating in Venezuela that will be subject to the law include Total SA (TOT), Chevron Corp. (CVX), StatoilHydro ASA (STO), and BP PLC (BP), among others.

Companies subject to the new tax will be able to deduct these payments from their yearly income tax obligations, according to the law's Article 6. The government will also have the power to exempt certain exports from this tax.

Earlier in the year, Chavez vowed to impose the new tax as part of his government's policy to demand as much as possible from oil companies operating in Venezuela.

CARACAS, April 3, 2008 (Dow Jones Newswires)