The Chargé in Venezuela (Dawson) to the Secretary of State

No. 9295

Sir: With reference to my despatch No. 9291 of September 26, 194673 concerning the statement made in New York on September 25, 1946 by Fomento Minister Juan Pablo Pérez Alfonso, now in the United States as head of the Venezuelan Economic Mission, to the effect that an excess profits tax would probably be levied in Venezuela, I have the honor to report that considerable perturbation has been caused in foreign and Venezuelan business circles in Caracas by the announcement.

When approached on the subject by the press yesterday, the Minister of Finance, Dr. Carlos D’Ascoli, made a vague statement to the effect that he “knew nothing in regard to what the Minister of Fomento [Page 1350] had announced in the United States.” This could be taken either as an implied denial that the question of an excess profits tax had been under study by his Ministry, the competent one to deal with the problem, or morely that he was uninformed concerning what Dr. Pérez Alfonso might have said on the matter. In view of the fact mat the income surtax on large 1945 earnings imposed by Decree No. 112 of December 31, 1945, which caused such anguish to the oil companies and other enterprises earning large profits, was the brainchild of Dr. Pérez Alfonso and that he is the principal economic advisor of the Revolutionary Junta of Government, informed circles credit him with probably having a far clearer insight into the Government’s probable tax policy than his colleague in the Ministry of Finance and are inclined to discount the latter’s attempt at reassurance, if such it can be considered.

Actually, from a broad point of view, there would seem to be no sound economic reason to oppose the addition of an excess profits tax to the Venezuelan Government’s tax structure in view of the relatively low income taxes now prevailing and the huge profits which are being made by monied interests in this boom period in Venezuela, based on Venezuela’s constantly increasing oil production and the great prosperity of a few in the country’s unbalanced economy. On the other hand, however, the Government hardly needs additional revenues with the huge sums which are rolling into its coffers.

From the ethical point of view, there is more doubt as to justification for an excess profits tax. After the imposition of the income surtax by Decree No. 112, the Venezuelan Government authorities, as the Department will recall, on several occasions proclaimed that this was a “one-time” measure resorted to for emergency purposes which would not again be invoked. While, of course, the 1945 income surtax, which simply provided graduated levies on 1945 incomes in excess of 800,000 bolívares without any reference to previous earnings as a yardstick, would presumably differ considerably from any scientifically worked out excess profits tax, both would hit primarily the established oil companies plus the top brackets of native Venezuelan capital. The Venezuelan Government assurances were taken at the time as meaning that nothing like the income surtax, which was, as a matter of fact, commonly referred to somewhat inaccurately as an excess profits tax, would be levied.

There is enclosed a translation of an editorial74 from today’s El Universal, largely the mouthpiece for Venezuela’s wealthy classes, using Dr. Pérez Alfonso’s statement as its text for the day. It indicates clearly between the lines that the class it represents is perturbed over the possibility that its own income will be affected by the [Page 1351] enactment of any measure such as that mentioned by Dr. Pérez Alfonso. It would be unrealistic, however, to believe that the point of view expressed in the editorial is echoed by any large share of the Venezuelan population, which has good reasons for having acquired a “soak the rich” complex.

Respectfully yours,

Allan Dawson
  1. Not printed.
  2. Not reprinted.