January 31, 2020 / 10:37 PM / in 21 days

Venezuela to impose tax up to 25% on purchases in foreign currency

FILE PHOTO: Prices of energy drinks are seen in U.S. dollars at a "bodegon" in Caracas, Venezuela December 12, 2019. Picture taken December 12, 2019. REUTERS/Manaure Quintero/File Photo

CARACAS (Reuters) - Venezuela will begin applying an extra sales tax on purchases of goods using foreign currency under a law approved this week by the government-controlled Constituent Assembly.

Venezuelans have increasingly taken to using dollars or euros for day-to-day transactions, as hyperinflation erodes the value of the crisis-torn country’s bolivar currency.

The law allows the government to impose a tax ranging between 5% and 25% on goods purchases made in foreign currency, on top of the 16% value added tax already in place.

While the use of foreign currency was once banned in Venezuela, socialist President Nicolas Maduro last year relaxed exchange controls in a bid to boost commerce and industry in the face of a biting recession and U.S. sanctions. Maduro even called the use of dollars an “escape valve.”

“Because of this tax, goods purchased in dollars will come out more costly now,” said Juan Castillo, a local tax lawyer.

The move was approved by the Constituent Assembly, a body consisting of government supporters created by Maduro in 2017. The opposition-controlled National Assembly, whose rulings are systematically ignored by Maduro, calls the Constituent Assembly illegitimate.

While dollars are now widely accepted throughout Venezuela, prices on sales receipts are still listed in bolivars.

Reporting by Mayela Armas; Writing by Luc Cohen; Editing by Tom Brown

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