Al Movimiento Estudiantil de Venezuela
“La Libertad, Sancho, es uno de los más preciados dones que a los hombres dieron los cielos; por la libertad, así como por la honra, se puede y debe aventurar la vida”
Miguel de Cervantes
A finales de diciembre de 2009 culminó el proceso de edición de mi libro “La Federación Descentralizada”, Mitos y Realidades en el Reparto de Tributos y otros Ingresos entre los entes políticos territoriales de Venezuela.
La edición y distribución de la publicación es responsabilidad de Los Ángeles Editores, C.A. Desde aquí mi agradecimiento, así como también al Profesor Ezra Mizrachi Cohen, quien gentilmente es el autor del prólogo del libro.
Sinopsis: “La Federación Descentralizada” destaca las peculiaridades existentes en la República Bolivariana de Venezuela, en torno a la distribución del poder de crear tributos y el reparto de otros ingresos entre la Nación, los Estados y Municipios, además de las complicaciones que de ellas se derivan. Una característica novedosa de este material bibliográfico es que en ella se contrastan los principios constitucionales que rigen, tanto a los tributos “estadales”, como a los tributos municipales. Aunque resulte dudoso, ninguna otra obra jurídica publicada hasta ahora en el país hace este contraste.
La publicación es eminentemente teórica, pero tiene una gran utilidad práctica, pues ofrece respuestas a importantes y actuales interrogantes, que en algunos casos pueden interesar, incluso a quienes no son expertos en estos temas: ¿Cómo afecta a las finanzas municipales la “estatización” de empresas como la Compañía Anónima Nacional de Teléfonos de Venezuela (“CANTV”), la Siderúrgica del Orinoco (“Sidor”), Cementos Mexicanos (“Cemex”) y las antes llamadas “empresas operadoras” bajo los llamados “Convenios de Servicios Operativos” para la operación de campos petroleros?; ¿Puede el Distrito Metropolitano (de Caracas) armonizar los tributos de los Municipios ubicados dentro de su jurisdicción?; ¿Cuál era el soporte jurídico para el rubro “costo de operación municipal” que venía incluido en las facturas del servicio eléctrico hasta el año 2008?; ¿Por qué los Estados insisten en cobrar una tasa por la autorización para hacer expendio de bebidas alcohólicas?; ¿Pueden los Consejos Comunales ser destinatarios de asignaciones económicas como las provenientes del FIDES y de la LAEE?
Además aunque este libro está orientado principalmente para juristas, se trata de un trabajo que podría ser leído por otros profesionales de áreas afines, como: administradores, contadores sociólogos, politólogos y economistas entre otros.
Distribución y Venta: El libro puede ser adquirido en todo el país.
The Decentralized Federation:
Myths and realities in the distribution of taxes and other recourses
between the political-territorial entities, in Venezuela
ADRIANA VIGILANZA GARCIA
THE CONSTITUTIONAL DISTRIBUTION OF TAXING POWER IN VENEZUELA
1. Form of State and distribution of taxing power. The taxing power in a Federation as opposed to the taxing power in a Unitary State with political decentralization. The coexistence of principles of distribution of tax power which characterize a Federal State with principles that characterize a Unitary State with political decentralization.
1.1 The “federal decentralized” State provided for in Article 4 of the Constitution of the Bolivarian Republic of Venezuela.
1.2 The alleged primary taxing power, “implicit and residual”, of the Venezuelan states.
1.2.1 Do states preserve the possibility of taxing the consumption of specific goods and the exploitation or production of non-metallic minerals?
1.2.2 The irony behind the “philosophical” origin of the “Intergovernmental Fund for the Decentralization” (FIDES)
184.108.40.206. First Stage of FIDES (year 1993)
220.127.116.11. Second Stage of FIDES (year 1997)
18.104.22.168. Third Stage of FIDES (year 2000)
22.214.171.124 The fourth stage of FIDES (2006). The Communal Councils as direct recipients of FIDES funds.
126.96.36.199. The Interterritorial Compensation Fund as a substitute for FIDES. Brief reference to the National Development Fund (FONDEN).
1.3 Some reflections on the so-called “municipal allocation” (“situado municipal”).
1.4 The supposed primary taxing power of the Municipalities and the constitutional recognition of taxes assigned to that political-territorial level.
1.5 The historical evolution of the municipal autonomy and the primary constitutionally recognized taxing power for the Municipalities. The “Federation at a third level”
1.6 The relation of the taxing power of the states with the taxing power of the Municipalities.
1.6.1 The case of the Metropolitan Districts and, especially, that of the Metropolitan District of Caracas.
1.7 The “Stamp Tax” as a State´s tax and the vision of the Constitutional Chamber (“CC”) of the Supreme Court of Justice (“SCJ”) regarding the taxing power of the Metropolitan District of Caracas vs. the Taxing Power of Miranda State. “Immortalization” of the unconstitutional “interference” of the Metropolitan District of Caracas in the Miranda State?
188.8.131.52 Decision of the CC of the Supreme Court of Justice (“SCJ”) of March 18, 2003. The origin of the conflict between States and Municipalities for the collection of the License for the Sale of Alcoholic Beverages
184.108.40.206 Decision of the Supreme Court of Justice of April 30, 2003
220.127.116.11 Decision of the CC of the Supreme Court of Justice of June 17, 2003
18.104.22.168 Decision of the SC of the Supreme Court of Justice of June 17, 2003.
1.8 General conclusions on the vision of the Constitutional Chamber of the Supreme Court of Justice on State taxes and the Metropolitan District of Caracas
1.9 Tax revenues that are typical of a Metropolitan District in Comparative Law. The contribution of Municipalities to the Metropolitan District of Caracas, with part of their own tax resources.
1.10 The Constitutional attribution to the National Power (Federal Government) )of the competence to coordinate and harmonize the different tax powers of States and Municipalities and the form of State adopted in the 1999 Constitution.
1.11 The little utility and feasibility of a single “Tax harmonization Law”
1.12 Tax harmonization as a competence of the Metropolitan District of Caracas.
1.13 The discussion about the supplementary application of the Organic Tax Code to the States and Municipalities.
1.13.1. The range of “law” of local ordinances:
1.13.2. The “organic” nature of the Organic Tax Code and its relevance to the State Tax Laws and Ordinances
EXPRESS CONSTITUTIONAL LIMITATIONS TO THE EXERCISE OF TAXING POWER BY STATES AND MUNICIPALITIES
- Article 180 of the Constitution
2.1 First Paragraph of Article 180 of the Constitution: The “regulatory” powers and the taxing power of the Municipalities.
2.1.1 The competence of the national power to regulate the conservation, promotion and use of forests, soils, waters and other natural resources of the country, the public domain of the waters and the municipal taxing power
2.2 Second Paragraph of Article 180 of the Constitution: “Immunity” from Municipal Taxing Power.
2.2.1 Historical count on the doctrine of “tax immunity”
2.2.2 Sense and scope of the expression “State legal entity”
2.2.3 Tax immunity and the hydrocarbons sector
2.2.4 The tax immunity of the hydrocarbon sector before the nationalization of hydrocarbons (1864 – 1975)
2.2.5 The tax immunity of the hydrocarbon sector after the nationalization of hydrocarbons (1975 onwards).
22.214.171.124 State and municipal taxation on “upstream” activities in the hydrocarbons sector
126.96.36.199 Municipal taxation and the so-called Operational Agreements
188.8.131.52 Municipal taxation and “downstream” or “internal market” of hydrocarbon products.
2.3. Tax immunity and telecommunications
2.4. Tax immunity and the electricity sector
2.5. Conclusions regarding the problem of the supposed “tax immunity” of the “legal entities of the State”
2.6. Article 183 of the Constitution
2.6.1. The prohibitions related to avoiding distortions to interstate commerce (“Dormant Commerce Clause”). Do these prohibitions make sense in a Unitary State with political decentralization?
2.6.2 The prohibition to States and Municipalities to create taxes on “income producing matters” of the competence of the National (Federal) Power
2.6.3. The myth of internal double taxation
2.7. The myth of the existence of an absolute constitutional prohibition to tax agriculture, breeding, fishing and forestry, addressed to States and Municipalities.
THE SANCTIONING POWER OF STATES AND MUNICIPALITIES, IN TAX MATTERS.
- Possible positions on the issue of the sanctioning power of States and Municipalities, in tax matters
3.1. Thesis that excludes States and municipalities from all power to sanction unlawful conducts, tax wise, on the basis of the competence assigned to the National Power to dictate the “criminal” legislation
3.1.1. Thesis that denies the sanctioning power of States and Municipalities for alleged violation of the criminal law principle that “only the law may create penalties”
3.1.2. Thesis that not only excludes the possibility that States and Municipalities create any type of sanction, but also concludes that the crimes against the State and Municipal Treasures are not sanctiable because the Organic Tax Code only applies to these entities in a supplementary manner and in Criminal law it is not allow the supplementary application of penalties.
3.2 Thesis that accepts the existence of power to create sanctions, headed by States and Municipalities, on the basis of the concept of “administrative police”
3.3 Thesis that affirms the existence of power to create sanctions in States and Municipalities, on the basis that the term “criminal”, used in Article 156.32 of the Constitution, should be limited to mean “Criminal Code”
3.4 Scope of the state and municipal “ius puniendi” or types of tax sanctions that States and Municipalities may create:
3.5 Conclusions on the problem of the sanctioning power of States and Municipalities, in tax matters:
This book is largely the result of doctrinal debates that we have had in the course of our professional practice, which then led to essays or works for collective publications, some of them published by the Venezuelan Association of Tax Law. Therefore, my main thanks to the Association and its members and especially to Dr. Juan Cristóbal Carmona, who was its President for two consecutive periods as well as a great friend, and offered me a unique opportunity, by asking me to accompany him in the interesting and enriching work of preparing a Bill to regulate “States Public Finances” that was presented to the Office for Economic Advice to the National Assembly, in the year 2001.
Obviously, our teaching experience also contributed a lot to give depth to this book, since facing a classroom requires updating and critical analysis. For this reason, I would also like to especially thank Dr. Ronald Evans Márquez, who incorporated me for the first time to a team of Professors, in the Advanced Tax Advisory and Management Program of the Metropolitan University in Venezuela (“UNIMET”) and secondly, to my students, both from UNIMET, as well as from the Andrés Bello Catholic University and from my “alma mater”, the Central University of Venezuela. With them I share the taste for tax issues and the passion to serve our beloved country.
Additionally, I would like to express my gratitude to the Mayor Franklin Duno Petit, a man of great courage, who left this world too early and to whom I owe the fact that he deposit in me the confidence to raise before the Supreme Court of Justice, in his representation, an important legal debate, upon which resolution depended the financial subsistence of many Municipalities of the East Coast of Lake Maracaibo. This same issue led us to meet many other fighters in this area, highlighting among them Mr. Ramón Rodríguez. In the same way, my special gratitude to Mayor Saady Bijani, who also identified in me a disinterested defender of local autonomy and made me joined the team of advisors of the Revenue Direction of San Francisco Municipality of Zulia State, in the year 2002. To the rest of those other advisors and in particular, to Leida Ferrer and Fernando Fernández, from the Revenue Direction of that Municipality, also go my thanks for their loyalty, patience, honesty and professional quality.
Last but not least, I would like to thank Eleonora Ponce, who helped me review the entire text of this book; also I give thanks to my parents, sisters and cousins, because more than once they heard my stories, despite the difficulty that surely they had to follow them (since neither is a lawyer nor a professional dedicated to the tax area), as well as to my dearest friends and colleagues, Dr. Carlos Vecchio and Dr. Luis Fraga Pittaluga, for whom I feel special affection and gratitude because both insisted with fervor that I should not abandon this project, when I was about to.
I thank Adriana Vigilanza for the honor of Prolonging this book, whose title announces that the author proposes to dismantle idees recues in the Venezuelan tax law: “The Decentralized Federation Myths and realities in the distribution of taxes and other income, among the pol Territorial authorities, in Venezuela”.
It is not necessary to present Dr. Adriana Vigilanza, sufficiently known for her teaching, academic and advisory work, of which it is worth mentioning, among others, the drafting of the Chapter on taxation, for the Organic Law for the Municipal Power, which is perhaps the Chapter of the highest importance, because it allows to solve most of the problems that derive from the horizontal distribution of taxing power among municipalities, when an economic activity is exercised in several municipal jurisdictions.
Dr. Vigilanza is a lawyer and Specialist in Tax Law from the Central University of Venezuela, with a Master’s Degree in Comparative Law from New York University, USA. Perhaps her contact with Common Law explains what I think is most important in her book, as the author points out in the brilliant introduction in which she summarizes and presents her work. The first, that the Constitutional interpretation cannot operate if history is dispensed with, risking if not, in the best of cases, to repeat things which are obvious. The second, that the distribution of tax competencies cannot be studied without due regard to what the German doctrine denominates “Financial relations between public corporations”.
In Latin America, whose legal systems are heirs of written law and codification, constitutional interpretation is often carried out without taking into account the circumstances and purposes that surrounded the creation and regulation of institutions, beginning with the form of State chosen.
Given the confusion existing in the national doctrine in the matter, which led the 1999 Constituent Assembly to the absurdity of defining the form of State as “Decentralized Federation”, in terms that exclude each other. Professor Vigilanza makes a very significant contribution to clear the confusion between federation and political decentralization, with extensive historical quotes and references to foreign authors. I am flattered that the opinion I have held about the nature of the original tax power has been so brilliantly defended by Adriana Vigilanza.
The primary tax power does not consist in the constitutional authorization to create and collect certain taxes, but to choose the manifestation of tax capacity, the “economic matter” as well as the nexus or connecting factor that will link the taxpayer to the claim of the entity with taxing power.
Compare the constitutional enunciation of taxes attributed to municipalities, a solution that the Constitution of 1999 extends to the States, which destroys the appearance that States taxes exist as a consequence of Article 164 of the Constitution (“It is the exclusive competence of the States…11 Everything that does not correspond, in accordance with this Constitution, to national or municipal competence”), arguably because that residual power for the States includes taxation, a common opinion among national authors.
This contribution of hers would be enough to make this Book a milestone in this subject matter, independently of whether one is or is not in agreement with the sustained thesis. But the author goes a step further and in addition to Tax Law, addresses issues usually considered in public finances, with an accurate analysis of the transfers from the central Government (Federal Government or Republic), to the periphery (states and municipalities), both general: the “constitutional allocation”, the “Intergovernmental Fund for Decentralization”, the “special economic allocations”, or referred to certain income, such as the tax on non-metallic mines and others originally foreseen in the colloquially called “Decentralization Law”.
Chapter II is referred to the study of “express constitutional limitations to the exercise of tax power by states and municipalities”, in which an original and convincing approach is developed, regarding both, those that result from Constitutional norms (tax immunity, prohibitions related to interstate commerce, as well as the one referred to as “prohibition to invade economic matter of the Federal Government”), and legal norms, as a result of the reservation to the Federal Government of taxation over certain economic activities, including those of a “primary” nature, such as the hydrocarbons and the electricity sector.
The author interprets Article 180 of the Constitution, as a reaction to the judicial doctrine contained in the jurisprudence of the Supreme Court of Justice -which she analyzes extensively- in the two suppositions stated in the norm: the regulatory powers of the national or state governments, cannot affect the taxation power of the municipality. The second, that the immunity to taxing power of the Republic and the states, only extends to the legal entities they incorporate, but not to concessionaires or other contractors.
The author studies carefully the doctrine set by the extinct Supreme Court of Justice, either in Full Chamber or in the Political and Administrative Chamber, to declare non-taxable the income of a telecommunication service provider, coming from the provision of that service or well, the declaration of unconstitutionality of the rule that subjected the payment of the patent of vehicles to aircraft and aircraft, as well as the rulings that declared that professional activities are not taxable with the municipal tax on economic activities, nor those activities developed in a place that belongs to the public domain of the State.
Particular interest presents the study of the pertinence of including states and municipalities in the prohibitions which in the Federal states tend to preserve interstate commerce -the so-called “commercial clause” – because only in real federations States retain all the powers that they have not delegated to the Federal Government.
In Venezuela, the system of distribution of the taxing power consecrated in our Constitutions, at least since 1936, is symmetrically opposed to that of a federation, because the residual tax power is expressly reserved to the National level of government and, additionally, States and Municipalities are prohibited to create taxes “…on the other income producing activity of the competence of the national government” (art. 183.1).
In the 1999 Constitution, as in the 1961 Constitution, this residual tax power is maintained for “the Nation” (the State, article 136.8 of the second and Art. 156.12 of the current one), while the alleged “states of the Federation ” are subjected to a regime similar to that of the municipalities: the attribution of specific taxes, in the Constitution, with the authorization to the national legislator to add others.
The author’s response to the question that she herself formulated as a rhetorical device, “do these prohibitions make sense in a Unitary State with political decentralization?” Is obviously negative.
Moreover, it can be affirmed that the “commercial clause” is inherent to a Federal State, since it would be unimaginable without the existence of a common economic space, which necessarily leads to reserving to the Federal Government the creation of customs and taxes on imports and exports. The commercial clause has for finality to preserve that common economic space, independently of the fact that the measures adopted by the states of the Federation have a tax or other nature.
The problems and opinions regarding the sanctioning power of states and municipalities, in the tax matter, constitute the subject of the third Chapter, which is the least controversial part of her work.
The author exposes, with the characteristic solvency that results from a thorough knowledge of the subject on which it is being written, the opinions that have been exposed about the existence, nature and scope of the power of states and municipalities to describe behavior as unlawful, tax wise, and establish the corresponding sanction.
Thus, the thesis for and against the existence of said punitive power are stated and analyzed, from those who start by qualifying as “penalties” the sanctions in tax matters and, therefore, its establishment reserved to the exclusive competence of the National Power, to the one that even interprets that the phrase “punitive legislation” in article 156.32 of the Constitution refers only to the Criminal Code, as well as those who distinguish between penalties and administrative sanctions, these latter based in the “administrative police” or others who admit the existence of the sanctioning power, but limited in scope, as it would not include the possibility of creating the penalty of imprisonment.
The work of Adriana Vigilanza, I hope, will give rise to a fruitful academic debate, given the relevance and importance of the matters dealt with and the historical references that guide her interpretation of the current regulations.
Municipal and state taxation in Venezuela has had from remote times -and still retains- particularities that do not exist in almost any other Iberoamerican country. As usual, these particularities were the product of certain historical circumstances, rather than preconceived ideas and are intimately linked to Venezuelan idiosyncrasy, which in turn has been forged under the influence of the enormous oil wealth with which the country has counted, since the beginning of the 20th century.
Therefore, although this work has pretensions to serve as a basic text for the study of State and municipal Tax Law, we cannot fail to unveil the political tricks that, definitely, have been behind the distribution of tax power between the political-territorial entities, creating these particularities, since only from the knowledge of those political tricks, can one explain what is a very bulky and tangled skein of norms and interpretations that oppose one another and that sometimes lack even the most elemental logic.
For example, the last attempt of a Constitutional “reform”, which took place at the end of 2007, was intended to approve a supposed “new geometry of power”, which undoubtedly ruined all vestiges of political (and fiscal) decentralization but it did not cause the scandal that we would have imagined. This is due, at least partially, to the little conceptual seriousness with which we have handled an issue as important as the sharing of the taxing power and other resources, among the political-territorial entities in our nation.
As an evident proof of that lack of seriousness, shared by politicians and jurists, it comes to our mind what Antonio Leocadio Guzmán, founder of the Liberal Party and supposed “standard bearer” of federalism, once said about the federal form of the Venezuelan State. He said:
“(…) I do not know where have people taken from that Venezuelans feel love for the Federation, when they do not even know what that word means; this idea came from me and from others, who said: “Of course, every revolution needs a flag; since the Convention of Valencia did not want to baptize the Constitution with the name of Federal, we invoke that idea, because if the opponents had said “federation”, we would have said centralism” (…)”.
We maintain that if we are not willing to recognize the historical and political origin behind the system of distribution of taxing power -and later, of oil revenues- among the political- territorial levels of government, that we have been consecrating in our Constitutional texts (as an example, what Antonio Leocadio Guzmán said about the adoption of the federal form of State by the precursors of the “Federal War”), the day will come when no one in Venezuela will know for sure, not only what the word “federation” means, but even what the words “political decentralization”, “levels of government”, “autonomy” mean. Said ignorance was evealed, in part, with the adoption of the “federal decentralized” form of State that advocates our current Constitution in its Article 4, and in the proposal of 2007 “Constitutional reform”. If the meaning of all these words is foreign to us, it is not surprising that we do not feel the need to preserve what they represent.
In this work we will prove that, beyond the theoretical explanations that make decentralization a guarantee for democracy, in Venezuela, as it is most certainly the case in other countries, there are other reasons generally not disclosed or not fully – and therefore, almost never considered and even less in legal texts- that have weighed as much as those traditional theoretical explanations, to favor or harm the phenomenon of political decentralization and public resources distribution.
We can anticipate in this introduction that, among the particularities that we say characterize our “system” of distribution of tax power between the political-territorial entities, we may point out the attribution to the Municipalities of specific taxes, directly in the Constitutional text, including a tax that falls on the gross income originated by the exercise of economic activities in a given Municipality even when, given the advances of modern commerce, most of the times economic activities have an inter-jurisdictional character and therefore, there is an overlapping of taxing power of several Municipalities over the same taxable basis. Also, the recognition of legal hierarchy to Municipal ordinances.
From the outset, we point out that foreign doctrine, surely carried by traditional theories on municipal autonomy, has considered that these two essential and almost unique legal features of Venezuelan municipal taxation, are desirable, because they are seen as guarantees for municipal autonomy, since it is ordinarily assumed that thanks to them, it is impossible for Municipalities to be deprived of their Constitutional taxes, by virtue of a national law. But while we do not doubt the guarantee effect of these two features -constitutional attribution of specific taxes to Municipalities and the hierarchy of a national law for the Municipal Ordinances- it turns out that among us, what for scholars from other latitudes was obvious, is not even entirely clear.
For example, in the Organic Law on Telecommunications, sanctioned by the so-called “Congresillo” (National Constituent Assembly acting as ordinary Legislative Power), in June 2000 – only a few months after the 1999 Constitution was promulgated – States and Municipalities were deprived of all their taxes, including those of constitutional allocation (only because there was an interest to eliminate the municipal tax on gross income derived from economic activities, over telecommunication companies), with respect to those telecommunication activities and with the exception of very few legal tax experts, among which we included ourselves, all the rest considered that it was perfectly constitutional for that national law to eliminate all Municipal and State taxes on telecommunications activities even taxes of Constitutional origin. And when we publicly exposed our position to the contrary, we were subjected to severe criticism.
Additionally, it has not been infrequent for the “Supreme Tribunal of Justice” (or its predecessor, the “Supreme Court of Justice”), to declare null tax ordinances, supposedly for being “unconstitutional”, when those Ordinances have been confronted with a national law that eliminates a municipal tax, interpreting that the national law is a sufficient legal instrument to determine the existence or not of those municipal taxes, even though they are of constitutional origin. But in other cases, the Supreme Court of Justice has clearly stated that the “exclusions” of municipal taxes of constitutional origin, could only have the same Constitutional origin.
We also find it a paradox that the Constitutional Chamber of the Supreme Court of Justice, who emphasizes the condition of our State as a “State of social welfare, of Law and Justice”, has considered that two of the private economy sectors that generate more income in Venezuela, telecommunications and the distribution and sale of alcoholic beverages, must be excluded from paying taxes to the Municipalities -and States, we must add. But when it has been explained to that Court that the domestic market for hydrocarbon products, a sector of the economy that is considered a public service and on top of that, that is subsidized by the State itself, should be excluded from the municipal tax on gross income because in that case there exists a constitutional provision that supports that exclusion, the Court has argued that even if the exclusion exists in the Constitution, it is not clear and therefore, it has refused to provisionally suspend the application of any “creative” Ordinance that has intended to tax that commercial activity.
Even though what we have expressed concerning the telecommunications and alcoholic beverage sectors, clearly identifies us with the academic sector that defends municipal autonomy to impose Constitutionally allocated taxes, we cannot fail to recognize that such constitutional attribution, which the theory says is a solid guarantee to the financial sufficiency and autonomy of the Municipalities, ends up being the origin of a tremendous chaos, where the “tax powers” of several municipal jurisdictions overlap, on the same tax base (which, to make things worse, is gross income) and, on the other hand, it ends up excluding very powerful sectors, such as telecommunications or the production and sale of alcoholic beverages, from all municipal taxation, while still subjecting strategic activities for the national development, such as State commercialization of gasoline and electricity service, to that disorderly and uncoordinated taxation, at least before the Organic Municipal Power Act came into force.
This conceptual chaos is such that decisions from the same Constitutional Chamber of the Supreme Court of Justice which are openly contradictory, are issued with only few months of difference between one and the other. Thus, while that Constitutional Chamber declared, in a sentence of December 14, 2006 (Petro Canarias de Venezuela, C.A. vs. Libertador Municipality), it did not agree to give “precautionary protection” to a distributor of fuel, from the intent of the Municipality to collect the tax on economic activities -and even when by that date, and the Organic Law for the Municipal Power (“Ley Orgánica del Poder Público Municipal or “LOPPM”) contemplated the exclusion of that sector from municipal taxation, in development of Articles 183 and 302 of the Constitution- just a few months earlier, in a sentence of March 30, 2006, in an identical case, only that with a different municipality (case of Petro Canarias de Venezuela, CA vs. Municipio Chacao), it was declared that it was possible to suspend the application of a municipal ordinance that imposed the tax on economic activities to the distribution of fuel, understanding that there existed an express constitutional norm that considered that sector as not subject to the payment of municipal taxes. A contradiction very difficult to explain.
To aggravate the contradictions, we have, on the side of legal authors, there are those who insist that a national law may deprive municipalities of constitutional allocated taxes; however, those same authors maintain that it would not be possible for a national law to “harmonize” local taxation, imposing certain parameters or limitations, because according to them, such harmonization would be a violation of municipal autonomy, even when the mandate to the National level of government to harmonize States and Municipalities taxes is of constitutional origin. That is to say, they accept that a national law may eliminate a tax that the Constitution assigns to the Municipalities, but allowing that tax to exist, although with the limitations or parameters established by the national law, violates municipal autonomy. No comment needed.
In conclusion, the constitutional allocation of taxes to the Municipalities, which is supposed to be a guarantee of “municipal autonomy”, degenerated into a great anarchy, since the municipalities exercised their taxing power without any coordination between them and In such chaos, the Courts ended up declaring their Tax Ordinances null and void, sometimes under the most baffling arguments imaginable, even when at times, at least the Courts were moved by the purpose of allowing the exercise of an economic activity, which, if being subjected to the same tax multiple times and on the same basis, would be economically unfeasible. This proves the irrationality of a municipal tax system that allows a tax on gross income, without uniform rules for the distribution of the revenues among the different Municipalities in which the economic activity is performed and also allows differential tax rates, which may be fixed freely by each municipality. Evidently, neither of the two extremes is valid: nor claiming a “municipal autonomy” which borders a monumental anarchy, nor to argue that the “protection to the tax capacity”, allows the total exclusion of the duty to contribute with local governments.
From the standpoint of the “States of the Union”, the Venezuelan system of distribution of tax power is so absurd that although the Constitution says that the form of State is “Federal”, and this was adopted in the first Constitution that governed us as an independent Republic, of 1811 (from then on the “Federal” form of State was abandoned for some time until it resurfaced in 1864), the truth is that, although it was customary to consider that the States implicitly preserved the power to create their own taxes (“primary taxing power”), without needing express recognition of that power in the Constitution or in a national law – which is congruent, of course, with the guiding principle in Federal States, according to which everything not expressly delegated in the Constitution to the “federal power” “, corresponds to the States, in practice, the States of the “Venezuelan Union” were deprived of any taxing power, through very twisted constitutional norms or interpretations.
The first example of these twisted norms appears in the Constitution of August 1901, according to which the States undertook to have as their sole income “(…) Base 28:” a) 1º That which is produced in all of the Customs of the Republic by the contribution with the name of territorial tax, which from now on will be denominated transit tax. 2º. The total of what the mines, the vacant lots and the salt mines, produce. This income will be distributed biweekly by the Federal Executive among all the States, proportionally to the number of its inhabitants, but for this purpose, for the State whose population does not reach seventy thousand inhabitants, that figure is fixed as the population base for the proportional distribution of the rent. b) The stamp tax, in accordance with their respective laws and taxes on their natural products from vacant land. If any of the taxes cited in this base are reduced by law, Congress must establish a way to return to the States the portion of income that is eliminated or reduced. Base 29. “To empower the Congress of the Union to create and organize the income established in numbers 1 and 2 of the previous base (…)”
That is why, although contemporary legal authors are committed to recognize “residual” and implicit or “primary” tax power to the States, in reality States had lost that taxing power years ago, thanks to Constitutional provisions such as that of the Constitution of 1901, cited above. Certain authors even pretended that States preserved that implicit and residual tax power in a Constitutional text like that of 1961, which was held by those same authors as being markedly “centralist” (“Unitary”). And it turned out that such authors were the ones who prompted a national law, called “Organic Law of Decentralization, Delimitation and Transfer of Powers”, known colloquially as “Decentralization Law” (enacted in 1989, under the 1961 Constitution), which ultimately was the national law that allowed the States to create the few taxes they now create and charge. Obviously, the fact that it has been a national law that which assigned taxes to the States is a strong proof of the falsity of the statement according to which, in Venezuela, under the 1961 Constitution, the States retained the implicit and residual taxing power, typical of authentic Federal States.
The current Constitution of 1999, arriving at what we consider the greatest conceptual confusion, ended up calling our Republic a “decentralized federal State”, which is a pleonasm, to say the least. According to a very highly reputed author, the most pronounced form of political decentralization is precisely the federal form of State. That is why we say that to argue that a State with a “federal” form is politically “decentralized”, is redundant. However and once again paradoxically, under the 1999 Constitution, in order for the States to have other taxes, in addition to those which the Constitution recognizes to them, States must wait for a national law to assign those taxes to them. By the way, that law was already sanctioned by the National Assembly, in February 2004, under the name of “Organic Law on State´s Public Finance”, but it is not yet in force because it was vetoed almost immediately by the National Executive and even today, four (4) years after that Presidential veto, the National Assembly has not returned that law to the Executive Power, for its definitive promulgation.
We take this opportunity to clarify, especially to readers from other latitudes, that the reason for such a long delay is to be found in a clear opposition, on the part of the National Executive, to the process of political and fiscal decentralization, which is a mandate under the 1999 Constitution itself. But fact is that just a few days after being “ratified” in power, as a consequence of a Recall Referendum to which the President of the Republic was subjected in August 2004, he offered statements in which he compared political decentralization with a “decapitation”. That is, with the elimination of the “head” of the government. It is not surprising, then, than despite the fact that the Organic Law on State´s Public Finance is a Constitutional mandate, the official party who won the majority in the parliamentary elections of December 2005, has done nothing to comply with that mandate as decentralization does not please the National Executive. That is the real reason for the delay in promulgating this law, other than the reasons held in the Presidential Veto.
We take the opportunity to clarify that precisely this same rejection of decentralization, led the President of the Republic to raise a supposed “Constitutional reform”, in which, from having the three traditional territorial levels of exercise of political power (the “Municipal”, the “State” and the “National” Power levels) and four types of” federal “entities (the States, the Capital District, the federal territories and the Municipalities), his proposal would have taken us to have five territorial levels of exercise of political power ( a supposed “Popular Power” was added, though it had very little of “popular”, because the norm that referred to it stated that “it does not raise out of the vote or of any kind of election”), and at least eight “federal” entities, never before present in our Constitutional history, were being created, among them, the so-called “Federal Provinces”, the so-called “Federal Municipalities” and the so-called “Federal Cities”, which, apart from their name, had nothing of a Federal nature, except that their authorities would be appointed directly by the President of the Republic, head of the “federal” level of Government.
Of course, a State with “Federal Provinces” (sic) and “Federal Municipalities” (sic) which would have had to be created in the territories of the existing States and Municipalities but whose authorities would not be elected by the people but appointed by the “Federal” Executive (“National Executive”, in our usual slang), and which would not be Constitutionally allocated any resources of their own administration, could be called however one pleases, except “federal decentralized”. But as unbelievable as it may seem, the Constitutional amendment proposal did not modify Article 4 of the 1999 Constitution, which contemplates this form of “federal decentralized” State. No need to be a genius to understand that the supposed “amendment” to the Constitution was just another of the political ruse of which our Constitutional history is plagued, based on widespread ignorance about the issue of form of State and the distribution of political power. In a Nation where oil revenues belong to the National level of government and far exceed the revenues that any tax assigned to the “States of the Union” could produce, it is understandable that almost no Governor assumed the defense of that form of “decentralized federal” State, nor did they dare to say that the Constitutional “reform” what really intended was to change our form of State, without convening a National Constituent Assembly, as it would be necessary according to Article 347 of the 1999 Constitution. The so called Constitutional “reform”, therefore, posed something like pretending to continue calling a planetary system in which there was no sun or it was no longer its central star, a “solar system”. Of course, among all the political tricks with which our Constitutional history is plagued, in relation to the distribution of political power and resources among the territorial-political entities – and which we hope to be able to fully reveal in this book – none was ever so coarse.
Thus, the first task that we assume with this investigation is to highlight the conceptual contradictions existing in the political-legal minds of the country, regarding the distribution of political power, through the story of the constitutional “evolution” of the distribution of taxing power. If these contradictions and their consequences in modern life are not evidenced and, in addition, in a single book, covering both the issue of municipal tax power and the state tax power, and also deal with the major intergovernmental transfers that have to do with the distribution of taxing power, it will be very difficult not make the same mistakes again, be it in Court decisions, in laws or in possible Constitutional reforms.
With this book we also intend to explain how some of those conceptual weaknesses wanted to be solved in the Organic Law of Municipal Power. To achieve this purpose, we will specifically address the incidence of municipal taxation on three very important economic sectors: the oil industry, the electric and the telecommunications sectors -coincidentally, three sectors that are now being “re-nationalized”- for in those sectors the contradictions present in the subject of local taxation, are more than evident. Although the nationalization of an economic sector is interpreted today, in Venezuela, as the disappearance of local taxation on that sector – because of the existence of a constitutional provision that creates a supposed “municipal tax immunity” for legal entities created by the National or the State of the Union governments- we will prove that this interpretation is not correct.
Before ending, we would like to say that we feel that there has been a certain national indifference, both in the academic and in the political scenarios, regarding such a transcendent issue as that of municipal and state taxation. In our opinion, this generalized indifference may be the result of the oil boom, which makes revenues from taxes look like little sand grains in a black sea of wealth, justifying the little seriousness and shallowness with which this subject has been addressed. Through quoting the decisions of the highest courts of the Republic, we will explain how the Constitutions, laws and ordinances have been interpreted, in this matter and that will facilitate us to support this affirmation of ours. In fact, the explanation of the problems to which we have referred must be done, mostly, through the analysis of the jurisprudence, because Courts decisions had been providing what was to be held as the “state of law” in the matter, at least until the Organic Law of Municipal Power. Of course, references will be offered to the novel interpretations that the Constitutional Chamber of the Supreme Court of Justice has advanced, of two very peculiar articles, included for the first time in our Constitutional history, such as Article 180 and Article 156. On the other hand, legal authors in this matter are scarce and although there are already several publications on the subject of municipal taxation, none of these works has addressed the issue from a global perspective, both historical and constitutional, neither do they contrast constitutional principles applicable to States and Municipalities.
Since we were fortunate enough to be included in the advisory group of the National Assembly Commission in charge of preparing the Bill of the Organic Law on Municipal Power, we also needed to write a book that would allow us to explain the reasons that inspired us when drafting the Tax Chapter, which was the object of our special contribution, precisely because one of the pretensions that we had when proposing that there should be a Tax Chapter in the Organic Municipal Power Law, was that once and for all we could settled the academic and judicial discussions, already too tedious, because they did repeat and repeat. Because of this, we believed that it would not be out of place to record in this book the different interpretations and criteria that existed on certain municipal taxes issues, assuming that this will facilitate the understanding of the new national regulations on the matter, as well as its constitutional and logical foundations and the background that inspired them. Unfortunately, we will have to leave for another book the detailed explanation of each of the articles defining the municipal taxes, although we will comment, even if partially, on the tax on economic activities, as this is almost inevitable, given that it is the tax that gave rise to most of the Court decisions we will comment.
We consider it very important to prove, in addition, that it is not a question of seeing in the new national legislation on municipal taxation a “straitjacket” for the local level of government, as some have already considered it, but that it should be taken as a normative framework and as a source of solutions to so many and so repeated conflicting interpretations, often resolved against the municipal interest. In fact, the new Organic Municipal Power Law gathers even old aspirations of the Venezuela Association of Mayors (ADAVE, for its initials in Spanish), who, in a document consigned before the formerly called National Congress, dated May 11, 1998, stated:
“(…) The undersigned Members of the Board of Directors of the ASSOCIATION OF MAYORS OF VENEZUELA, address the Honorable Congress of the Republic, in order to request the implementation of a legislative development for the fulfillment (sic) of the constitutional precepts of Articles 29, ordinal 3, and 31, ordinal 3 of our Fundamental Law, which define and grant autonomy to municipalities to receive their own tax revenues and to include complementary legislative provisions in the Organic Law of Municipal Power, taking advantage of the current partial modification of the aforementioned Law being considered by that National Congress. Such is the request that we formulated on behalf of all the Municipalities of the country, based on the INVOLUTION process that has been observed in the MUNICIPAL TAXATION, due to the continuous legislatively produced limitations and the contradictory Court decisions produced from their interpretation, that far from facilitating fiscal resources that are owed to us, have been creating an unprecedented LEGAL INSECURITY, which in turn facilitates a climate of constant controversies with the taxpayers, who owe to us due respect for the majesty of Municipalities as entities with constitutional power to tax while in practice, municipal taxes have been transformed into some kind of ALMS instead of taxes (…) “(Capital letters used in the original text. Taken from a copy of the original document, unpublished).
We cannot fail to mention that the aforementioned problems or legal debates were aggravated because there was – nor do we believe that there still is – due knowledge and due political maturity in most of the Municipal actors, especially in the Municipal Council members (unfortunately, with very little education and even more in tax matters, in the vast majority of cases), to allow them to understand the great tax pressure that may result from the uncoordinated application of their taxes, especially a tax that falls on gross income and on economic activities that can be exercised Inter-jurisdictionally. This explains why municipal taxes´ rates end up being very “cheerfully” fixed by each municipality, to the extent of the resource needed by each of them, without usually taking into account any parameter to measure tax capacity, as it could be, for example, the average profitability of each economic activity, as it is the case in Spain with the municipal tax on economic activities. Another of the objectives of this Book is therefore to help raise awareness in that political sector about how delicate it is to exercise taxing power, whatever the level of government is but especially, by the municipal level and also, help the municipal authorities to address these issues with greater success.
We dare to affirm that very few politicians and economists know the legal complexities of the subject and then, they sometimes propose “solutions” that are legally unviable, because of our constitutional particularities in the matter. At the same time, very few jurists honestly approach the economic aspects involved in the financing of these political-territorial entities. We must recognize that, unfortunately, at least as regards the municipal level of government, interpretations have been moved by mere private interests, either in a supposed defense of the Municipalities or in a supposed defense of the taxpayers. This has not contributed to the scientific development of this important area.
It is worth noting as well that achieving a “rationalization” of the municipal tax system seems to be a concern shared by other countries. In this regard, effective as of January 1, 1994, a “Municipal Taxation Law” was sanctioned in Peru, whose article 1 reads:
“Article 1: It is hereby declared the rationalization of the municipal tax system to be of national interest, in order to simplify the administration of taxes that constitute income of Local Governments and to optimize their collection”.
Likewise, the Constitution of Guatemala (of 1985, with reforms of 1993) contains a provision that draws attention to the need for national regulations for municipal taxation, having foreseen that the Congress of the Republic should issue a Municipal Tax Code, adjusted to the constitutional precepts, at the latest, within one year from the installation of the Congress. On the other hand, and from the perspective of a State much more federal than ours, as it is the Republic of Mexico, there was also an initiative by the legislature of the State of Mexico to sanction a “Financial Code of the State of Mexico and Municipalities.”
Another disadvantage that we find in our legal system is the lack of incentives for the Municipalities to provide information on how much have they collected for their taxes, to entities responsible for government statistics or other entities committed to financing Municipalities or even to their own inhabitants, which makes it very difficult to comply with the constitutional postulates of accountability and coordinated and balanced development of the regions, whose fulfillment should have been entrusted to the “Federal Council of Government”, through the Interterritorial Compensation Fund (“FCI)”. The uncertainty regarding whether or not Congress will sanction the Organic Law of States´ Public Finance, of the Law of the Federal Council of Government and of the Law of the Inter-territorial Compensation Fund, is another reason for this Book to be destined, mainly, to describe the problems, challenges and perspectives of municipal taxation, although we will not stop including particularized sections on the relevant and current problems that the incipient state taxation has already presented.
Because it is of obligatory reference, as one of the worst distortions we have found in the design of the national tax system, we will also analyze the case of the Metropolitan District of Caracas, which, in repeated decisions, the Constitutional Court itself has addressed as “municipal government of a second level “, but to which the “Little Congress” (the 1999 Constituent Assembly, acting as legislative) assigned the taxes that the Constitution or the law recognize to the States, in addition to assigning it the “competence to harmonize” the taxes of the Municipalities that comprise it, all of which has caused very serious problems, which we also hope to explain.
Finally, although it is obviously the intention of the National Executive and the National Assembly to transform the territorial political structure of the State, even if in an unconstitutional way –this is to say, through laws – and this led us to think it would be useless continuing to write on these issues, afterwards we accepted the idea that it would always be useful to compile the reasoning that has been behind the distribution of taxing power and behind the local and state financing in Venezuela, starting from the beginning of the Republic of Venezuela until arriving to the 1999 Constitution. In addition, a new hope has been born in us, because of the appearance of new generations of capable and honest Venezuelans, in whom we hope to influence with this narration, so that they put aside absurd debates and opt to walk, without hesitation, towards an harmonious, integral and real progress of the country.
En el año 2012, en la obra colectiva “La Gran Farsa” de Alberto Quirós Corradi, uno de los capítulos del libro fue escrito por mi, a solicitud del recopilador. Mi trabajo llevó el nombre “LaFarsa del Poder Popular”.
En esta recopilación realizada por la Editorial Jurídica Venezolana, que reúne a varios especialistas en la materia de “Leyes Orgánicas sobre el Poder Popular y el Estado Comunal” desarrollé el Capítulo VI del libro, bajo el nombre “La Descentralización Política en Venezuela y las Nuevas Leyes del Poder Popular”.
En el año 2004, fue publicado en la Revista del Colegio de Contadores Públicos del Estado Miranda, octubre-diciembre 2004, el artículo de opinión “Miranda 2004: tazas y registros”.
En la Revista de Derecho Tributario, número 100, de fecha Julio a Septiembre de 2003, fue publicado un análisis de mi autoría, denominado ” Necesidad de Armonización y Coordinación Tributaria para el Poder Municipal Venezolano del Siglo XXI”.
En el año 2003, fue publicado en la Revista del Colegio de Contadores Públicos del Estado Miranda, abril – junio 2003, el artículo de opinión “Tributación Municipal: Necesidad de Armonización de Factores de Conexión”.