Caracas Chronicles

We see new rum, cocuy, and vodka brands, as well as infinite imported beers, blends of all colors and even special edition whisky. It’s not because confinement was the opportunity for the national liquor market to reinvent itself, nor because Christmas now starts in October. The industry isn’t fixed: in Venezuela, seven out of ten liters of pure alcohol consumed annually per person is illegal.

This has been going on for a few years.

In November 2014, after Official Gazette No. 6,151 was published, the Alcohol and Alcoholic Species Tax (ISAEA) for manufacturers and importers remained at 15% for beers, but it went from 15% to 35% for wine, and from 20% to 50% for distilled drinks. Only six months later, in May 2015, Official Gazette No. 40,656 established that the manufacturer and importer would serve as the Value-Added Tax (IVA for Impuesto al Valor Agregado in Spanish) recipient agent for all of the commercial chain in alcoholic beverages. In other words, manufacturers and importers would assume their own IVA, plus IVA from distributors, plus IVA from wholesalers and retail sellers, as well as the 2014 ISAEA and, of course, municipal aliquots.

As a result of these tax excesses, “in 2014 and 2015, we start to see an increase in illicit trading,” explains Luis Enrique Cárdenas, director of the Cámara de la Industria Venezolana de Especies Alcohólicas (CIVEA). “While the WHO recommends an increase of beverage prices through taxation as a way to promote responsible consumption, it also warns: when you raise taxes in countries that don’t hold audits, the increase puts pressure on the formal industry and favors the informal sector. That’s exactly what happened in Venezuela.”

It Skyrocketed

In 2020, five years after the tax measures, the industry almost went broke thanks to the COVID-19 lockdown. Although in October of that same year, the industry was included in the economic recovery plans, it was paused for almost seven months, during which time bootlegging was consolidated through any survival strategy, for example, adulterating rum; many of them called “rum liquor” or “artisanal rum”, which ignore the Venezuelan prohibition of altering the mix and traditional production of rum.

Now, usurping through underground sales or informal markets is the most widespread. For Cárdenas, there’s a wrong interpretation of the Ley Orgánica de Aduanas, the law regulating customs: “People bring in any amount of merchandise with international postal delivery services for commercial purposes, as if they were for personal use, and that’s not right, because international brands have given exclusive commercial rights to companies that are already registered in Venezuela. So, if these ‘door-to-door’ products aren’t complying with the law, then it’s contraband, and that’s a felony.” 

On the Colombia-Venezuela border, the situation with the illegal alcohol market is similar. Johnson Delgado, president of the Cámara de Licoreros del Táchira (CALICOR Táchira), gives an example: “In the Andes, around 800,000 cases of beer are marketed per month, most of them are from Colombia and those who sell them don’t have the permits, we believe that they’re selling through codes given by the protectorates. With domestic beers, someone from the companies drops by, sells to the franchises, and, if they drive by a small bodega, they also drop off a couple of cases, and that can’t happen.” 

According to Delgado, there are clandestine storage facilities with beers and distilled liquors that come from Colombia, which are then distributed to western Venezuela and to Caracas. Production of miche andino, a traditional liquor from the Andes region, is still ongoing, although without much sanitary supervision to prevent adulterations that might cause harm to consumers.

So, without production costs or paying nationalization customs, contraband beverages—brought from abroad or made in Venezuela—end up being more enticing because they’re cheaper and leave a larger profit margin than legal beverages. Here’s an example given by Delgado: “A case of Colombian beer costs $12 and the one made in Venezuela costs $20. We obviously can’t compete.” 

While competition with illegally produced or imported liquor generates loss of jobs, both direct and indirect in the industry, drinks that should be sold in duty-free zones like Margarita or Paraguaná, are also sold in the rest of the country, publicly through social media and without even complying with promoting responsible consumption rule.

‘You can find everything in Caracas’ 

Wilmer, owner of one of the most successful liquor stores in southwestern Caracas, who asked for his name and his store’s name to be left out, explains how too much competition isn’t a good thing:

“Next to my shop, there are three ‘establishments’ selling without a liquor permit. The beer truck sells me the case for $16,80, and $17,50 for them. I sell the case for $18 and so do they, but I have to pay maintenance for my shop, SENIAT, SUMAT, fire department permits, health permits, the two bottles the SENIAT inspector takes each month, the ‘collaboration’ we must give the PNB all the time with free bottles, cigarettes, ice, water, and soft drinks, the money I have to pay the PNB so they let me work at night, because during the day we don’t sell much… PoliCaracas also asks for money to ‘keep me safe’. They even ask me to help out with the Christmas lights! Meanwhile, the other ‘establishments’ only pay out the PNB once a month and that’s it.” 

As Wilmer costs pile on, his numbers just aren’t enough, so he buys whisky and vodka from bodegones to profit one or two dollars when he sells them: “What do I do? When people aren’t buying 1 liter bottles of anise for $5, they would rather buy a bottle of whisky from a bodegón for $15 than drinking a good rum for $8.” He adds that he can’t afford to buy from the official distributor, because their prices are higher. He understands that like him, they have to pay just about everything. The few imported beers he offers, he buys them from wholesalers that are still in Venezuela, and the national brands to official distributors.

“I’ve had my shop for twenty-nine years,” he says. “I can tell you that before this, when you bought from official vendors, you made a 30% profit. Now, with everything we do, I can make up to 10% only. So, right now, I’m in the process of getting food permits, to see if I’m allowed to work until late without having to pay anyone. I don’t want to close down, people know me, they count on you, and I like that.” 

Just like Wilmer, many workers in the formal industry keep looking for ways to stay afloat when everything that’s bad is in the same block.

Cheers To… Your Sadness

All of this isn’t just about trading. Liquor taxes have an ethical end, which is for the State to have resources to, among many other tasks, perform health inspections on adulterated drinks with cheap substances not suitable for human consumption, but end up risking the health and even lives of those who take them.

Taxes are also there so that the State can promote responsible drinking practices, including drinking legally distributed beverages. Whether the State complies or not by efficiently using those resources is another topic which, of course, is always urgent, as is the issue we’re talking about, because bootlegging doesn’t respect legal or moral patterns, ergo, it has no respect for the economy.