Bolivia Eliminates Financial Transaction Tax on Dollars in Bid to End Foreign Currency Crisis

A country where banks limit dollar withdrawals to $25 per week has finally concluded that taxing dollar deposits was not helping.

Bolivia’s Senate voted Tuesday to abolish the Impuesto a las Transacciones Financieras (ITF), a 0.3% levy on all financial transactions in foreign currency that had been in effect since 2006. The law, which passed with support from both ruling and opposition legislators, now goes to the executive for promulgation. It represents one of the most concrete steps Bolivia has taken to address a Bolivia dollar crisis that has eroded public trust in the banking system since 2023.

Why a 0.3% Tax Mattered So Much

The ITF taxed both deposits and withdrawals in dollars at 0.3% each — meaning every dollar that entered and left the banking system was effectively taxed 0.6%. In a country where the official exchange rate is fixed at 6.96 bolivianos per dollar but the parallel market trades at approximately 10.40 — after touching 20 bolivianos at its worst in May 2025 — the tax created a direct incentive to keep dollars outside the formal system.

Vice Minister of Tax Policy Fernando Tapia told Congress the tax was “punishing dollar depositors” and driving savings out of banks. Senator Abdón Porcel called it “confiscatory” — a term that resonates in a country where banks have imposed de facto capital controls, limiting dollar withdrawals and capping international card transactions at as little as $25 per week.

The Broader Crisis Response

The ITF elimination is not an isolated measure. It is part of a fiscal reform package announced by Economy Minister José Gabriel Espinoza after the change of government in late 2025. The package includes the abolition of three additional taxes — on large fortunes, gaming, and business promotions — that collectively generated less than 1% of total revenue but created friction for businesses and investors.

The government has also committed to cutting fiscal spending by 30% in 2026 and is negotiating up to $9 billion in external financing, including a $550 million CAF (Development Bank of Latin America) loan as a first tranche. Espinoza told El Deber that the government expects to restore full dollar withdrawal access within six to nine months — an ambitious timeline for a country whose international reserves have been under severe pressure since hydrocarbon export revenues collapsed.

Fuel Tax Credit Restored

In the same session, the Senate approved a second law restoring 100% of the IVA (value-added tax) credit on fuel purchases. Since 2011, Bolivia had limited the credit to 70% of the invoiced value, creating a hidden cost for businesses in transport, agriculture, and mining. The full restoration allows companies to recover the entire tax paid on fuel — a meaningful reduction in operating costs for hydrocarbon-intensive sectors.

Will It Work?

The core question is whether removing the ITF will be enough to draw dollars back into the banking system. The tax was a real barrier, but it was not the primary cause of the crisis. Bolivia’s dollar shortage stems from the collapse of natural gas export revenues — the country’s main source of foreign currency for decades — compounded by depleted international reserves and a fixed exchange rate regime that the market no longer believes in.

Eliminating the ITF removes a friction cost. But Bolivians who have been unable to withdraw their own dollar savings for months will need more than a tax cut to trust the system again. The parallel rate of 10.40 bolivianos — nearly 50% above the official peg — reflects a credibility gap that tax reform alone cannot close. The external financing pipeline and the timeline for restoring dollar liquidity will determine whether this is the beginning of a turnaround or one more incremental step in a crisis that is far from over.