Venezuela has started collecting its new foreign oil companies windfall profits tax, as part of President Hugo Chavez' plan to gain a larger share of oil company profits, The Associated Press reported.

The tax is based on the monthly average price of benchmark Brent crude oil. The tax kicks in when the price of benchmark Brent crude sits above $70 per barrel, The Wall Street Journal(subscription required) reported. If oil prices remain above that threshold for one month, the state will take 50% of the difference between this average and the final sale price of every barrel. When Brent crude exceeds the $100-a-barrel average, the rate will rises to 60%.

'21st-century socialism'

President Chavez, a Socialist, has said the tax is necessary to fund key social programs as part of his effort to implement an economic and social system he calls "21st-century socialism." Critics say the tax will slow investment and development in the oil sector, and also discourage other foreign direct investment in Venezuela.



The tax is expected to generate more than $9 billion a year in revenue for the Venezuelan Government, The AP reported.

Companies affected include state-oil firm Petróleos de Venezuela, or PDVSA, and its foreign partners, such as France's Total SA (NYSE: TOT), Norway's StatoilHydro ASA (NYSE: STO), Britain's BP Plc (NYSE: BP), and Chevron Corp. (NYSE: CVX), The Journal reported. (Subscription required.)

Oil Analysis: It remains to be seen whether Chavez' latest move to access more oil company profits will slow investment in Venezuela's oil sector. ExxonMobil (NYSE: XOM) has pulled out of Venezuela, and others may do so, as well. Still, some might stick it out, arguing that Chavez' taxes are the price that must be paid to access Venezuela's rich, proven reserves of the world's most important commodity.

The move may also embolden other nations (perhaps even the United States) to request a larger percentage of oil industry profits, in a sort of 'new era of the windfall profits tax.' The higher tax argument was hard to make a decade ago when oil was treading $20-$25 per barrel, as companies argued that margins were slim, and the tax would have left little for exploration and technology improvements. But with oil trading around $115 per barrel, and with $100 looking more and more each week like a distant memory, an argument can be made that a larger portion of the trillions of dollars in oil industry revenue should be returned to the public via a separate corporate tax.