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As Private Sector Grows, Cubans Learn the Concept of Personal Taxes

Cubans Meet The Tax Man as Private Sector Grows

In Cuba, the tax man has finally arrived.

After five decades under Fidel and Raul Castro, the concept of a personal tax is practically unknown in a society where the government controls nearly the entire economy and salaries average about $20 a month. Quite the opposite, islanders have grown accustomed to the Communist government providing for them: food rations, universal education and health care, pensions, even free lunches.

But under Raul Castro’s crusade to cure an ailing economy, those basic subsidies face cutbacks and many Cubans are being pushed out of state jobs into the private sector, where they face tax rates that can total more than half their earnings.

Like it or not, Cubans will have to get used to rendering unto Caesar.

“Having my own business was my dream … but in truth it frightened me,” said Luis Antonio Veliz, who opened the Fashion Bar Havana restaurant in his backyard last December after the government began issuing new licenses for independent eateries.

Veliz had studied gastronomy but had no training in accounting. “I went to the Ministry of Labor and they explained everything to me … how to manage the books, where to pay the taxes, the bank papers to be legal.

“And after all that I was even more frightened!” joked the 33-year-old, who by necessity has become an expert on costs, profits and red tape.

Since the new system began last year, some 178,000 private work licenses have been issued. That comes on top of 147,000 still in use from the 1990s, when Cuba enacted a similar but narrower opening to help battle a severe economic crisis caused by the collapse of the Soviet Union.

Officials say they expect the number of taxpaying private workers to keep growing rapidly. The goal is to have 1.8 million of the country’s 5 million workers in the private or cooperative sector by 2015.

Taxes are already on the books, 11 different kinds of them, but officials have never applied them to the vast majority of state workers. Since two-thirds of the island’s 11 million people were born after the 1959 revolution, few have ever been asked to pay a centavo in taxes, and the idea of starting now is a shock to many.

Cubans Meet The Tax Man as Private Sector Grows

The new small business owners face tax rates of up to 50 percent on personal income, 10 percent on sales and in some cases a 25 percent social security tax. Officials have imposed a payroll tax as well, though it has since been temporarily suspended.

The Communist Party has declared that taxes should encourage economic efficiency and help fill the state’s coffers.

But taxes under the socialist system have another purpose as well: limiting personal enrichment and inequality, said Vladimir Regueiro, vice chairman of Cuba’s tax agency. He said in an interview with The Associated Press that the government remains committed to enormous public spending on social projects such as free health care and education, subsidized food, transportation and other services.

While the private sector is growing quickly, officials expect government to remain the dominant employer, Regueiro said. He added that the success of the economic reforms depends mainly on making state-run enterprises efficient.

Some rules have been tweaked, however, to soften the tax blow. Select businesses can deduct as much as 40 percent for expenses. People in some professions pay a fixed fee each month rather than struggling with cost and income calculations. Entrepreneurs of retirement age no longer have to make social security payments. However, analysts say that’s not enough to lure enough people off the state payroll and onto the tax rolls.

After an initial boom of modest cafeterias and businesses selling bootleg DVDs, clothing, cheap jewelry and other merchandise, many would-be entrepreneurs have begun handing in their licenses or are struggling to survive financially. Others continue operating privately but on the illegal, black market. Many blame the taxes.

To give entrepreneurs a fighting chance, “the Cuban authorities should stimulate this sector with a tax system that is less complicated, less rigid,” said Rafael Romeu, president of the U.S.-based Association for the Study of the Cuban Economy, which studies ways to transition the country to a free market economy and democracy.

“The point of collecting taxes (from the entrepreneurs) is to bring them into the formal sector so they can grow by establishing ties to other small businesses and develop. A business that operates illegally has much less margin for growth and can’t get credit,” Romeu added.

Finance Minister Lina Pedraza told Cuba’s parliament in December that entrepreneurs should be keeping about 20 to 25 percent of what they make.

Romeu said that would be an acceptable profit margin in the developed world, but is hard on Cubans launching tiny businesses without the benefit of capitalist mechanisms like a wholesale market and accessible credit.

The dean of Cuba economy-watchers, Carmelo Mesa-Lago of the University of Pittsburgh, said taxes “are still excessive and should be lowered much more to create incentives for agricultural production and entrepreneurialism.”

Rafael Betancourt, a Cuban economist who works on the island with foreign non-governmental organizations, wrote in a recent article that businesses should have a grace period to recover their investment before heavy taxes are imposed.

He said the current tax rules discourage people on the thriving black market from getting a license and making their business legal.

Regueiro acknowledged that “the matter of taxes is always controversial.”

“The payment of taxes constitutes a way of contributing to society, and that is a concept that we have to recover,” Regueiro said. “For many years we have been far from that idea and now we are reviving it.” He noted that the number of taxpayers has doubled since last year.

Regueiro said officials are still not applying some taxes that are on the books, such as those on state salaries and on property. The possibility that freeze might be lifted appalls some.

“I have never paid taxes. After all these years, the word has disappeared from Cubans’ dictionary,” said Iliana Ocampo, a 43-year-old office worker. “It sounds more like something from a capitalist country, and talking about taxes in Cuba is a little like (talking about) extraterrestrials.”

The Associated Press contributed to this article.

Comments (28)

  • TalonsPoint
    Posted on August 16, 2011 at 1:14am

    As Cuba remembers capitalism America forgets it. In 10 years we might be crowding on rickety boats headed south.

    Report Post » TalonsPoint  
  • The Giver
    Posted on August 15, 2011 at 12:32am

    It was a beautiful, thriving country. Castro’s Hope and Change left Cuba frozen in time…1959, as the architecture,the cars and human lives crumble. The Cubans look at the ocean as the prison door keeping them in. Bottom up poverty and loss of liberty. Castro has blamed the U.S. for everything bad in Cuba. The people believe it since the news is rigged. Castro’s quest for EQUAL OUTCOMES has failed (miserably). Some even admit that the political correctness is unraveling now due to stressful economic times. 50 years and the experiment is officially a failure. I, as an American that was born in Cuban ( and came here legally), warn you to be careful in who you welcome to this country. Many of these newer Cubans were born under the Castro regime and were indoctrinated to hate the U.S. ( much worse than our youth in the government run schools). Make sure they are freedom – loving individuals first. No matter where they come from.

    Report Post » The Giver  
    • uberchrist33
      Posted on August 15, 2011 at 10:50am

      Thanks for the warning . . . somewhere in Flor-ree-dath, but not that far south!

      Report Post »  
  • Azza
    Posted on August 14, 2011 at 7:45pm

    Lets send all of Detroit there………they will love it…….and DemoRatic Congress…….those tax addicts……they will be salivating on their way there…the income is high…….and the tax rates are just like the ones the Dems want us to have here………they all wanted extended vacations so lets give it to them……..No I did not forget to include The Prince of Fool our honorable Ass Wipe President……..and family……

    Report Post »  
  • inferno
    Posted on August 14, 2011 at 5:45pm

    What you see happening to Marxism in Cuba, is the motivateing factor for the Obama regime. The Marxists in his administration believe that a Marxist utopia can be successful. The stupid Russians and now the ignorant Castro regime just didn’t do things right. They also believe that the theoriticians from our “elite” universities are so much more smart that those Russian clods, and those Marxist wanna bes in Cuba. One example, those stupid Cubans are paying workers too much. Instead of paying $20. per month they should not pay more than $10. Union members, be careful what you wish for, you just might get that and more. By the way, why don’t you send union organizers to Cuba to help thse poor oppressed workers ? I think Trumka should lead the demonstrations in Havana streets.

    Report Post »  
  • Cat
    Posted on August 14, 2011 at 12:49pm

    @TOMFERRARI, et all;

    If memory serves, being a territory simply means you get the benefits of statehood but have no representation in the federal government. Benefit meaning, money for social programs, economic issues and aide (fill in the blank) paid for by other states using the federal government as the money hunter / gatherer.

    Statehood means having representation in the federal government, but have the same responsibilities as the rest of the states, meaning pay up for what other states demand or manage to ‘deal-steal’ out of the federal government, the other states. There is a big difference, and it all boils down to where will money come from and the responsibility of the citizens.

    Cubans are great people, but if they really want to be free, Cubans need to take their country back, kick the communists out for good (hint, hint) and declare that they are a free an independent island nation.

    Report Post » Cat  
  • TomFerrari
    Posted on August 14, 2011 at 8:50am

    We need some honest, conservative, God-fearing, God-loving, Americans, who are ex-cubans, to plant the seeds of conservatism in Cuba – NOW.

    Cuba WILL be free and I think it will eventually become a U.S. territory, not unlike the Virgin Islands, etc.
    With that in mind, we need to plant the seeds now for conservative capitalism in Cuba.
    .
    .
    .

    Report Post » TomFerrari  
  • FAXXON
    Posted on August 14, 2011 at 8:11am

    Poor slobs, their tax complaints are the same ones we have here in this country. That old capitalistic philosophy can sure be messy.

    Report Post »  
  • blackdogofwar
    Posted on August 13, 2011 at 9:37pm

    The dogs of war are here oil your guns it is comming. OWO

    Report Post »  
    • IntegrityFirst08
      Posted on August 13, 2011 at 10:18pm

      But ron paul says we need to talk to these people. Leave Iran alone and they would be law abiding global citizens with their nuclear cababilities. Ron Paul is a joke on everything besides fiscal policy

      Report Post » IntegrityFirst08  
  • RightPolitically
    Posted on August 13, 2011 at 8:48pm

    Before long, Obama will be going to Fidel for a loan.

    Report Post » RightPolitically  
  • Gypsy123
    Posted on August 13, 2011 at 7:27pm

    wow sounds like the USA plan under the current administration. Wonder if the current administration got their idea from Chavez who got his idea from Raul.

    Report Post » Gypsy123  
  • team1blazer
    Posted on August 13, 2011 at 7:03pm

    For all those in favor of socialism, look no further than Cuba – wonderful people, screwed by their savior (Castro for them, Obumbler for US)

    Report Post » team1blazer  
    • rodamaa
      Posted on August 13, 2011 at 7:47pm

      Communism is always the same. Offer the world to the people then provide the shackles and the path to serfdom. Who are these beaten down people supposed to complaint to? Generations of slave to serve the states. That is the real promise of Communism, socialism or any other form of tyranny.

      Report Post »  
  • Conservative Humanist
    Posted on August 13, 2011 at 5:17pm

    Wow, as I was reading this article, I thought that I was reading Obama’s outline for his financal policy. Tax business, tax those who are willing to work. Give the money to those who don’t want to work. Give the takers free food, free homes, free health care, free everything except a free life. Wow, what a plan !!

    Report Post »  
  • KickinBack
    Posted on August 13, 2011 at 5:10pm

    Funny how the world seems upside down. Europe is trying to de-socialize, Cuba is going captialistic, and the dems are the one’s saying that the republicans are moving us backwards!

    Report Post » KickinBack  
  • Ghandi was a Republican
    Posted on August 13, 2011 at 5:04pm

    50% will never work.. The ‘new’ economy will go underground quicker than you can say ‘Obama administration tax cheats’!

    Report Post » Ghandi was a Republican  
  • timej31
    Posted on August 13, 2011 at 4:56pm

    No one likes it.

    Report Post » timej31  
  • stanbeck
    Posted on August 13, 2011 at 4:53pm

    Proof that liberalism is a mental disorder. You always hear the lib’s praising the country of Cuba. Now we see the average person only makes $20 per month. Wow that’s great!!!!! That’s why so many people pile into boats and rafts in Miami and float off to Cuba for a better life for their families. Yea; liberalism is a mental disorder.

    Report Post »  
    • I Love Howie Carr
      Posted on August 13, 2011 at 5:10pm

      Also why you rarely see cuban americans complaining that they don’t get enough “free” stuff from the government, as we see a lot of afro-american and mexican americans screaming about. They know first-hand what all that “free” stuff gets ya. I would gladly accept more cuban immigrants because at least they understand economic realities in a way most other immigrants don’t.

      Report Post »  
    • woemcat
      Posted on August 13, 2011 at 5:21pm

      we should have a citizen exchange! those who hate the US should go to Cuba and those who are trying to get out of Cuba should come here. then, we’ll be rid of the anti-american jerks and have the Cubans who want a better life and are willing to work for it. Cuba will have our commie loving jerks to boss around. hey, it’s a win-win situation!!!!

      Report Post » woemcat  
  • 13th Imam
    Posted on August 13, 2011 at 4:35pm

    Notice the combination of the term “Ailing Economy”
    with the terms,Foiod Rations, Universal Healthcare, and Education, Pensions,, Free Lunch??/

    Welcome to Barry’s vision for America

    Report Post » 13th Imam  
  • AlansTigg
    Posted on August 13, 2011 at 4:26pm

    well, color me shocked

    Report Post » AlansTigg  
  • freedomweiner
    Posted on August 13, 2011 at 4:23pm

    “Freedom`s just another word for no one left to screw”.

    Report Post »  
  • Gonzo
    Posted on August 13, 2011 at 3:57pm

    When will the “Cuban Spring” start?

    Report Post » Gonzo  
    • Marci
      Posted on August 13, 2011 at 4:27pm

      Well, now….socialism works, huh? And when they are failing, the pretend to be somewhat capitalist with the intention of bleeding dry the private sector to keep providing their socialist machine. Why do some Americans believe this is workable?

      Report Post » Marci  
    • one years food ration like glenn says
      Posted on August 14, 2011 at 9:47am

      @MARCI : Most don‘t it’s the Shiela Jacksons of the country that do….

      Report Post » one years food ration like glenn says  

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