Cubans to be introduced to the taxman

Thursday 03 March 2011 15.46
Cuba - The govt declared that agriculture is the most important sector in the country's new economic reforms
Cuba - The govt declared that agriculture is the most important sector in the country's new economic reforms

For years, Cubans trying to eke out a living have had one small comfort: that whatever income they managed to scrape together was entirely theirs. That's about to change.

With 50 years of government paternalism coming to an end, Cubans will soon be introduced to the taxman.

The seismic shift is being introduced by Raul Castro, the country's 79-year-old leader and brother of former president and revolutionary icon Fidel Castro, as part of his overhaul of the economy.

Faced with an economy brought to its knees by the global economic crisis and decades of fiscal mismanagement, Cuba in January began a process of sweeping reforms.

Havana announced it was axing 500,000 government jobs as part of an ambitious overhaul designed to build up a private sector in an economy that has been run on communist lines since Fidel Castro took power in 1959.

At the same time, the government is encouraging more Cubans to try to strike out on their own, in the closest thing to a free market economy that the country has seen since the overthrow of the Fulgencio Batista dictatorship more than half a century ago.

The Havana government made an initial stab at reforming the languishing economy in 1994, including a move to formally allow some private enterprise.

Officially those laws also mandated the payment of taxes, although they never were enforced, which meant that only 140,000 people out of a population of 11.2 million paid taxes.

But last year, the Cuban government made it known that difficult economic times were going to necessitate major changes. Chief among the new reforms was the elimination of 500,000 jobs on the island.

Shift towards a free market

Meanwhile, Havana announced a major shift towards a free market economy, saying it hoped to create 1.8m jobs over the next five years.

Many of those new jobs are expected to generate tax revenue, now that the island's tax holiday is about to come to an end.

The changes come as Cuba's ruling Communist Party prepares to hold its first congress in 14 years to give its formal approval to the reforms.

The proposed law imposes a complicated system of levies on sales, services and rent, ranging from 25-50%.

The problem is that Cuban business owners have never paid taxes before, and are not entirely sure what it all means.

Many Cubans meanwhile have started opening their own businesses without knowing exactly how their tax situation will shake out.

'We'll sort it out later,' said one man, who owns one of the many 'paladar' home restaurants that have sprung up around the country in the months since the coming reforms were first announced.

Daysi Fernandez, who has rented out rooms in her home for the past several years, was more cautious.

'I'll study the situation, and if I can't make ends meet, I'll hand over my license,' she said.

Meanwhile Roberto, a mechanic from Havana's Lawton neighbourhood, said the changes have already led him to alter his business plans.

'I was going to hire my son for my workshop, but it would work out better for me if he gets his own license and helps me out every now and again - I'll save money that way,' he said.

Abrupt introduction

Economist Rafael Betancourt said it would have been better if Cubans' abrupt introduction into the world of taxes had been more gradual.

'It's too bad that the system didn't establish a grace period,' he told TEMAS magazine.

Officials last month launched a campaign telling Cubans that it is important that everyone do their share when it comes to paying taxes.

The government, Mr Betancourt said, 'will have to explain to the public that people not only have rights, but also responsibilities.'

Meanwhile, Raul Castro announced this week that the lay-offs of government workers, which were to have been completed this month, could take up to five years.

'The biggest threat to the revolution resides precisely in the mistakes we could make,' he told a cabinet meeting earlier thsi week.

AFP