Budding entrepreneurs face an excess of excises
HAVANA – 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.
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.