HAVANA — Cuba has laid out details of a sweeping tax system for the newly self-employed — a crucial step in the socialist state’s plan to convert hundreds of thousands of state workers into self-employed businesspeople.
The tax code described in a two-page spread in the Communist Party newspaper Granma will have many Cubans paying more than a third of their income to the state, while those who create businesses and hire their own employees will pay more.
Cuba announced last month that it was laying off half a million state workers — nearly 10 per cent of the island’s work force — while opening up more avenues for self employment.
At times, the article reads like a children’s lesson for a population with little experience at entrepreneurship — and almost none with the concept of taxes. It also offers a detailed peek at a mix of levies that would be complicated even for an accountant.
Throughout, there is an attempt to soften the blow by explaining that no government can provide services without revenue.
“Perhaps because Cubans are used to receiving medical care without taking a penny out of our pocket, or studying for free at any educational center we want, few stop to ask where the money the state uses for this comes from,” the article reads.
Those selling goods and services will pay a 10 per cent income tax monthly, as well as another 25 per cent into a social security account, from which they will eventually draw a pension.
Those who hire employees also will also have to pay a 25 per cent payroll tax. The article says taxes will rise for successful businesses with many employees, but does not give details.
“The tax has a regulatory character in order to avoid a concentration of wealth or the indiscriminate use of the labor force,” the article says. “The more people hired, the higher the tax burden.”
Anyone making more than 50,000 Cuban pesos ($2,400) a year will have to open a bank account and keep detailed books — perhaps creating a market for the private accountants who will be allowed under the economic reforms. Those who earn less need only maintain a list of income and costs. Most Cuban state workers make about $20 a month.
The article says people in some forms of self-employment will be exempt from the 10 percent tax and instead will pay a fixed amount each month, regardless of what they make. It does not say which jobs will be eligible for this approach, however, nor say how much tax workers will pay. These workers will also be obligated to pay the social security tax.
The reforms are an effort to breathe life into a dormant socialist economy that can no longer afford to provide free or nearly free health care, education and basic food to its population. They are the most significant adopted by the communist government since at least the early 1990s.
The new system borrows many aspects of capitalism, while keeping in place Cuba’s state-dominated control of the economy. Citizens will be allowed to apply for licenses to work for themselves in just 178 areas, from car maintenance to rabbit farming, accounting to circus clown. (AP)
