Cubans' 50-year tax holiday coming to an end
AFP March 3, 2011, 12:13 pm
HAVANA (AFP) – 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 tax man.
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
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.
Meanwhile Havana announced a major shift towards a free market economy,
saying it hoped to create 1.8 million jobs over the next five years.
Many of those new jobs are expected to generate tax revenue, now that
the 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 percent to 50 percent.
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 neighborhood, 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.
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
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, Betancourt said, "will have to explain to the public
that people not only have rights, but also responsibilities."
Meanwhile Castro announced this week that the lay-offs of government
workers, which were to have been completed this month, could take up to
"The biggest threat to the revolution resides precisely in the mistakes
we could make," he told a cabinet meeting late Monday.