HAVANA TIMES, Oct 26 (IPS) — “They brought me 100 copies, which sold out in less than half an hour,” the vendor at one of the Cuban government’s newsstands told IPS, referring to the nearly 100 pages of regulations published in the government gazette. The people queuing up “just about drove me crazy,” he added.
The new legislation on the expansion of self-employment, one of the alternatives proposed by the government of Raul Castro as part of a reform to shed half a million public sector jobs by March 2011, officially went into effect with the publication of the two special editions of the gazette Monday.
The greatest interest is centered on the taxes to be paid by people setting up on their own in 178 private activities that will now be permitted.
Several different taxes were created: a personal income tax ranging from 25 to 50 percent, a 10 percent sales tax, social security payments, and a payroll tax amounting to 25 percent of the salary paid to the employee.
Will there be a profit?
“I would like to open a business in my home selling snacks and juice,” a middle-aged woman with her copy of the Gazette under her arm commented to IPS. “But if on top of the cost of the license, the sales tax, and I don’t know what else, I have to buy whatever I need for the business at the prices of the ‘shopin’ (government stores that accept only hard currency), I don’t see where the profit is.”
The new system, which was first announced in mid-September, will expand the activities in which self-employment is allowed. In 2009, more than 140,000 people had licenses to work on their own in Cuba, although many more do so without a permit.
Under the new legislation, small businesses will be able to hire employees other than relatives for the first time, and Cubans — even citizens living abroad — will be able to rent out entire houses, instead of just rooms.
But people who have been involved in private enterprise since it was first authorized in the 1990s are worried about what they see as an increase in taxes to be paid by the self-employed.
Others, who have been working on their own without an official license, could be charged heavy fines if they fail to register in the offices set up for that purpose.
“To rent out a room in my house, I have to pay 331 convertible pesos (357 dollars) a month, including the cost of the permit and other taxes that were gradually added on,” a woman who lives in Havana’s Playa neighborhood told IPS. “Of course I also pay an annual personal income tax.
“Now I have to study this document carefully, and wait for the meeting that we will undoubtedly have with Housing Ministry authorities, to find out what we can expect,” she said.
Rentals and family restaurants
The rental business, along with small private family-run restaurants known as “paladares”, are seen as the most flourishing areas of private enterprise in Cuba, despite the strict regulations to which they are subject.
The taxes will be paid in Cuban pesos. For the self-employed who do business in convertible pesos or “CUCs”, the current exchange rate in the government exchange houses, where the CUC is worth 24 pesos, will apply.
Preliminary estimates by the government’s working group on taxes indicate that an additional 250,000 self-employed people, or “cuentapropistas”, would represent annual government revenues equivalent to around 45 million dollars as of 2011.
The projection apparently took into account the 80,000 to 100,000 licenses reportedly applied for but denied over the last decade or so.
Caution as domestic market depressed
But some analysts are more cautious, and believe the impact will be modest, especially at the start, due to the country’s complicated economic realities.
The new rules also regulate the situation of workers who lose their jobs in the radical restructuring of employment, which is to include the cutting of 500,000 state jobs by the end of the first quarter of 2011, and another half a million over the following five years.
The government currently employs more than 80 percent of the official workforce in Cuba.
Under the new regulations, the alternatives for people who are laid off from their public sector jobs include relocation to other companies, self-employment, and the allocation of land for them to farm.
Also mentioned are “other forms of employment in the public sector,” although details were not provided. In addition, employees who are made “available” or redundant will be able to apply on their own for relocation to another company or institution, or area of activity.
The government says the restructuring of employment is being carried out in response to the need for bolstering efficiency and labor productivity, which it sees as crucial to raising wages and supporting the “enormous social costs” of the country’s socialist system, which includes universal, free health and education.
The restructuring also aims for at least 80 percent of all workers to be engaged directly in production, services or other activities deemed essential for the development of this Caribbean island nation of 11.2 million people.