Henry G. Delforn (*)
HAVANA TIMES, Nov. 16 — In the most significant economic reform ushered in by President Raul Castro so far, Cuba will be levying taxes of between 25 and 50% on businesses in the new private sector.
Taxes will range from “nothing” for those who make 5,000 pesos [about $200 USD] or less per annum, up to 50% for those who annually earn more than 50,000 pesos [about $2,000].
Those who make more than 5,000 pesos will have to pay taxes beginning at a rate of 25%, which will increase in steps as revenue increases. It has also been said that these taxes will be “friendlier” to small companies because, though they will be hit with new taxes, they will also be eligible for the most tax deductions.
These tax rates in Cuba are comparable to those in other countries that see themselves as democratic. For example, the ranges of tax rates in western democracies include the following: Germany, 0 to 45%; Japan, 5 to 40%; Belgium, 25 to 50%; Denmark, 36.57 to 51.5%; England, 0 to 50%; France, 5.5 to 40%; and Austria, 21 to 50%.
As high as they are, these are not the sole taxes one has to pay in these countries. In addition, there are almost always some local taxes, a series of hidden ones and of course sales taxes that are paid on most transactions. This latter type of consumption tax is from 5 to 25%. The result is that some people in countries like England and Denmark pay 60% of their annual income to the government.
This new private sector is being highlighted in the news as the Cuban government prepares to lay off 500,000 of its workers and issue 250,000 new licenses for self-employment in an effort to create new jobs. Currently more than 5 million people are employed in Cuba, with around 85% working for the government. As President Raul Castro wants to reduce costs, his government believes that self-employed workers can help pay for free social programs such as universal health care and education.
In Cuba, last month the government announced in the Granma newspaper that those who don’t pay their taxes will feel the full weight of the law through the National Tax Office.
Now I’ll tell you that the advantage of paying these taxes is the biggest economic reform that one has seen in Cuba with President Raul Castro. Why is it worth paying these taxes? Because it’s your business, damn it!
Many people have already expressed an interest in opening their own business with the hope of earning more than what the government pays them, which on average is around $20 per month. At the end of 2009, there were only 143,000 independent self-employed workers, although thousands more worked for themselves without being counted.
But there’s another advantage. One also has the advantage of being their own boss, and who wouldn’t like that? Because now one will be able to employ workers for the first time since small companies were nationalized in 1968.
Ok, I already know what you’re wondering… What business am I going to open? Without thinking a lot about it, I can give you one technical example. It’s well known that the Internet in Cuba is slow. This is because there aren’t enough service providers. Currently Cuba is ranked internationally at the 146th position, while Guatemala is 65th.
This means that the capacity of services providers has to at least double, and that revolution has already begun. The last month it was of announced that Cuba is spending $70 million to lay an underwater fiber optic cable to connect the island to Venezuela to improve its Internet and telecommunications services.
Since Cuba has less than half the Internet service providers compared to Guatemala, what I’m saying is that there is a demand for businesses providing twice as much service as there is now. One can only hope that this business will be included in the list of new activities to be authorized under the new economic reform.
But there’s a more general issue here. Among the western governments mentioned, their citizens supplement their incomes with loans or credit. As this doesn’t exist in Cuba, then the new taxes won’t be able to completely pay for all the services provided by the government for free.
Instead, it will be necessary for Cuba to take the same step suggested by Franklin D. Roosevelt: that of imposing a 100% tax on revenue greater than 25,000 dollars! Likewise, Cuba won’t have the same problems of the West such as losing control over funds it lends or over printed money.
(*) Henry G. Delforn, a US citizen born in Cuba, is a retired electrical engineer who lives in Carpinteria, California