Prices and Taxes in Cuba

Fernando Ravsberg*

Even people with the lowest incomes, such as this retired teacher, are also required to make purchases in hard-currency stores and pay inflated prices.

HAVANA TIMES — At the last meeting of the Council of Ministers, it was announced that one of their objectives is to “establish principles for the setting of prices for the public using a comprehensive approach,” while assuring a “monetary equilibrium between incomes and the circulation of retail goods.”

This issue is essential for a large portion of the nation’s population, especially those living off of government wages paid in Cuban pesos, despite these people having to buy some staples in convertible pesos (which are equivalent to the dollar).

It’s true that many of these items have to be imported, though the government assures us that the national economy is no longer capable of subsidizing these as it had done for decades. However this isn’t the only factor that inflates retail prices.

Since the early 1990’s when Cubans were allowed to use the dollar, a 240 percent sales tax was placed on all products sold in hard currency. It was said that the objective of this was to redistribute incomes, using the money from that tax to subsidize the poorest members of the population.

Recalling the Cuban filmmaker “Titon” (Tomas Gutierrez Alea), one could say that the script wasn’t bad but the staging was a disaster. The measure was applied to all products, even basic necessities, some of which are only sold in the state-run network of hard-currency stores.

The disappearance or reduction of subsidies required all citizens to buy part of their family staples in those stores, where — thanks to that 240 percent sales tax — the cost of one quart of soybean cooking oil is equivalent to the wages of several days of work.

Tremendously high taxes on essential items end up being punishment for the poorest. Photo: Raquel Perez

Then too, there are the additional “fines” applied to goods by state shopkeepers. There are imported products that I’ve seen cost 500 percent more than in their countries of origin. All this shows that the price increases aren’t really aimed at redistribution in the interest of those who are poorest.

To prevent this theft against consumers, the government recently announced price leveling on 100 essential items, meaning that now all hard-currency stores are required to sell those products at exactly the same prices.

It seems logical that now they’re establishing a system of pricing that takes into account people’s incomes, though one would think they’d also eliminate or minimize the tax burden on staples.

To really achieve the redistribution of wealth, taxes should be applied only on luxury goods, those products that aren’t necessary for life. Applying them on milk, cooking oil, soap and meat ends up being punishment against the poor.

Kiosks have been opened in all the districts selling products in convertible hard-currency. One needs only to stand around one of those to witness how many of the people who shop there are clearly poor people who have to save every penny to buy the most indispensible items.

A few days ago people were complaining that detergent was scarce in the hard-currency stores. The problem was actually that only large packages were being sold, while the fact is that many Cubans can barely manage to scrape together the 50 cents (USD) for the smallest packets.

The gradual disappearance of ration books is perhaps a measure that’s economically reasonable, but if the subsidies are removed there have to be guarantees that no one, not even the state-run stores, will be able to speculate when it comes to people’s food.

Citizens can understand the need to pay the costs that are entailed in the international cost of oil, transportation and business expenses; but artificially multiplying goods by almost two and a half times to arrive at a final price seems excessive.

There are supermarkets where the prices of some imported products cost up to five times more than in their countries of origin. Photo: Raquel Perez

In other countries of the world, their value-added taxes can approach 20 percent, which is not a negligible amount demanded by their governments given that VATs apply to everything sold in those countries, from a liter of milk to a house.

To improve the situation in Cuba, the Council of Ministers wouldn’t even have to change the script; it would suffice to raise taxes only on luxury goods, ensuring the lowest possible prices for staples.

If the announced “comprehensive approach” on pricing takes into account “the incomes of consumers,” surely this measure would have the wholehearted support of the majority of Cubans, who would feel that the reforms were no longer economic abstractions but were beginning to benefit their daily lives.
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(*) An authorized Havana Times translation of the original published by BBC Mundo.

 


12 thoughts on “Prices and Taxes in Cuba

  • October 10, 2012 at 9:35 am
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    Alberto,

    I still maintain we cannot know what is possible economically in Cuba until the blockades ends. We can assume the government could do things better but we won’t know how much better until then.

    I believe it is also safe to say government inefficiencies become more critical with the imposed blockade, not allowing it any slack. I suspect we can agree your government is not a good example of efficiency yet the wealth that exists in the US gives it a great deal of ‘wiggle room’.

    Imagine if a blockade of the US existed. Would you ask your government to become more efficient in order to counter the blockade, or would you spend all of your energies working to get rid of the blockade?

    I’m not an economist and I suspect you are not either, but it seems intuitively obvious that the blockade has enormous repercussions in many areas that Americans are at pains to cover up. Reviewing the list periodically is instructive. I’ve posted the major ones and can do it again. It’s quite revealing – once you get by the American propaganda.

    There is prima facie evidence the blockade is having a significant effect. I keep pointing out if it isn’t, then why is the US maintaining it – for 50 plus years? Something’s wrong with the picture.

    You use California fuel prices as an example of “the prohibitive price of fuel” in Cuba – $4.50 in California. To a Canadian, and to the rest of the world, this is a bargain price. Gas prices in Cuba are a bargain for Canadians who pay the equivalent of $5-$5.50 a gallon and more. In Europe, they pay twice that.

    Cuba may have a “larger purchasing power than tiny Caribbean Islands” but shipping companies find it easier and cheaper to ship to these tiny islands when they can dock in US ports afterwards to offload cargo and take on new items. Clearly this has to be a factor in costs.

    Expecting Cuba to be a “multi-billion distribution center” for Chinese and other countries’ products to Caribbean and Central American countries doesn’t add up for me. It sounds like the ‘duty-free’ strategy that has exceeded it best-by date as duties have lowered and discount houses are easily able to compete in home countries. Otherwise, why would cheap Chinese goods be any more of a bargain when purchased in Cuba?

    In summary, I think that as someone who is a long-time resident of the US, you have become somewhat blinkered about economic realties in the world that of course are rarely written about outside the control of the corporate media and government spin in your country.

    I am gob-smacked over why shortcomings the Cuban government may have get more attention than what has to be a far greater factor – the 50 plus year economic blockade. The main reasons are two-fold, I think – the propaganda emanating from the blockading country that is obviously tainted, and there’s another.

    I understand there’s an established principle of medical diagnosis that says, if there is a choice between two diagnoses, one which is for an untreatable condition and the other for a treatable one, you pick the treatable one as it allows you do something.

    This applies to Cuba if you view the blockade as an ‘untreatable condition’ and pressuring the government as something that can be done. I feel this is a false, defeatist assumption that Cuba’s enemy propagandists relentlessly promote.

    Please, dear Alberto, I don’t put you in this category, but in your position, living in the US, it’s difficult to keep your perspective, just like with the price of fuel that the rest of the world has to pay that you were unaware of. It’s far easier for a Canadian to avoid the ‘merde’ aimed at the fan and splattering over all beneath it.

  • October 7, 2012 at 5:17 pm
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    The excessively high and arbitrarily pricing of most products in Cuba, is having a detrimental effect in many aspect of the Cuban life. Public transportation, farming, trucking service and others, are a clear expression of the prohibitive price of fuel (more expensive than California at $4.50 gallon ) have exerted a devastating effect on each of these and other activities in Cuba.

    Small farmers have seen their yield severely reduced, because of their inability to water their crops, although water sources are close by, because of the high cost of fuel to activate their pumps. Thousands of vehicles are parked for similar reasons, not withstanding, hundreds of thousands of people and freight needing to go from A to B for every possible human needs.

    Cuba, with a far better political/economical relation with China and a larger purchasing power than tiny Caribbean Islands such a the Grenadines, Saint Lucia, Barbados or many Miami import/export businesses, could purchase these products in large volume and sell them with a decent profit, at far less, than what those products are sold in any of these islands, in Wall Mart or on 20th street in Miami.

    As it happens with a few products, many Cuban visitors take back with them, cigars, medicines, arts, or music which they sell in their respective host countries. Cuba could easily become a large exporter of these Chinese goods, which could be solda at a lesser price than in the United States and Europe, instead of being a small volume importer of goods sold at high price, out of reach of many of its people.

    Changing the mindset of managers in Cuba, who seems to be more focused on pennys extracted from the the purchases of a limited amount of products from a population with a low purchasing power, instead of transforming our country into a multi-billion distribution center Chinese and other countries products to our Caribbean and Central American neighbors, speaks volume of the prevailing business/development vision in Cuba.

    An old addage in English speaks about being “Dollar fool, Penny Wise”. May all Cubans review and revise, how we have been fulfilling our duties.

  • October 5, 2012 at 3:28 pm
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    Everything you just wrote describes to a T the capitalist system Americans live under. Did you miss this obvious fact? Probably.

  • October 5, 2012 at 3:24 pm
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    Responding to ‘Griffins’ comment to ‘Luis’ – “I did not use the word “Evil”. ‘Griffin’ characterised the Cuban government as a ” ruling oligarchy” that “can live [like] kings while the Cuban people [are] working as slaves.”

    ‘Luis’ got it right. ‘Griffin’, acting like a shyster lawyer or gangster copping a plea, writes he didn’t use the actual word. Yeah, but he wrote the equivalent. ‘Luis’ just summarised it in one word.

    ‘Griffin’ obviously has trouble with summaries – or more likely, is just acting like a ‘Philadelphia lawyer’ – all talk and no honesty.

  • October 5, 2012 at 2:54 pm
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    Unfortunately, ‘Griffin’, your ignorance continues to be on display. For someone who monitors HT regularly, you don’t seem to have learned anything.

    Cuba is a small market – 11 million people. Without the blockade, ships from China could carry goods for Cuba and the US but under the blockade, they cannot dock in any US port if they go to Cuba, making it expensive to cover the 4,000 miles from China to the Panama Canal plus travel an additional 1,000 miles across the Caribbean to Cuba without having anywhere else of any size they can go to either for unloading or loading new cargo.

    Yes, China exports “billions of dollars worth of goods around the world” but NOT UNDER CONDITIONS OF A BLOCKADE that Cubs is subjected to. Please, ‘Griffin’, try not to be such an idiot.

    Asking, “are all the cell-phones, electronics and cheap gadgets we [Americans] buy from China expensive or cheap?” compounds your ignorance. The larger a market, the lower the costs for items – The US has 300 million more people – 11 million vs 311 million people – and of course with higher incomes in the US, the market is immensely larger in your country.

    And, in 2012, the top three mobile phone vendors are in South Korea (Samsung) Finland (Nokia) and the US (Apple) totalling almost half the market. Please ‘Griffin’, try not to be such an idiot.

    Yep, Cuban tour guides, myself and the rest of the world save propagandists for the US Empire, read from the same factual textbooks. The exception reads, if they read at all – no evidence forthcoming here – from text provided by US government sources, although it usually has the trappings of a bit of logic, what ‘Griffin’s lacks altogether.

    ‘Griffin’ writes, “The high import taxes the Cuban regime imposes go toward keeping the regime in power, so the ruling oligarchy can live like kings while the Cuban people work as slaves.”

    So, like me ‘Griffin’s been to Cuba and seen all those palatial palaces inhabited by the ruling oligarchy, tucked away in exclusive neighbourhoods in Havana, attended to by dark-skinned natives. Oh, sorry, I forgot, I see that in the US and Canada. Cuba is quite different. Cubans would never tolerate such a flagrant display of an income and racial divide.

    It’s a miracle Canadians and Americans do. I suppose it’s because they didn’t start out with the same idealistic values the Cuban Revolution is based on. But they are catching up. The Occupy movement lives.

    Period, but hardly the end of the story.

  • October 5, 2012 at 12:46 pm
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    Luis,

    Do you have a reading comprehension problem? I did not transform Fernando’s piece. I commented on Lawrence’s foolish comment about shipping costs.

    I did not use the word “Evil”, but if the shoe fits…

  • October 5, 2012 at 11:42 am
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    Thanks for transforming Fernando’s constructive criticism into Reagan-like reasoning: ‘Cuba’s got an evil regime! EVIL!’

  • October 5, 2012 at 10:52 am
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    Lawrence wrote:

    “If the US blockade didn’t make imports that much more expensive – coming from thousands of miles away instead of hundreds, and from the largest mass market in the world”

    Ha, ha, ha! Thank you for the biggest laugh of the day. Cuba imports most of their manufactured goods from China, which has exported billions of dollars worth of goods around the world because they are the lowest cost manufacturer on the planet. China also boosts the exports through artificial currency manipulations which keep the value of their currency low.

    Seriously, are all the cell-phones, electronics and cheap gadgets we buy from China expensive or cheap?

    Interestingly enough, I heard the exact same laughable explanation from a Cuban tour guide. So I guess we can be sure you two are reading from the same text, eh?

    The high import taxes the Cuban regime imposes go toward keeping the regime in power, so the ruling oligarchy can live kings while the Cuban people working as slaves. Period.

  • October 5, 2012 at 8:58 am
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    Artificial pricing schemes always lead to economic distortions, because goods are not priced according to their true value but by arbitrary regulations. At the same time, the Cuban people are not paid according to the true value of their labour, but by arbitrary regulation from a government that taxes workers before they even see their paycheque.This leads inevitably to corruption and the diversion of goods to the black market.

  • October 5, 2012 at 8:41 am
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    As the main weaver of tangled webs, you should know – ‘takes one to know one’ as the saying goes.

    Question: what’s the difference between taxation “intended to redistribute wealth to the poor and taxation of “remittances from family members abroad”, going mostly to white Cubans due to the makeup of those who leave Cuba, 80% of whom are white?

    Answer: ‘Moses’ US propaganda. He claims it “is a means to punish those Cubans fortunate enough to receive remittances.” Guess what wealthy Americans who pay a disproportionally small amount of tax and still bitch say it is? A punishment against their class. Of course they would see it that way. What’s ‘Moses’ excuse, as if we didn’t know.

    If the US blockade didn’t make imports that much more expensive – coming from thousands of miles away instead of hundreds, and from the largest mass market in the world – it would certainly lower costs for Cubans.

    So much for “love/hate’ relationships – ‘Moses’ professed ‘love’ and demonstrable hate on display here, supporting his country’s vicious blockade against the Cuban people. For shame.

  • October 4, 2012 at 2:48 pm
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    What a tangled web we weave, when we purpose to deceive. The 240% tax was never intended to redistribute wealth to the poor. It was and still is a means to punish those Cubans fortunate enough to receive remittances from family members abroad. The luxury items that Pedro failed to list include among them bar soap, frozen vegetables, body lotion and the ever popular recordable dvds. The Castros love/hate Cubans who don´t need their symbolic salaries to live.

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