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.
—–
(*) An authorized Havana Times translation of the original published by BBC Mundo.

 


12 thoughts on “Prices and Taxes in Cuba

  • 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.

  • 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.

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