22 October 2010 Last updated at 13:28 ET
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Cuba details taxes for the self-employed

Self-employed taxi driver in Cuba Cuba hopes growing its private sector will help speed up economic development

The Cuban government has outlined the taxes that will have to be paid by the country's growing number of self-employed workers.

It is the latest stage of President Raul Castro's reforms to move Cuba away from a solely state-run economy.

Self-employed workers will have to pay 10% income tax, while those who take on staff will pay more.

It comes after the government announced last month that it was laying off half a million state workers.

Cuba's new tax code is detailed in the latest edition of the country's Communist Party newspaper - Granma.

The article includes an explanation that no government can provide services without gaining tax revenues.

In addition to the 10% income tax, workers will pay another 25% into a social security account from which they will in time draw a pension.

The coverage in Granma adds that successful businesses will see their tax burden rise as they take on more staff. How is this going to drive incentives again More productive means you pay more Talk about killing the goose BEFORE IT LAYS any eggs

The government is reducing the once all-encompasing role of the state in the hope that it will boost a stagnant economy.

However, people setting up their own firms will be limited to just 178 professions, including car maintenance and rabbit farming.

This is all very fair. Larger enterprises should pay more tax.
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Cuba Makes Self-Employment Rules Official

Published: October 25, 2010

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Filed at 9:06 p.m. ET

HAVANA (AP) — Potential entrepreneurs lined up outside government offices around the capital on Monday after Cuba made official the grand economic changes it announced last month, raising hopes that eagerly anticipated licenses for the newly self-employed could be issued soon.

The economic overhaul — the most significant undertaken in communist Cuba since the early 1990s — was outlined in nearly 100 pages of rules and regulations for small businesses published in the government Gazette.

"I hope this license will bring me a better future," said Lazaro Ramos, who was one of about 20 people waiting outside a government office in Havana's 10 de Octubre neighborhood. Ramos, 34, said he was unemployed but was hoping to get permission to make pinatas for children's parties. "The economy is not good. But with this, I will be able to make ends meet."

Officials took down personal details and told applicants to come back in a couple of weeks for more information. It was not clear how long it would take to process the licenses.

Cuba announced on Sept. 13 that it would lay off half a million workers and push many of them into the private sector. It later detailed some 178 private jobs that will be allowable. But the rules did not become law until they were published Monday.

The rules published Monday detail four kinds of taxes for the private sector: a sliding personal income tax, a sales tax, a public service tax and a payroll tax. It also establishes minimum monthly fees for different kinds of businesses, as well as deductions Cuban can take to reduce their tax burden.

Some of the tax rules were detailed in the Communist Party newspaper Granma last week, but the newspaper account lacked crucial details and contained several contradictions.

The lengthy rules laid out in the government Gazette clear up most of the uncertainty.

The law establishes 178 private activities for which licenses can be granted — everything from restaurateur to taxi driver, from button maker to party planner. The majority of those businesses will be eligible for a simplified tax system that establishes a monthly quota regardless of revenue.

For instance, parking attendants would pay 80 pesos ($4) a month, while typing instructors would have to fork over 100 pesos ($5) monthly. Barbers have one of the highest fees: 200 pesos ($10) a month.

Those not eligible for the simplified tax system — jobs like taxi driver, plumber and rooming house operator — will pay a 25 percent income tax on the first 10,000 pesos ($476) earned each year, with the rate rising for those who earn more. Income exceeding 50,000 pesos ($2,381) a year will be taxed at 50 percent.

Businesses will also be subject to a 10 percent levy on the total value of their sales, and those that use public services like electricity and water will have to pay a 10 percent tax on top of normal utility rates. The government heavily subsidizes public utilities, meaning the tax should amount to pennies for most businesses.

Entrepreneurs who hire employees will have to pay a 25 percent payroll tax on their salaries, and all Cubans who are self-employed must 25 percent of their income into a social security system from which they will eventually draw a pension.

The rules mean that, theoretically, a successful businessperson could face taxes of nearly 75 percent, between personal income tax and social security.

But the law also establishes many deductions for raw materials, transportation and other business expenses that make such a high rate unlikely.

The new regulations will allow Cubans over the age of 17 to start their own business, so long as they are permanent residents. Citizens can also apply for licenses for more than one business. They will even be allowed to sell their services to the state, though there will be strict transparency rules to try to stave off corruption.

The law also establishes up to six months of sick leave and a year of maternity leave so that self-employed workers don't have to pay tax while they are not earning.

Cuba is in the midst of a major restructuring of its economy under President Raul Castro. The half million workers will be laid off by March 2011, and the Cuban leader has warned that another 500,000 state jobs must shed within the next five years. In total, that would be about 20 percent of the island's labor force.

Castro has insisted the changes do not mean the end of Cuba's socialist system. But he says the cash-strapped government can no longer afford to subsidize every aspect of Cuban life and has warned Cubans they will have to work hard to make their own way.

The government currently employs about 85 percent of the labor force, paying workers about $20 a month but providing free or nearly free education, health care, housing, transportation and basic food.

Unlike China, France UK etc. Cuba does not seem to have mastered the art of successful state enterprises.

Small scale enterprises are more difficult to manage under state control.
Of course socialist Yugoslavia allowed free enterprise but retained the socialist state.
from 1987:
http://articles.latimes.com/1987-09-20/travel/tr-9346_1_designer-clothing
Perhaps soon people will take trips to Cuba to buy designer clothing.
While obviously there should be state run restaurants to give good nutrition in developing countries and meals service for children many would argue that private restaurants should develop also.

The famous state owned Moscow restaurant in Beijing is being restored!



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http://english.cri.cn/7146/2009/07/03/1901s498565.htm.


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Latest update: 25/10/2010
- Cuba - diplomacy - European Union - human rights

EU foreign ministers have given the bloc's top diplomat, Catherine Ashton (pictured), a mandate "to explore ways to try and progress" relations with Cuba in the wake of Havana's decision to release several political prisoners after talks with Spain.

By News Wires (text)


AFP - The EU's top diplomat Catherine Ashton will explore a possible softening of the bloc's stance towards Cuba following its release of dissidents and economic reforms, a diplomat said Monday.

Ashton was given a mandate by foreign ministers of the 27-nation European Union meeting in Luxembourg "to explore ways to try and progress" its relations with Cuba, the source said. She is to finalise the mission in December.

Spain's new Foreign Minister Trinidad Jimenez made an impassioned plea to improve relations between Brussels and Havana at the meeting which moved her counterparts.

Spain's Socialist government has been arguing in favour of the EU moving towards normalisation of ties with Cuba, saying a shift would help accelerate change on the island led by the Castro brothers since 1959.

But Germany, Sweden, as well as former communist bloc nations Poland and the Czech Republic have opposed any change in the EU's "common position," a 1996 stand calling for Cuba to make progress on human rights and democracy before ties are normalised.

The EU last week welcomed Cuba's decision to free more political prisoners while urging Havana to go further.

"Cuba is willing to engage, to meet us half-way, we need to talk," said an EU diplomat on condition of anonymity.

Normalising of ties is the way forward.
Soon Cuba's health service will be able to have fine new hospitals; following the example of the UK's
National Health Service that has just opened a hospital in Biirmingham with the largest ICU in the World.
http://news.bbc.co.uk/local/birmingham/hi/people_and_places/newsid_8743000/8743593.stm

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Cubans Queue Up for Copies of New Self-Employment Rules

By Patricia Grogg


Young saleswoman selling purses and bags in Havana shop. / Credit:Jorge Luis Baños /IPS



HAVANA, Oct 26, 2010 (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 Raúl 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 centred 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.

"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 licence, 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 licences 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 authorised 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 licence, 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 neighbourhood 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.

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 licences reportedly applied for but denied over the last decade or so.

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 labour 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. (END)

Torn Between Hope and Anxiety
By Patricia Grogg

HAVANA, Oct 7, 2010 (IPS) - The radical restructuring of employment launched by President Raúl Castro has Cubans, on the one hand, feeling anxious about possibly losing their jobs and, on the other, looking forward to testing the real scope of opportunities in the private sector, where an estimated 250,000 additional people may soon be working for themselves.

Registration to work on a self-employed basis in one of the 178 areas that have been authorised was to have started this month, but officials at both the Ministry of Labour and Social Security and the national tax office told journalists they had received no detailed instructions.

Nor has the Ministry of Finance and Prices published its resolution on the new taxation scheme. "I want to know how much a permit will cost me. If the taxes are too high, I will try to carry on as I have so far," said Caridad, who has worked as an unregistered seamstress for several years.

The Cuban government intends to shed half a million state employees between now and the first quarter of 2011, in the interests of efficiency and labour productivity, which it sees as essential in order to raise wages and "bear the enormous social costs" of the country's socialist system.

The employment restructuring aims for at least 80 percent of all workers to be engaged directly in production, services or other essential activities. Public employees deemed "available" (redundant) may be retrained and relocated in agriculture, construction or the police, which are short of labour, or become self-employed.

According to the authorities, reducing inflated payrolls and eliminating excessive subsidies and gratuities, as well as freeing the state from some of its responsibilities, should allow wage increases in the immediate future that have long been demanded by workers.

"I don't want to join the police, nor do I see why I should leave the capital, where I was born and raised, to go and work in the countryside. Nor do I have money to set up a business of my own. I don't know what I will do if I lose my job," a 26-year-old Afro-Cuban who is a service worker in a Havana hotel told IPS.

Castro said in August that "no one will be abandoned to their fate," and support would be available for those who "are really incapable of working (in other jobs)." However, neither the president's words nor the explanatory meetings held in workplaces have succeeded in calming workers' fears of finding themselves among the ranks of the unemployed.

"It is a logical concern," a Cuban economist who requested anonymity told IPS. "Breaking with 50 years of state paternalism isn't easy, but this reorganisation of the productive forces is absolutely necessary if we are to maintain other cherished rights, like free healthcare and free education."

According to official estimates, health and education alone account for 46.7 percent of state expenditure, and injections of new revenue are urgently needed. The right of Cuban citizens to free education and health services is guaranteed under the constitution.

The archbishop of Havana, Cardinal Jaime Ortega, said people are worried about possibly being sacked, especially those who "have bureaucratic posts," but he sensed "there is a certain expectancy about the changes and their potential benefits, and some people welcome them."

People "with special qualifications that equip them to open a small business are even eager and enthusiastic," Ortega told journalists. His own view is that the change "is positive in itself, in that it addresses Cuba's economic difficulties and how to overcome them."

However, many Cubans are not enthusiastic at all about the expansion of opportunities to work independently, either because they are already working for themselves on the side -- without registering for a licence or paying income tax -- or because they fear higher taxes.

According to documents leaked to the foreign media, the tax proposals include personal income tax levied on sales or services, and for hiring workers, as well as social security contributions and fees for advertising, where applicable.

Taxation rates would range from 10 to 40 percent, and taxes would be collected in national currency (pesos) in all cases. Transactions in convertible Cuban pesos (CUC), the only hard currency available on the island, will be subject to the official exchange rate at the chain of state exchange shops (CADECA).

The official exchange rate is 24 pesos to the CUC. Preliminary estimates from the tax working group indicate that 250,000 self-employed people would contribute an additional one billion pesos a year to state coffers from 2011 on.

Some economists consulted by IPS said this amount of projected revenue was overly ambitious, and would not encourage a mass move towards self-employment. "The tax burden should be lighter, at least at first, so that people have a chance to get a taste of the advantages of the system," one academic said.

Information provided by the government so far has confirmed the introduction of new features, like the freedom to subcontract workers in 83 areas of activity, and to rent full houses (previously Cubans were allowed to rent out no more than two rooms) in hard currency, as well as cars.

These rental facilities apply even to persons who have authorisation to live abroad, and to those who travel abroad for more than three months. Access by self-employed persons to start-up bank loans for the trade of their choice is also being considered.

In the view of analysts, these measures taken together are opening doors which may lead to even bolder steps in future. For the moment, though, the restructuring of employment and its consequences are heightening tension in Cuban families, particularly where the heads of households have the lowest levels of education and skills. (END)

Expansion of Self-Employment Poses Challenges for Socialist Model
By Patricia Grogg

HAVANA, Aug 23, 2010 (IPS) - The announcement of a plan to expand the practice of self-employment in Cuba as an alternative for the "excess" workers who are to be slashed from the public workforce presents several challenges to the socialist model that the government is seeking to modernise.

First and foremost, the alternative must meet the expectations of people who might be interested in getting involved in private enterprise and those who have been self-employed -- known here as "cuentapropistas" -- since the mid-1990s and now, with years of experience under their belt, could take advantage of newly legalised opportunities like hiring staff or setting up small businesses.

"Everyone hopes they will relax the rules for private enterprise," a plumber who has a steady clientele after working for several years on his own commented to IPS. "They (the authorities) are apparently studying the whole question very closely."

According to the National Office of Statistics (ONE), the number of people working in remunerated jobs in this Caribbean island nation of 11 million people rose last year to just over 5.7 million, including nearly two million women.

And the legally registered cuentapropistas, a sector that does not include farmers who own land, numbered 143,800 last year, 30,300 of whom were women. In 2004 they amounted to 166,700, including 39,600 women.

When the phenomenon was at its peak, in the mid-1990s, there were more than 200,000 cuentapropistas. But the number of people who were legally registered as self-employed gradually dropped after that, partly because the government did not renew permits for many activities that were initially allowed.

The plumber, who did not want to give his name, never applied for a permit because he worked in a public company until 2009 and, to boost his income, offered plumbing services on the side. "Last year my wife fell seriously ill, and I left the company to be able to take care of her. But I have never lacked work," he said.

Like him, there are a significant number of Cubans who have chosen to work for themselves on the side, but without giving up their jobs in the public sector -- and without registering as cuentapropistas.

"I hope that if I get a permit, my business and income will grow, because if they put in place a lot of restrictions or charge taxes that are too high, it won't be worth it," the plumber said.

The government decided to allow more people to work for themselves because it plans to lay off more than one million workers over the next five years as part of a "rationalisation" of the labour force.

President Raúl Castro said the measure would do away with "various existing prohibitions for the granting of new permits and the commercialisation of some production."

It will also allow cuentapropistas to hire paid workers, which they are currently unable to do legally.

In his brief address to parliament on Aug. 1, Castro announced that in mid-July, the Council of Ministers had approved a tax regime for those who are self-employed, aimed at responding to the new economic reality and guaranteeing that cuentapropistas pay into social security, pay income and sales taxes, and pay taxes for hiring others.

Information on the new tax system has not been made public, however.

Cubans do not currently pay taxes on wages, with the exception of staff hired by foreign companies who earn significantly more than state employees.

People familiar with the labour system say legislative reforms supporting and facilitating self-employment, which can now include collective undertakings and joint administration by two or more people, are urgently needed.

Economist Omar Everleny Pérez said this new process must solve the problems that have burdened cuentapropistas, such as difficulties in purchasing inputs and materials, and the lack of credit or other financial aid mechanisms.

Pérez said it is feasible to once again consider the creation of small and medium-sized enterprises (SMEs), which were to be allowed in the mid-1990s, before such plans were scrapped.

He said SMEs fit within the concept of the broadening of the practice of self-employment, and could generate a wider range of employment alternatives, help improve living standards and boost incomes, and help descentralise certain areas of production and services.

Another benefit mentioned by Pérez in a not-yet published research study seen by IPS is the increased offer of goods and services. The economist underscores that at a global level, there is a growing tendency towards SMEs in productive sectors.

SMEs are flexible and depend on highly qualified labour, one of Cuba's main advantages, said Pérez, who said they are also highly competitive.

He added that the government is studying the possibility of allowing some kinds of SMEs.

Several economists suggest the possibility of associations between cuentapropista companies and the state, or between self-employed individuals and cooperatives, that would allow production and its benefits to be more widely socialised.

"Cuba has to turn its economic situation around in the next few years, and given the lack of capital in the economy for a broad process of investment by the state...SMEs could play a complementary role," Pérez says in his study. (END)

Wanted - Socialist System that Meets Real Needs
Analysis by Patricia Grogg

HAVANA, Aug 26 , 2009 (IPS) - Cuba's communist government is being challenged to move toward a more participative and inclusive socialist system, one that offers real economic well-being and responds to the social and political demands that have built up and been expressed in different ways in recent years.

Although it has been postponed until further notice, the Sixth Congress of the governing Cuban Communist Party (PCC), the only recognised party, must meet this challenge in the context of an international crisis which has aggravated the economic difficulties facing this Caribbean island nation and has had a major impact on the living standards of its 11.2 million people.

In the view of some analysts, the crisis makes it even more urgent to hold the PCC Congress, which normally meets every five years to evaluate and lay down guidelines for solving the country's most pressing problems.

The Sixth Congress, postponed since 2002, had been announced for the end of this year. However, the party's Central Committee decided to postpone it until an analysis is carried out "with the entire population."

Meanwhile, a National Conference will be held at an as yet unspecified date, to elect the new leadership of the PCC, including the Central Committee, the Politburo and the Secretariat, which will be responsible for continuing and finalising preparations for the Congress.

The Secretariat was abolished in the early 1990s after the collapse of the Soviet Union and the socialist bloc, but was restored in 2006 to strengthen the structure of the PCC. Its role is to organise and ensure the fulfilment of the decisions of the party's highest authority, the Politburo.

Many current members of the Central Committee no longer occupy the posts they had when they were elected 12 years ago, at the Fifth PCC Congress in 1997, while the Politburo and the Secretariat are still headed by 83-year-old Fidel Castro, who has not appeared in public since 2006 for health reasons.

According to President Raúl Castro, who is Second Secretary of the PCC, the task that lies ahead for the Communist Party and the Cuban people is enormous, because it involves defining a socialist society that is fitted to the country's aspirations, and that can be built "in Cuba's present and future circumstances," as well as the economic model to be applied.

"In other words, Cuba must change over from an old model - called 'real socialism' - to one which really satisfies the needs of this country. I think Raúl is aware of this historic need, and is trying to make it happen," a former member of the PCC told IPS.

An academic source said the Cuban economic model has proved ineffective, and still resembles "in essence the Soviet model, based on state ownership of virtually the entire economy, and on centralisation of resource allocation and price setting.

"The failure of real socialism in Eastern Europe and the persistent inefficiency of our economy should prompt us to radically change our model. We should not debate our problems in isolation from what has happened in the rest of the world," said the economist, who requested anonymity.

The changes regarded as necessary by some academic sectors include transforming the management system within state enterprises, to allow workers to receive a greater share of the profits and give managers more independence in decision-making and price setting.

As well as changing the internal workings of state enterprises, the framework in which they operate should be changed, with regulation systems that permit greater autonomy and competition, and allow the market to fix prices. "The market is an objective tool, it just needs to be regulated by the state," the source said.

He also said it would improve the health of the economy to open up property ownership beyond the state monopoly. The private sector and cooperatives should extend their activities into services and small industries. And opportunities for foreign investment should also be expanded, for instance into the sugar sector, the researcher said.

In his view, "transformations should be conceived by studying the rest of the world, looking at the best international experiences, and taking as references, for example, the Chinese and Vietnamese models."

While he recognised that the Cuban economy requires a new approach, Presbyterian pastor Raimundo García told IPS that the "profound changes" needed in this country require, among other things, "that the PCC take on what should be its primary role, and stop being a second tier of government within the state."

The Cuban pastor said this implied that the political organisation should "become a centre for research and debate, in which, focusing on a common purpose, different opinions can be expressed by people representing the different spheres of society, including civil society.

"Unanimity is non-existent, as our president has often said, and in any case it would be bad for dialogue and decision-making," said García, who is head of the Christian Centre for Reflection and Dialogue (CCRD) in Cárdenas, 150 kilometres from Havana.

Article 5 of the constitution defines the PCC as "the highest leading force of society and of the state, which organises and guides the common effort toward the goals of the construction of socialism and progress toward a communist society." The party has some 850,000 members.

President Castro, speaking to parliament early this month, said he was elected to "defend, maintain, and continue to perfect socialism, not to destroy it," which clarified the context and scope of the changes and transformations that can be expected. However, he added that "it has to be the people, with the party at the vanguard, that decides." Some analysts take this as a hint that the future Sixth Congress may be preceded by another popular consultation, like the broad public debate carried out at neighbourhood and workplace meetings in 2007 to discuss Castro's landmark Jul. 26 speech that year.

According to President Castro himself, these debates produced 1,301,203 concrete proposals, just under half of which expressed criticism. "The results of that consultation have not been forgotten or discarded," said Castro, who also mentioned that it had been conceived as a "rehearsal, with the party's highest event in mind."

Among the many issues debated at those meetings were the dual currency system, the real value of wages, the deteriorating quality of the education system and public health services, and the limitations on self-employment and private initiative. (END)