96. Cuba Announces New Tax Code for the Self-Employed

By Nelson Acosta, Reuter, October 25, 20101

Cuba has set income tax rates at 25 to 50 percent for its soon to be expanded private sector, with the biggest earners paying the most taxes, according to official decrees published on Monday.

The rates will range from nothing for those making 5,000 pesos -- equivalent to $225 -- or less a year to 50 percent for those in the highest bracket, which is more than 50,000 pesos, or $2,252.

The new tax rates came out in the Official Gazette as the government prepares to cut 500,000 workers from state payrolls and issue 250,000 new licenses for self-employment to create new jobs in President Raul Castro's biggest economic reform so far.

Those making more than 5,000 pesos will have to pay taxes, starting at a rate of 25 percent and rising from there as income increases.

The cash-strapped government is looking to the self-employed to increase tax revenues to help pay for expensive social programs such as free health care and education.

Last week the government, in a story in Communist Party newspaper Granma, warned that tax scofflaws "will feel the weight of the law imposed upon them by those mandated to enforce it, the National Tax Office."

The gazette, where the government publishes in thick legalese its new laws and decrees, is not usually a hot seller, but on Monday in Havana people could be seen lining up at newsstands to buy copies, then quickly leafing through them on the street.

INTEREST IN STARTING BUSINESSES

Many Cubans have expressed interest in opening their own businesses, with the hope of earning more than the country's $20 a month average salary.

Currently, about 85 percent of the country's labor force of more than 5 million works for the state. Castro, who took over from his ailing older brother Fidel Castro in 2008, wants to trim that number and cut costs.

As of the end of 2009, there were only 143,000 licensed self-employed, although thousands more worked for themselves illegally.

Reaction on the street to the thick decrees, which came out in two separate editions of the gazette, was mixed.

Antonio Soria, a shoemaker working for the state, said he intends to start his own business and views it as a chance to help both himself and the state.

"As a private shoemaker I can retire and have financial support for the future," he said.

"This is a way to contribute to the state's income. Remember that health care and education are free and now that we have the chance to have small businesses, we have to help the country."

Transport worker Ibrahim Fernandez said he supports the private sector expansion, but worried taxes will be too high to encourage small businesses.

"From what I've been able to understand, the topic of the licenses has a defect, which is that they are overcharging taxes. Very expensive, the taxes," he said.

In last week's Granma story, the government outlined a new tax code it said was friendlier to small businesses because while it requires new taxes, it also allows bigger tax deductions.

For the first time since Cuba nationalized small businesses in 1968, the self-employed will be able to legally hire workers.

The regulations issued on Monday said they would have to pay a labor tax amounting to 25 percent of the average salary for their work.

Additional reporting by Esteban Israel; Editing by Jeff Franks and Jerry Norton)