New tax code set up in Cuba

By Elsa Claro

HAVANA – Dawn comes to Cuba and with it the latest issue of the Official Gazette, containing the new tax code.

Readers consult one another, puzzled by the thick “legalese” language. Some turn to the daily Granma, which today (Nov. 21) carries a simplified overall description of the code. Some feel safe, others don’t.

Article 17 of Decree No. 308 lists the categories of personal income that will be taxable. Among them is a tax on wages (Paragraph g) but it turns out that, for the moment – and until the workers’ income improves – it will not be imposed.

Also temporarily suspended is the tax on home ownership, which affects 80 percent of the population. Those who own homes declared to be inhabitable because of storm or other damage are exempt altogether.

Also exempt from taxes are family remittances from abroad, pensions, retirement income and other revenues from social security and social aid; insurance payments and interest from savings accounts. People who are building their own homes at their own expense are also exempt, for five years.

The agricultural sector again benefits, and justifiably so, because its tax burden is smaller than other sectors’. The idea, of course, is that farmers will have an incentive to produce more food.

Among the advantages is a 2-to-4-year suspension of taxes on Personal Income, on Ownership or Possession of Agricultural Land, and on the Utilization of Labor Force, all applicable to those who cultivate state-owned farmland.

On the other hand, a tax is imposed on Idle Farm and Forest Land, a measure that doesn’t require clarification.

Along with other recently approved legislation, this law becomes effective in January 2013. It revokes more than 200 previous regulations because they weakened, rather than strengthened, the public coffers, as well as the country’s fiscal health.

Evidently, Cubans who earn more will have to pay more in taxes, as happens everywhere else in the world. The law covers all self-employed work, including “intellectual, artistic, manual and physical [labor] in general, whether it involves the creation, reproduction, interpretation and application of knowledge and skills” and private services and the leasing of homes and other buildings.

Also taxable are “dividends or shares in the profits of enterprises,” industrial work or services rendered.

That paragraph suggests an expansion of urban cooperatives to sectors of material production, beyond the gastronomic (restaurant) sector, which gains some advantages in this law. Interestingly, the taxes will be imposed in accordance with the characteristics of the territory. This means that the local governments will establish the tax rate according to the conditions or characteristics of the locale and that the income will go into the local governments’ budgets.

Citizens who are about to become self-employed will be exempt from taxation for the first three months of work, in terms of sales, services and the hiring of employees. The tax on the use of hired personnel by autonomous enterprises will be gradually reduced over five years, from 25 percent to 5 percent.

As explained by Granma, the State ratifies that the State  “exempts non-State workers, individual farmers and other natural persons authorized to hire personnel from taxes for the Utilization of a Labor Force if they hire no more than five persons.”

Introducing another novel proviso, Granma reports that “the Law broadens and simplifies the terms of payment for several taxes and increases the taxes involving the protection and conservation of the environment.”

Despite the fact that Cuba eliminated almost all taxes, leading citizens to reduce their contributions to a State that delivers extremely significant benefits, the private sector paid 900 million pesos [US$34 million] in taxes in 2011. This confirms that the openings in the economic model and the citizens’ sense of obligation to the nation’s budget are on the right track.

Like most other laws, the one that has just been published contains other ingredients and will certainly create new considerations.

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