Cuba’s new tax rules to boost transparency and revenue

HAVANA, Oct. 7 New tax regulations for Cuba’s budding private sector aim to improve transparency and curb tax evasion, according to officials.

Before the new rules take effect on Dec. 7, workshops are being held across the island for those in the private sector, small business owners and their employees, who have to abide by the new laws and the government officials who have to apply them.

The goal is not just to explain the changes in tax laws, but to stress how important the fledgling sector is to Cuba’s development as it tries to shrink a bloated public sector that was for decades the island’s sole employer.

In recent years, the numbers of Cuba’s self-employed, as those in the private sector are called here, has rapidly grown. Today, the sector employs nearly 600,000 people and is an important source of revenue for government coffers.

However, Cubans’ lack of experience with taxation led to lax bookkeeping and tax evasion. In response, the government ruled the self-employed must now open a fiscal bank account.

That is the single-biggest measure introduced by the new rules, according to Vladimir Regueiro, director of tax policy at the Ministry of Finance and Prices.

“The purpose of these accounts is for private-sector workers to have greater control over their incomes and also for the country’s tax authorities to operate in a transparent, safe, digital system,” Regueiro said on state-run television.

The law requires 80 percent of an earner’s income be deposited into the account. The remaining 20 percent can be paid in cash. Workers will have to file a tax return at the end of each year.

The new regulations had been expected since the government temporarily stopped issuing operating permits for some popular business categories last year, saying it needed to develop better rules for the fast-growing private sector.

The measures are the first major reform-oriented move taken by President Miguel Diaz-Canel since he was elected in April.

The new regulations also limit business permits to one per person, in a bid to encourage private enterprise without letting wealth become concentrated in the hands of a few.

“A person owning several businesses is far from the principles that sustain the approved policy of allowing limited private enterprise,” first deputy Labor minister, Marta Feito, told the press.

“Through this new policy, we aim to address problems, like small businesses using the black market, evading taxes and wealth concentration,” she said.

Many Cubans have taken advantage of the policy to establish small businesses, often in their own homes, such as restaurants, beauty salons, and bed-and-breakfasts.

The number of Cubans working in the private sector has nearly quadrupled to more than 593,000 since 2010, representing around 13 percent of the country’s overall workforce.

Cuba’s nascent private sector first appeared in 1994, following the collapse of the Soviet Union, which led to a severe economic crisis.

In 2010, as part of a broader set of political and economic reforms, former President Raul Castro approved rules allowing Cubans to open up their own businesses in some 200 different categories.