Cuban Revolution: challenges and changes
By Dave Holmes
[This article and slideshow were presented as a talk to the Geelong branch of Socialist Alliance on October 6, 2010.]
Before we begin, let's get oriented by looking at the map of Cuba in the Caribbean. Cuba is almost 1200 kilometres long and very narrow (generally it is only about 100 kilometres across).
From Havana it is 175 kilometres across the Florida Straits to the island of Key West, the nearest part of the USA; Miami, the centre of so many counter-revolutionary plots, is 370 kilometres away. Jamaica and Haiti are close neighbours. And as the crow flies, some 2180 kilometres away is Caracas in Venezuela, where a revolutionary process is underway.
An inspiring revolution
For more than 50 years tiny Cuba (its population is currently about 11.25 million) has punched well above its weight in world politics. That's because it carried out an authentic socialist revolution and has ceaselessly fought to defend and extend it in the teeth of remorseless pressure from its giant neighbour.
The Cuban Revolution has been marked by its tremendous internationalism, the high points of which have been its armed intervention in Angola in support of the struggle against the South African apartheid regime and its unstinting medical aid to the Third World.
The Cuban Revolution has shown that a Stalinist bureaucratic degeneration is not inevitable. There are bureaucrats in Cuba but the Fidelista leadership has largely managed to contain this danger by its constant vigilance, mass campaigns and appeals to the people.
Revolution faces biggest challenge
Today the Cuban Revolution arguably faces its biggest challenge. It is confronting severe economic problems. There appears to be a growing bureaucratic danger, an alarming growth of corruption, widespread popular recourse to the black economy in order to survive and a growing social differentiation among the population.
What makes all this even more challenging is that the historic generation which led the original revolutionary process is slowly passing from the scene. The imperialists (and more than a few people on the left) are convinced that the passing of Fidel and Raul will signal the collapse of the revolution.
In this talk I want to present this crisis in its context, to explain where it comes from, the current situation in broad outline and what changes the Cuban government is proposing.
Enormous external pressures
Whatever weaknesses that exist and mistakes that may have been made, the key background to Cuba's current economic woes is the absolutely enormous external pressures bearing down on them — pressures of this magnitude would have destroyed any other country.
Foremost among these is the US blockade. Begun in 1960 after Cuba nationalised US enterprises, it is all-encompassing. As Cuban foreign minister Bruno Rodriguez Parrilla recently described it, the blockade is an "economic, commercial and financial siege that has lasted half a century".
A report prepared to be presented to the next session of the UN General Assembly puts the direct economic cost of the blockade to Cuba at US$750 billion. To put this figure in perspective, it is approximately seven times Cuba's current GDP of $110 billion! That is, the blockade has cost Cuba seven years of development!
We might well wonder where would Cuba be today if there had been no blockade.
The innumerable bourgeois commentaries on Cuba's economic problems rarely dwell, if at all, on the impact of the blockade. The imperialists and their flunkeys go on about how socialism doesn’t work but make absolutely no acknowledgement of their own — far from insignificant — contribution to Cuba’s problems!!
Collapse of USSR
Almost from the start, the Soviet Union's support for Cuba was hugely important to its survival. For instance, the USSR bought Cuba's sugar and citrus crop at preferential (i.e., fair trade) prices and supplied oil and other aid in return.
Of course, Cuba was negatively influenced by various Soviet ideas and practices but if it had not had Moscow's backing it might not have survived.
The 1991 collapse of the USSR meant Cuba immediately lost 80% of its exports and imports. This ushered in a desperate struggle for survival — literally. GDP fell by a third. People almost starved. These years are called in Cuba "the special period in time of peace". The worst time was the early to mid-nineties.
Today, living standards on the island are still below the 1989 level.
If all this were not enough, in 2008 Cuba was severely affected by climate change. Three hurricanes — Gustav, Ike and then Paloma — pounded the island, causing around $10 billion of damage.
Ike was the most destructive hurricane in Cuba's history. The nickel plants were damaged, crops were hit. The already bad housing situation was seriously worsened; hundreds of thousands of homes were destroyed and a great many dwellings remain in dire need of repair.
And on top of the devastating hurricanes, Cuba is in the grip of drought. Although Cuba is normally lush and wet, in the face of climate change that doesn't mean what it used to. The country's water storages are currently only about 40% full and the population is being urged to save water. In 2004 a severe drought hit agriculture hard in the east of the island.
Collapse of nickel price
Cuba is a major world supplier of nickel and cobalt. It has a third of the world's proven reserves of nickel, which is essential in the production of stainless steel and other corrosion-resistant alloys. Cuba also produces about 10% of the world’s Cobalt, a critical metal in the production of high-performance alloys.
In April 2007 the price of nickel reached $52,000 per tonne but at the end of 2008 it had crashed to about $9000. It has since climbed back to around $20,000. In 2007 nickel brought in $2.8 billion and was Cuba’s leading export earner but this figure fell to $1.5 billion in the following year.
Cuba's nickel is sold mainly to Canada, China and the Netherlands. (The Canadian multinational Sherritt operates a big nickel plant as a joint-venture with the Cuban government.)
Development of tourism
Tourism has developed massively in the last two decades and in 2009 some 2.4 million holidaymakers visited the island. Tourism earns the country about $2 billion per year although receipts dropped 12% in 2009 due to the global financial crisis (the number of visits held up but stays were shorter and less money was spent).
Most of the hotels and resorts are joint ventures between Spanish and Canadian operators with the Cuban government.
However, important as tourism is to the national economy, it also brings with it some very serious problems. Especially worrying is the social differentiation which results as some Cubans have access to higher earnings and foreign currency (tips, payments in kind, selling services and goods to tourists). Prostitution has also staged a certain comeback, although it cannot be compared to either the past or to other Latin American countries.
Tips of tourism workers are meant to be handed over to the state but this is probably unenforceable.
The importance of nickel and tourism as export earners takes place against a backdrop of the decline of the once mighty sugar industry. Production was 8 million tons before the collapse of the USSR, the projection for 2010 is only 1.2 million tons. The government is trying to attract foreign investment.
The development of the revolutionary process in Venezuela has been a life-saving boost for Cuba. Apart from the enormous lift in morale — the feeling that they are no longer alone — there have been very material benefits.
Venezuela is now Cuba's main source of imports (31% in 2008). The special relationship with Venezuela has also meant credits for projects at low interest rates and various joint ventures.
Cuba has sent tens of thousands of health workers to Venezuela (in 2006 the figure reached 33,000) and these have been vital in enabling the key medical "mission" Barrio Adentro to get off the ground.
Cuba is also helping to train Venezuelan doctors and thousands of Venezuelans have received surgical treatment in Cuba (50,000 got free eye surgery in 2005). In return Cuba gets vital oil cheaply from Venezuela.
A fibre-optic cable is being laid from Venezuela to Cuba via some other island countries. When this is finished Cuba will at last have access to cheap high-speed internet connections. (At the moment Cuba pays a Canadian company through the nose for a slow connection.)
China-Cuba relations growing
Developing economic relations with China has also been very important. China has supplied Cuba with buses and trains and household goods, it has provided long-term credits and takes a significant amount of Cuba’s nickel output. China is also playing a role in helping Cuba prospect for oil offshore.
Having a trade relationship with China is very important in offsetting the US blockade. China is simply too big to be pushed around by Washington.
Current economic situation
Here are some basic facts about Cuba's economic situation:
1. Between 2001 and 2003, the Cuban economy grew at an average annual rate of 2.9%; between 2004 to 2007, the figure was 9.3%. In 2008 GDP growth dropped to 4.1% and in 2009 to 1.4%.
2. Cuba's earnings from the export of goods have been hard hit by the fall in commodity prices — primarily nickel (40% of total exports in 2009) but also sugar (13%).
3. At the same time the cost of key imports (fuel and food) has risen significantly. As a result, Cuba's balance of payments for the export and import of goods is heavily in deficit — in 2009 it was $6.5 billion.
4. This deficit is only balanced by the massive export of services. This is made up of tourism receipts ($2.2 billion gross in 2007) and payment (mainly from Venezuela) for the provision of medical personnel (estimated at over $5 billion in 2007). One inescapable problem of this heavy reliance on the export of services is that it is largely dependent on factors outside Cuba's control, i.e., Chavez and the Venezuelan revolutionary process and the vagaries of the tourism market.
5. Another very important source of hard currency is remittances from Cubans living abroad, mainly in the US. These are estimated at $600 million to $1 billion annually. The downside, however, is that the remittances create a division between those Cubans who have access to them and those who don't.
6. Food comprises a large part of Cuba's imports (17% in 2009). 70% of its food is imported. In 2008 it spent $2.2 billion on importing food — 567,000 tons of rice and 246,000 tons of dried beans cost it $700 million. Replacing expensive imports with locally produced food is a major objective of the Cuban government. A big part of this is to encourage more people to take up farming and make the conditions of agriculture much more attractive.
7. At the beginning of 2009 a crisis in servicing its foreign debt ($19.5 billion) led the government to freeze around $1 billion in the bank accounts of foreign firms. A lot of these funds are still frozen.
Cuba has a two-tier currency system, designed to impose a hefty tax on all foreign currency brought into the country, whether by tourists, remittances or business.
There are ordinary pesos and convertible pesos (CUCs). All foreign currency has to be converted in CUCs. US dollars attract fees and taxes of about 20%; other currencies only 10%.
There is a network of special shops ("dollar shops") selling all sorts of goods at much higher prices. These stores take only convertible pesos.
This system is very unpopular with those ordinary Cubans who have no access to CUCs. The government has pledged to eliminate the CUC and has made a small start this year.
Eighty-eight per cent of Cuban workers are employed by state. Only 12% work in the private sector (private farmers, artists) — this includes 142,000 self-employed (less than 3% of total workforce).
The average wage in Cuba is about $20 per month. However, there are no taxes on this income, healthcare and education are free, people own their homes or pay a only a very small rent to the state.
In addition there is the libreta, the ration system. In place since 1962, the libreta allows everyone to purchase from list of basic commodities at subsidised prices.
But today the ration only covers about half the month. Furthermore, over the last few years it has been reduced. For instance, last November potatoes and peas were removed from the libreta. Previously Cubans could buy 4 pounds of potatoes per month at about 1 cent per pound. Now they can buy as much as they like but at 5 cents per pound.
The government simply cannot afford to keep the libreta going as before and there is even talk of phasing it out completely.
The net result of inadequate wages and pensions and the inadequate libreta is that most people are forced to supplement their income with various kinds of activities.
Social inequality is growing as some people are better placed, that is, their jobs enable them — one way or another — to more easily get precious CUCs.
The black (non-official) economy encompasses a whole range of activities, from the largely harmless to the seriously criminal and everything in between. There is a very informative study on this by Canadian academic Arch Ritter (although he is very anti-Fidel).
Some examples include: Selling homemade crafts to tourists, selling homemade food on the street; paying extra or bribes to get scarce goods or services; stealing goods from the state and selling them; using a state car as a private taxi; selling jobs in the lucrative tourist sector with prized access to dollars (tips and services).
A 2007 study by the Communist Youth (UJC) found that more than 282,000 young people in Cuba neither worked nor studied; a lot of these are concentrated in Havana. Obviously they get by one way or another. But such facts cause great popular resentment and undermine social morale.
Mere prohibitions and increased vigilance by police and law enforcement bodies won’t solve the problem of the black economy when weighty economic realities are driving people towards it en masse simply to survive.
Raul Castro argues for reform
On April 4, 2010 Raul Castro addressed the congress of the Communist Youth League (UJC). He set out the main considerations behind the reforms which have been announced throughout the year:
Today, more than ever before, the economic battle is the main task and focus of the ideological work of the cadres, because the sustainability and the preservation of our social system rest upon this work.
Without a sound and dynamic economy and without the removal of superfluous expenses and waste, it will neither be possible to improve the living standard of the population nor to preserve and improve the high levels of education and health care ensured to every citizen free of charge.
Without an efficient and robust agriculture that we can develop with the resources available to us — without even dreaming of the large allocations of times past — we can’t hope to sustain and increase the amount of food provided to the population, that still depend so much on the import of products that might be cultivated in Cuba.
If people do not feel the need to work for a living because they are covered by excessively paternalistic and irrational state regulations, we will never be able to stimulate a love for work nor will we resolve the chronic lack of construction, farming and industrial workers; teachers, police and other indispensable trades that have steadily been disappearing.
If we do not build a firm and systematic social rejection of illegal activities and different manifestations of corruption, more than a few will continue to enrich themselves at the expense of the labour of the majority, while spreading attitudes that directly attack the essence of socialism.
If we maintain inflated payrolls in nearly every sector of national life and pay salaries that fail to correspond to results achieved, thus raising the amount of money in circulation, we cannot expect prices to cease climbing constantly or prevent the deterioration of people’s purchasing power. We know that the budgeted and business sectors have hundreds of thousands of excess workers; some analysts estimate that the surplus of people in work positions exceeds one million . . .
In summary, to continue spending beyond our income is tantamount to consuming our future and jeopardizing the very survival of the revolution.
There are a number of key points to the reform plan:
1. 1 million workers are to be cut from the state payroll over five years; half a million by next March.
2. Many smaller state enterprises in light industry and agriculture are to be converted to worker cooperatives so hopefully a lot of workers will remain in their current workplaces but under different ownership and remuneration arrangements.
3. 178 occupations are now open to private enterprise; in 83 of these owners can hire workers other than relatives.
4. Previously announced agricultural reforms aim to make farming easier and more attractive: land is freely available in usufruct to those who want to farm; purchases of equipment and supplies is to be localised and made easier; produce prices raised; restrictions on selling are to be significantly eased.
5. An essential corollary of this is that the tax system is to be revamped so that the government can profit from all the increased private activity — without, of course, killing it off.
Reforms: aims and risks
The economic reforms have a number of interrelated objectives:
1. To trim the state payroll and increase the productivity of the state sector.
2. To increase economic efficiency by stimulating people's self-interest.
3. To draw people out of the black economy into open legal economic activity which can be regulated and taxed.
4. To increase make Cuban agriculture a lot more productive, increase food production and reduce or eliminate the huge food import bill.
5. To make daily life less stressful by making things easier: having services that work, food readily available.
6. Obviously, along with the reforms, the state will need to significantly raise wages and pensions.
There are very real risks. We know that the market always creates inequality and a stronger petty-bourgeois layer. There will need to be a strong regulatory and tax regime. Of course, bourgeois critics — and Cuba has whole armies of them — never worry about such things: the right to exploit and profit is presumably an inalienable human right.
However, despite the risks, Cuba has no real choice. It is trying to establish a clear framework so that it can improve the country's economic performance and maintain all the gains of the revolution.
Bureaucracy and corruption
Over the past year or so there have been a number of very disturbing incidents which show there are some real problems in the party and state apparatus. But they also show that no one, even the most high-ranking officials, is unaccountable or above having to answer for their actions.
Top leaders dismissed
In March 2009 a number of central leaders were dismissed from their state and party posts for serious errors. Most prominent among them were Carlos Lage Davila, Politiburo member and effectively Cuba's prime minister since 1986, and Felipe Perez Roque, Central Committee member and foreign minister.
According to a June 29, 2009 Inter Press Service article:
Raúl Castro’s moves were aimed at eliminating "test tube" leaders — a term that refers to young people who leapt from youth organisations to powerful positions — and at putting an end to parallel structures of power in order to strengthen the country's institutions ... Disloyalty, erratic behaviour, dishonesty and abuse of power are the main charges against those involved ... 
Lage and Perez did favours for Lage's lifelong friend Conrado Hernández and talked with him far more freely than they should have. Hernández was a representative for Basque businesses in Cuba. He was also an informant for Spanish intelligence (CNI). Through him the CNI made recordings of Lage and Perez slagging off Fidel, Raul and other top leaders.
Lage had ambitions to the post of first vice-president of the Councils of State and Ministers, which was instead given to José Ramón Machado Ventura in February 2008.
In one of his periodic "reflections" touching on the affair, Fidel said that "the sweet nectar of power for which they hadn’t experienced any type of sacrifice awoke ambitions in them that led them to play out a disgraceful role. The enemy outside built up their hopes with them."
Reportedly, Lage now works as a pediatrician, Perez as an electrical engineer.
In fact, a large part of the Cuban cabinet was replaced in the first part of last year, either for being too close to foreign business or being ineffective in dealing with corruption.
In April 2010 the head of the Civil Aeronautics Institute of Cuba, General Rogelio Acevedo, was dismissed. As a teenager he had fought in the Sierra Maestra and was a veteran of the war in Angola.
He and/or people in his department sold space on Cuban airliners to foreign companies and kept the proceeds for themselves. Apparently, they even planned to buy a plane themselves for several million dollars to cater for their growing business. The ripples of the investigation have spread wider and wider.
Inspection department set up
In August 2009 a Comptroller General's Department was established. Its charter is to monitor government departments and crack down on corruption. The current Comptroller General is Gladys Bejerano Portela.
An inspection department like this is obviously needed but is only part of the solution to a problem with deep roots. Hopefully if the new reforms work and the material situation of the population eases, some of the pressures promoting corruption will also ease. But of course a lot of corruption seems to take place where foreign companies interact with Cuban entities and that is not going to change.
In a widely noted speech in 2005 Fidel warned that while the revolution could not be overthrown by external intervention, it could be undermined from within — by corruption and the spread of a self-seeking culture in the apparatus.
Esteban Morales affair
In April this year, 68-year-old academic and longtime Communist Party member Esteban Morales was expelled from the party because of an article he wrote — "Corruption, the True Counter-Revolution". Here are some passages:
When we closely observe Cuba's internal situation today, we can have no doubt that the counter-revolution, little by little, is taking positions at certain levels of the state and government.
Without a doubt, it is becoming evident that there are people in positions of government and state who are girding themselves financially for when the revolution falls, and others may have everything almost ready to transfer state-owned assets to private hands, as happened in the old USSR ...
... corruption is a lot more dangerous than the so-called domestic dissidence. The latter is still isolated; it lacks an alternative program, has no real leaders, no masses. But corruption turns out to be the true counter-revolution, which can do the most damage because it is within the government and the state apparatus, which really manage the country's resources.
He refers to the Carlos Lage and Perez Roque cases as well as Rogelio Acevedo. He stresses that the US and other intelligence services are keenly studying what happens in Cuba:
They're looking for confirmation for the words of the commander-in-chief, watching closely what happens every day in Cuba, digging into everything that may allow them to find out where is the real counter-revolutionary force in Cuba, a force that can topple the revolution, a force that appears to be not below but above, in the very levels of government and the state apparatus.
The alarming thing is that this trenchant antibureaucratic polemic from the left got its author expelled from the party. Morales appealed but this was rejected. What is going on? This is hardly a good sign. It can only serve to intimidate those Communist Party members who want to raise real concerns.
In March 2003, 75 people were jailed as paid US agents. From that moment on they were 75 "political prisoners" to the West and its media. Most have now been released, the latest batch were freed in July and went to Spain — where a number of them subsequently complained that the authorities seemed to have lost interest in them!
Another manufactured "prisoner of conscience" was Orlando Zapata Tamayo who starved himself to death in prison in February. He was not a political prisoner but had been jailed for fairly serious criminal acts. Cuban doctors did everything possible to save his life (as acknowledged by his mother). But he was hailed by Washington and the European Union as a "political prisoner". (A trenchant article by French academic Salim Lamrani sets out the issues.)
Party congressThe Communist Party congress (the last one was held in 1997) was to have been held in November 2009 but at the Central Committee meeting in August 2009 it was postponed without any new date being set. As Raul said: "Because of the laws of life, this will be the last [congress] led by the historic leadership of the revolution."
The reason given for the postponement was the need to decide on how to tackle the problems of the economy. Also, arrangements for the post-Fidel and Raul era will have to be finalised and all this needs more preparation.
Transition of leadership
The leadership generation that led the original revolution is slowly passing from the scene. They have fought world imperialism without flinching for over 50 years but they can't defy the laws of physiology.
There are many people on the left who think that when Fidel and Raul gone and if the embargo is lifted, the Cuban Revolution will be finished. I don't think this is anything like a certainty; there are many possibilities. There is a significant part of the population which fervently believes in the revolution and will fight to preserve it. But it is undeniable that Fidel has played an historic role. He has been an enormous factor in the equation of the struggle, just like Lenin before him.
The leadership transition that has been going on for some time is critical. A number of "test-tube communists" who looked very good for a while revealed fatal weaknesses. Hopefully, this is a relatively limited phenomenon and the Communist Party will push forward the leaders that the hour demands.
A useful chart and review showing the personnel making up the central Cuban party and state bodies as of April 16, 2009 has been prepared by the Open Source Center, a US government intelligence body. Since this was published there have been some changes due to death (e.g., Juan Almeida), change of responsibilities or sacking (e.g., Rogelio Acevedo).
Imperialism will never be reconciled to the Cuban Revolution. The reason is simple. Notwithstanding all its problems, Cuba shows what a socialist revolution can do. It is a constant negation of the madness of capitalism, a demonstration to the Third World — and not only it — that there is indeed an alternative path of development, that it is possible to build a society which really does put people’s needs first.
George Bush set up his Cuba "transition office" to plan for the restoration of the "free market" once the revolution has been overthrown or collapsed. Obama is less crude but we can be absolutely sure the US is still plotting and scheming to effect regime change in Cuba.
As Esteban Morales pointed out, the imperialists are undoubtedly counting on the internal weaknesses of the revolution. They hope that the current forced turn to the market will provide openings for capitalism.
And imperialism will keep banging on about human rights in Cuba. Considering the record of the United States, both at home and abroad, this is hypocrisy on a truly cosmic scale!! But with the media behind you, mere facts don't present any insurmountable obstacle.
Revolution still fighting
The Cuban revolutionaries will struggle no matter what. But as we know, there is no socialism in one country and Cuba's future is tied up with development of the international struggle — particularly with the progress of the revolution in Latin America.
That said, making the necessary reforms at home remains vital to easing some of the most pressing problems bedevilling Cuba and giving it a much needed breathing space.
It is also important to understand that if the Cuban Revolution has its problems so does the other side. US imperialism's quest for world domination has not been going so well lately ...
Ever since 1959 the Cuban Revolution has been a tremendous example and inspiration to the revolutionary and progressive forces around the world. It has shown the power of the people united behind a revolutionary leadership. It has shown that bureaucratic degeneration is not inevitable, that the danger of Stalinism can be contained. And in an historically unprecedented way, Cuba's medical aid abroad has shown what human solidarity is capable of.
The Cuban Revolution is our revolution too and we should do everything we can to spread the truth and support it.
- See "US Blockade Causes Billions in Losses to Cuba".
- Cuba’s GDP at the official exchange rate is US$56 billion but calculated at PPP (purchasing power parity) it is $110 billion according to the CIA website at https://www.cia.gov/library/publications/the-world-factbook/geos/cu.html.
- For some basic facts on the Cuban economy see http://www.traveldocs.com/cu/economy.htm.
- See http://www.cubasource.org/pdf/economic_illegalities.pdf#search=.
- Patricia Grogg, "The Challenge of Boosting Productivity", Inter Press Service, April 30, 2008, http://ipsnews.net/news.asp?idnews=42191.
- See http://machetera.wordpress.com/2010/04/05/raul-castros-address-to-cubas-young-communist-league/.
- See http://ipsnews.net/news.asp?idnews=47421.
- See http://www.juventudrebelde.co.cu/cuba/2009-03-04/healthy-changes-in-the-council-of-ministers/.
- See http://www.havanatimes.org/?p=22348.
- See http://progreso-weekly.com/2/index.php?option=com_content&view=article&id=1589:corruption-the-true-counter-revolution&catid=36:in-cuba&Itemid=54.
- See http://www.voltairenet.org/article164489.html#article164489.
- See http://www.france24.com/en/20090801-raul-castro-postpones-key-communist-party-congress-.
- See http://www.fas.org/irp/world/cuba/chart.pdf and http://www.fas.org/irp/world/cuba/overview.pdf.
By Associated Press | Friday, October 22, 2010 | http://www.bostonherald.com | Americas
HAVANA — Cuba has laid out details of a sweeping tax system for the newly self-employed — a crucial step in the socialist state's plan to convert hundreds of thousands of state workers into self-employed businesspeople.
The tax code described in a two-page spread in the Communist Party newspaper Granma will have many Cubans paying more than a third of their income to the state, while those who create businesses and hire their own employees will pay more.
Cuba announced last month that it was laying off half a million state workers — nearly 10 percent of the island's work force — while opening up more avenues for self employment.
At times, the article reads like a children's lesson for a population with little experience at entrepreneurship — and almost none with the concept of taxes. It also offers a detailed peek at a mix of levies that would be complicated even for an accountant.
Throughout, there is an attempt to soften the blow by explaining that no government can provide services without revenue.
"Perhaps because Cubans are used to receiving medical care without taking a penny out of our pocket, or studying for free at any educational center we want, few stop to ask where the money the state uses for this comes from," the article reads.
Those selling goods and services will pay a 10 percent income tax monthly, as well as another 25 percent into a social security account, from which they will eventually draw a pension.
Those who hire employees also will also have to pay a 25 percent payroll tax. The article says taxes will rise for successful businesses with many employees, but does not give details.
"The tax has a regulatory character in order to avoid a concentration of wealth or the indiscriminate use of the labor force," the article says. "The more people hired, the higher the tax burden."
Anyone making more than 50,000 Cuban pesos ($2,400) a year will have to open a bank account and keep detailed books — perhaps creating a market for the private accountants who will be allowed under the economic reforms. Those who earn less need only maintain a list of income and costs. Most Cuban state workers make about $20 a month.
The article says people in some forms of self-employment will be exempt from the 10 percent tax and instead will pay a fixed amount each month, regardless of what they make. It does not say which jobs will be eligible for this approach, however, nor say how much tax workers will pay. These workers will also be obligated to pay the social security tax.
The reforms are an effort to breathe life into a dormant socialist economy that can no longer afford to provide free or nearly free health care, education and basic food to its population. They are the most significant adopted by the communist government since at least the early 1990s.
The new system borrows many aspects of capitalism, while keeping in place Cuba's state-dominated control of the economy. Citizens will be allowed to apply for licenses to work for themselves in just 178 areas, from car maintenance to rabbit farming, accounting to circus clown.
Re: AP: Cuba gives details on new tax system
Posted by: "NPV"
Date: Fri Oct 22, 2010 12:28 pm ((PDT))
The Associated Press does not know that the tax code has been in effect since 1994!
Anyone who wishes to find ALL the legislation on such matters can simply go to: http://www.mfp.cu/legi.htmlREUTERS: Cuba unveils new tax code for small business
Date: Fri Oct 22, 2010 2:27 pm ((PDT))
Cuba unveils new tax code for small business
By Marc Frank
HAVANA (Reuters) - Cuba unveiled on Friday a new tax code it said was friendlier for small business, signaling authorities are serious about building a larger private sector within the state-dominated economy.
The new system, outlined in the Communist Party daily Granma, greatly increases tax deductions, but also adds taxes and comes with a warning of stiffer enforcement of tax collection.
It replaces a rudimentary tax code in place since 1994 when some self-employment was first authorized but then squeezed by severe regulation.
The tax redesign comes as the government has begun slashing 500,000 workers from state payrolls and preparing to issue 250,000 self-employment licenses to create new jobs in President Raul Castro's biggest reform since taking office in 2008.
He promised economic change when he replaced ailing older brother Fidel Castro and is pushing to boost productivity to help the Caribbean island's troubled economy.
There were just 143,000 self-employed in 2009, according to official figures.
The new tax system enables the self-employed to deduct up to 40 percent from income for the cost of supplies, compared to just 10 percent under the old one.
Formerly, small businesses simply paid a graduated income tax. Now they will also have to pay a 10 percent sales tax and 25 percent social security tax, but both are deductible at the end of the year.
Castro's reform permits the self-employed, for the first time, to hire workers. They will have to pay a 25 percent social security tax for each employee, which will also be deductible, and an undefined labor tax.
ENFORCING SOCIALIST PHILOSOPHY
The Granma story made clear that despite the development of a larger private sector, the government's socialist philosophy remains in place and the labor tax is a way of enforcing it.
"This tax is regulatory in character to avoid concentrations of wealth and indiscriminate use of labor," Granma said.
"The more labor hired the more severe the tax," it said, without providing details.
The Granma story warned that those who are illegally self-employed must obtain a license and said tax scofflaws would face legal action.
"Those who continue working on their own without papers, or do not pay the required taxes, will feel the weight of the law imposed upon them by those mandated to enforce it, the National Tax Office," it said.
Cuba expert Phil Peters at the Lexington Institute in Arlington, Virginia said the new code is an attempt to simplify taxes for small businesses and make sure those taxes are paid.
"My bet is that the sector will grow substantially, but only time will tell how big a tax burden this will be and how many entrepreneurs will be able to live with it," he told Reuters.
The government, which took power in put in a 1959 revolution headed by Fidel Castro, controls about 90 percent of the Cuban economy.
Most small businesses remained in private hands until 1968 when they were all nationalized, down to the shoe shine shops.
The reforms, announced last month, turn back the clock to some degree on the sweeping nationalization.
Along with being able to hire employees, the self-employed will for the first time be able to do business with the state, open bank accounts, receive credits and rent space.
The goal of these changes, Granma said in a story last month, was to "distance ourselves from those conceptions that condemned self-employment almost to extinction and stigmatized those who decided to join it, legally, in the 1990's."
At present, more than 85 percent of the Cuban labor force, or over 5 million people, works for the state, many in unproductive jobs. The government has said it ultimately plans to cut a total of one million state workers, or 20 percent, from state payrolls.
Along with private sector development, many state-owned retail operations will be converted to employee-run cooperatives and leasing arrangements the government said.
(Editing by Jeff Franks and Jerry Norton)
BLOOMBERG: Cuba Lays Out Tax Rules for Entrepreneurs
Date: Fri Oct 22, 2010 2:31 pm ((PDT))
By Blake Schmidt - Oct 22, 2010 Cuba vowed to crack down on self- employed tax evaders as the government laid out new tax regulations as part of a "redesign" of the economy that will allow more private enterprise.
The Communist Party newspaper Granma said the new tax rules are aimed at "avoiding concentration of wealth." It based its information on interviews with tax officials including deputy director of the tax administration, Vladimir Regueiro Ale.
The government of President Raul Castro last month announced it will dismiss 500,000 state workers by March, affecting 10 percent of the workforce, as the island faces its worst economic slump since the former Soviet Union ended support in the 1990s. Those dismissed are being encouraged to go into business for themselves, and Granma said the central bank may offer micro-credits to new entrepreneurs.
Self-employed in most of the 178 newly authorized fields, ranging from wine makers to public bathroom janitors, will pay a new monthly tax quota set by the Finance Ministry, the newspaper said, without giving further details. The quota tax will supplement municipal budgets.
Others will be expected to pay income tax, social security, and sales tax. Employers will pay an additional tax for contracting workers, the newspaper said.
"With implementation of the new regulations and strengthening of tax collection controls, `undocumented' workers or those who do not pay what is owed will submit to the power of the law," Granma said.
President Castro, 79, has initiated measures to open the economy, including loosening of property laws and controls prohibiting private enterprise such as taxi and mobile phone companies, since his brother Fidel began handing over power in 2006.
Havana. October 22, 2010
Leticia Martínez Hernández and Yaima Puig Meneses
ALMOST all of us have paid taxes at some point in our lives. However, it is not always clear how we pay them, where they go or the mechanisms used to collect them. And it is a fact that, even though we daily check figures and accounts in order to balance domestic expenses, the Cuban population knows little about concepts such as taxes, rates or contributions.
Maybe because Cubans are so accustomed to receiving medical care without spending a cent, or studying free of charge in any educational center, few people stop to think where the money used by the state to offset these costs comes from.
For example, more than 25% of the social budget, which covers the totality of resources directed to this sector, goes to the education system; the social security budget for this year was set at $4.9 billion pesos, fundamentally for pension and retirement payments. So, who foots the bill?
"Taxes are the state’s principal source of income for covering those costs," Vladimir Regueiro Ale, deputy director of the National Taxation Administration Office (ONAT), informed Granma daily. Contrary to what many compatriots assume, tax collection has no relation with repressive measures or sanctions; requiring them is necessary to the financing of extensive social budgets.
"Nor is charging taxes necessarily a negative mechanism of a social regime. What differentiates one regime from another is fundamentally the utilization that each one makes of its financial resources," he affirmed.
The passing of a taxation law in Cuba in 1994 demonstrated the value of charging taxes as a form of financial redistribution and a contribution to the state budget. Moreover, tax contributions regulate, order and make viable many of the solutions required by society.
Many people still assume that only self-employed workers have to pay taxes. However, the Taxation Act includes 11 taxes, three rates and one contribution, all of which are paid by individuals, companies and other agencies.
"One tax that is paid and which people are often unaware of is that of the tax on documents, made via the purchase of a fiscal stamp. This stamp is used to legalize documents, certificates, legal papers or for obtaining licenses. Companies also pay taxes, one of them is on profits earned during the fiscal year," Regueiro Ale explained.
When the new regulations comes into effect, in addition to the tax on personal income, all self-employed workers will pay others taxes established in the 1994 legislation as part of the current reordering of the economy.
On the other hand, certain "cuentapropistas" (self-employed persons) operating under the "shadow of transgression," are not contributing a single centavo to the state budget but paradoxically, are rarely sanctioned.
With the implementation of the new regulations and the consequent strengthening of collection controls, those people who continue operating "without papers" or who, "with papers," do not pay what they should, will be subjected to the full force of a law that has to be met by those mandated to demand it: the National Taxation Administration Office, as well as municipal and provincial labor offices and other institutions related to self-employed activities.
Collecting taxes and awareness of them are fundamental elements within the country’s new economic scenario. In addition to being required by the competent authorities, it is essential that those obliged to pay them thoroughly understand the importance of their collection so that the state, even in the present difficult economic circumstances, can continue to guarantee a range of services including education, public health, culture, sports and social security.
Beyond being an administrative measure, it is also about creating a tax culture that will clarify doubts, taboos, erroneous concepts… to ensure that payments corresponding to each tax are no longer a problem and are paid regularly.
THE SELF-EMPLOYED, CLEAR ACCOUNTING
In expanding the self-employed sector in Cuba in line with the current economic situation, those people who incorporate themselves into any of the authorized activities, will make social security contributions in the case of not having any work connection with the state sector or not receiving any benefits from it. They are also obliged to pay taxes on sales or public services and on personal income, this last now modified with the objective of fulfilling the principle of contributions based on real economic capacity.
Self-employed persons hiring workers will pay an employees tax, as Meisi Bolaños Weiss, deputy minister of finance and prices (MFP), informed Granma.
According to the MFP resolution establishing the tax regime for the self-employed sector, those working within it will pay their taxes and social security contributions in pesos (CUP), regardless of the currency in which they are operating. Those marketing their goods or services in convertible pesos (CUC) will have to pay their contributions in CUPs, in line with current exchange rates in the CADECAS (Cuban currency exchanges).
A simplified regimen has been established for less complex activities – 91 of the 178 authorized – consisting of a consolidated monthly rate that does not include social security contributions. This also implies that people undertaking these activities do not have to produce a sworn declaration to complete their tax returns at the end of the fiscal year. This regimen is limited to those undertaking only one activity and not hiring a workforce.
However, those people working in activities that generate higher and/or more complex incomes are required to present their income tax returns at the end of the year via a sworn declaration. This is calculated on income obtained throughout the year, from which up to 40% can be deducted for expenditure, in line with the types of activities involved. Taxes paid during the year to cover the other three contributions mentioned will also be discounted.
Officials at the MFP explained that the revised taxation scheme still includes payment of a monthly anticipated tax on earnings, whose minimum rate – which has been brought up to date in the new regulations – is set by this Ministry and can be increased by the Municipal Administration Councils.
On that basis, at the end of the fiscal year, income of up to 5,000 pesos will be exempt from personal income taxes. Those with a higher level of income will be subject to a progressively higher rate.
The rate for taxes on goods and services is 10% of income received. It is to be paid monthly on the basis of revenues from the previous month.
The tax on hiring a workforce is set at 25% of the wages paid to the persons contracted. For the purpose of calculating this tax a minimum wage is considered at 1.5 times the average wage in the province in which the activity is undertaken, taking into account data made public by the National Statistics Office for the previous year.
This tax has a regulatory nature to avoid concentrations of wealth or the indiscriminate use of a workforce. The more people hired, the higher the tax contribution.
On the other hand, persons with an annual income of more than 50,000 pesos are obliged to keep a simplified accounting system and to open a bank account. Meanwhile, those whose income is lower than that figure will keep a register of income and expenditures.
It is worth noting that income obtained from taxing self-employed workers will be channeled into municipal budgets, thus contributing to economic development in local areas, according to Octavio Beltrán, provincial director of finance and prices in Guantánamo province.
"It is nothing new for revenues to remain within the municipality. That has always happened, but it was a small sum. This practice attempts to foster the collection of these taxes and find formulas which, within established regulations and with a rational use of resources, will allow sustainable local development in the municipalities," he explained.
As mentioned above, self-employed workers with no work connection with the state sector and who are not receiving social security benefits must join a special social security authority as an essential requisite for working in this sector. Contributions are to be paid quarterly and calculated each month, applying the 25% base rate selected from the scale.
Future pension totals are dependent on the base contribution selected and will amount to approximately 60% of the base. This social security authority provides protection in old age, for disability – temporary or permanent – maternity benefits and – in the case of death, family benefits. Accumulated service time will be recognized in the case of workers coming from the state sector to complete the 30-year requisite for retirement benefits.
So, the legal regulations are ready, and October is advancing. However, the most important aspect is still to come: the professional implementation of all of these regulations by both the National Taxation Administration Office and the other agencies responsible for registering and controlling the self-employed sector with efficiency and steering clear of excessive bureaucracy; and then, the understanding of those obliged to pay the established taxes. Ignorance does not exonerate anyone from complying with the law. And so, to pay what is owed and to pay it well.
Translated by Granma International