CUBA: Self Employment Survives despite Taxes and Pressure

By Dalia Acosta Reprint | | Print |

Dalia Acosta

HAVANA, Jul 4 1996 (IPS) - Just like in the final reel of a horror film, the Cuban government is slowly tightening the noose of the tax system around the neck of the independent workers.

“They want to strangle us,” said Eddy Jimenez, owner of a restaurant in Regla neighbourhood of Havana, adding “I am on the brink of closing down if taxes stay the same and profits don’t go up.”

However, the situation is not as straightforward as it appears, as the taxes really are something new for most Cubans, on an island which never had such a system before, and even the local authorities responsible for imposing them are confused.

From another angle, the “official allergy to the ghost of the nouveau riche” is also threatening self-employment, despite the fact that the essence of the sector is to alleviate the lack of job opportunities and improve services for the population.

Specialist sources assure the main dilemma is the need for self employment as an alternative source of work, a phenomenon which has reduced social equity and has led to a level of discontent the government did not want to face.

Data from the Cuban workers Centre, the only union on the island, said in April of this year taht the unemployment had risen to seven percent of the 5.6 million economically active population.

Angela Ferreol, from the National Institute of Economic Investigations said “self-employment appears to be an important employment option” in the imposition of a reorganisation of the State sector.

“They propose that employment restructuring could be an element to contribute to the creation of conditions under which to apply a new system of business management, elevating production efficiency and promoting economic recovery,” she added.

As part of this “redimensioning of the economy,” the structural adjustment process foresaw the cooperativisation of State owned agricultural land and the handing over of the usufruct of land to families happy to move to the country as two important sources of employment.

However, both the broadening of self-employment in 1993 and the initiation of labour reform in 1995, were measures included within the “inevitable” changes and which the authorities would not have applied if there had been any other way out.

According to statements by President Fidel Castro last year, his government was obliged to apply measures which are not totally to their taste in order to stop the steep drop in all sectors of the national economy.

Local experts attribute the worst economic crisis of the second half of the century to a combination of internal errors in the management of the economy with the effects of the disappearance of socialism in Europe and the strengthening of the US blockade on the island.

Three years after the depression began, the government of the island decided to apply a broad adjustment process which included a greater openess to foreign capital and financial, labour, business, banking, tax and property reforms.

The package of measures, introduced gradually over the last two years, is trying to reactivate the Cuban economic indicators after a sharp fall in the Gross Domestic Product (GDP) of 34.3 percent in relation to 1989.

“Cuba does not propose making itself into a financial paradise nor a financial hell,” said Viceminister of Finance Rafael Gonzalez in June.

Gonzalez, who is also director of the National Tax Administration Office (ONAT) said that in the first five months of this year, the fiscal contribution of the self-employed workers passed the 83 million peso mark (officially on a par with dollars). A total equal to 70 percent of the total tax income expected for the whole year.

The majority of self-employed tax payers are registered as producers or purveyors of food and drink, at 56,527 of the 206,000 members of the group.

“Since the taxes went up in February, I only make 30 pesos per day,” complained Magdalena Ramos, a sweet seller, though only a year beforehand she was earning seven pesos a day as a secretary in a State office.

Ramos now makes more than the average monthly salary in Cuba in one week. Most people earn around 198 pesos per month.

But she is not happy with a tax policy which uses the same table to calculate contributions from people like her, on the outskirts of Havana, and the owner of a sweet store in a tourist centre.

The resentment provoked by the tax increases declared in February led to some 2,200 independent workers leaving the sector in May and June, returning their licenses and taking to the black market.

But this phenomenon appears to have been limited to the capital, where the provincial authorities decided to apply the taxes in a centralised manner, instead of leaving the decision to the municipal councils, as the law dictates.

“Now they will try and loosen their grip,” said Antonio Prado, a craftsman who has benefitted from a correction of calculations which aims to stimulate such workers in tourist areas.

Though they still do not recognise their mistakes, the authorities announced that with some exceptions, the self employed workers would have to pay the minimum quota approved by the Ministry of Finance and not the increase imposed earlier this year.

The increased quota will remain in place for people working in the centre of the city and all restaurant owners, regardless of their location.

“The supposition that the authorities want to deincentivate self-employment is no more than a rumour,” said Ariel Terreno, economic specialist with the magazine ‘Bohemia,” speaking on ‘Radio Reloj.’

The specialists said the government must accept living alongside an independent sector, improving the tax system if it hopes to continue along the road of economic transformation.