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.