Institute for War and Peace Reporting | Giving Voice, Driving Change

Cuba's Over-Taxed Banking System

Almost half a million self-employed find paying in taxes a time-consuming business.
By María del C. Quintana Hechavarría
  • Street traders belong to the growing class of self-employed in Cuba. (Photo: Vladimir Cortés Roshdestvensky)
    Street traders belong to the growing class of self-employed in Cuba. (Photo: Vladimir Cortés Roshdestvensky)

Cuba’s growing band of small-time entrepreneurs say the country’s overstretched banking system can leave them spending a whole day waiting in line to pay their taxes.

Changes in the law allowed self-employed entrepreneurs known as “cuentapropistas” to start operating in the early 1990s, and they have come to fill various economic niches – running shops, selling goods in the street and driving taxis. They still operate on the margins of a predominately state-controlled economy, but were given more recognition in a new economic strategy which the Communist Party approved in 2011.

According to the most recent official figures, at the end of February 2015 there were just over 490,000 cuentapropistas registered across Cuba, about 130,000 of them in the capital Havana. The rate of increase is high – between December 2014 and February 2015, nearly 11,000 new entrepreneurs registered with the authorities.

Cubans paid no income or retail taxes for 50 years, but that has changed as the state formalises the private sector’s role.

The self-employed now fall into two classes in the eyes of the law. Those at the lower end pay no tax – just a business license fee plus social security contributions.

Amauri Gómez, a 41-year-old who sells farm produce, is fairly typical of people in this “simplified regime” category. He pays 200 pesos a month for his cuentapropista license and about 260 pesos every quarter for social security. That comes to around 3,450 pesos a year – about 135 US dollars.

Higher earners also make social security payments, and are liable for three types of tax – sales tax of a flat ten per cent of gross retail income; a sliding scale of taxes if they hire one or more employees; and personal income tax. Income tax is set at 15 per cent for any sum up to 10,000 pesos in net earnings (the first 10,000 of gross income is exempt under this system), 20 per cent for 20,000 pesos and so on, rising to a flat 50 per cent on anything over 50,000 pesos. 

Taxes, license fees and social security contributions are paid through the banking system, which is struggling to keep pace with the number of transactions. The favoured bank is Metropolitan Bank (BM), one of nine commercial banks in Cuba and the most popular in Havana.

Banks also pay out benefits like pensions, and coupled with the rise in tax payments, they are now having to process vast numbers of transactions on a daily basis. That leaves small business owners queuing for hours when they could be earning a living.

Suyi Gutiérrez, a 32 year-old cuentapropista who sells bread and fritters, complains that she misses out on a day’s takings every time she goes to pay her taxes.

“It takes ages to pay the taxes. There are lots of people and sometimes not all the counters are open,” she said, adding that a day cost her at least six dollars, a significant sum in a country where the average monthly wage is worth 20 dollars.

On days when pensions were paid out, Gutiérez said people like her “shouldn’t even try to go, it’s a waste of time”.

Indira Oropeza, a bank employee in Havana’s 10 de Octubre neighbourhood, an area with a large number of cuentapropistas, said her bank could not process tax payments every day because they also had to pay “pensions, wages and deposits, amongst other things”. During busy periods, she said, staff sent cuentapropistas to other banks.

“There are more non-state sector workers every day,” she continued, adding that she had heard that bank managers were considering improving the services offered to cuentapropistas, although “it’s only rumours”.

María del C. Quintana Hechavarría is a freelance reporter in Cuba.