More Details on New Cuban Regulations on Private Business

A prior post discussed Cuba’s new regulations for the self-employed sector (the private sector) of the economy. More details on these new regulations are provided by Nora Gámez Torres in the Miami Herald.[1]

She says that he new regulations limit a Cuban to owning only one private enterprise and impose higher taxes and more restrictions on many self-employment endeavors, including the arts. All of these measures are designed “to limit the accumulation of wealth by Cubans.”

As a result, a Cuban who runs a private restaurant (a paladar) will not be able to rent a room in his or her home. The Cuban Vice Minister for Labor and Social Security, Marta Elena Feitó Cabrera, explained that owning more than one business “is not the essence and the spirit of the TCP [self-employment], which consists of workers exercising their daily activities.”

The government also stated it would eliminate the tax exemption for businesses that have up to five employees and would instead impose a tax on a sliding scale that increases with each worker hired. It also ordered an increase in the required minimum monthly taxes of businesses in various categories. Economists, however,  have warned that more taxes on hiring employees could dramatically hamper the development of the private sector at a critical moment.

To increase state controls, each authorized activity will be under the supervision of a state ministry, in addition to the municipal and provincial government entities, which can intervene to set prices. The level of control reaches such extremes that the Official Gazette published a table with classifications on the quality of public restrooms and the leasing rates that would have to be paid by “public bathroom attendants,” one of the authorized self-employment categories. Some public bathrooms are leased by the state to individuals who then are responsible for upkeep and make their money by charging users a fee.

The new regulations also could have a significant impact on the cultural sector with the Ministry of Culture empowered to increase control over artists and musicians and impose more censorship in the country.

For example, there now are fines and forfeitures, as well as the possible loss of the self-employment license, to those who hire musicians to perform concerts in private bars and clubs as well as in state-owned venues without the authorization of the Ministry of Culture or the state agencies that provide legal representation to artists and musicians. Many artists in urban genres such as reggaeton and hip-hop, who have been critical of the Cuban government, do not hold state permits to perform in public. However, many usually perform in private businesses or in other venues. Painters or artists who sell their works without state authorization also could be penalized.

Even books are the target of new censorship: private persons, businesses and state enterprises may not sell books that have “contents that are harmful to ethical and cultural values.”

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[1]  Gámez, Cuba imposes more taxes and controls on private sector and increases censorship of the arts, Miami Herald (July 10, 2018).

Why is the Cuban Government Trying To Slow Down the Private Sector? 

                                                                                                              Yesterday’s post described the Cuban Government’s suspension of the issuance of new permits for certain self-employment categories and closing down some paladares (private restaurants).

Why is this happening and what is its impact on Cubans?

Nora Gámez Torres of the Miami Herald reports that certain experts say the suspension is the government’s fear of the emergence of a truly successful entrepreneurial class on the island as a future political opponent of the government. As Ted Henken, a U.S. sociologist and expert on Cuba’s private sector, put it this way: “hardliners in the Cuban government are afraid of the private sector, not only because it competes with state monopolies but because economic autonomy ‘can lead to more political freedom and independence, and create a powerful lobby with a different agenda than those in power currently.’”[1]

This move by the Cuban government is seen as against its economic interest as the private sector generates more than $2.5 billion and up to 18% of the economy’s revenues while the implosion of Cuba’s ally, Venezuela, has a major negative impact on Cuba’s economy.

Meanwhile Cubans planning to open new businesses are upset.  Here are some of their reactions.[2]

  • Sara in anticipation of renting a house in Vedado said, “I have spent months and money invested in arranging the house to rent it to foreign tourists, I already had contacts and I was planning to apply for my license in September.”
  • Sergio, a taxi driver who was planning to move to a home buying and selling office, said he lost more than 1,000 CUCs between chairs and other items he bought to set up an office. The government’s suspension of new licenses “demonstrates that no one can make more than four pesos.”
  • Brian, who already had bought equipment to open an appliance repair shop in Havana, has seen his aspirations frustrated, as he had not yet submitted his license application. “Right now I do not know what to do because I owe money to several people for the purchase of equipment.”
  • The owner of a cafeteria in Havana said that in just two months she planned to open a restaurant in the same place. “Now what do I do with all the cutlery, glasses and even an electric coffee maker I bought? I have to sell them or keep them until they reopen the licensing, but no one knows when that will be. The government wants us to be starving all our lives.”
  • Marta, a bookkeeper who looks for accountants to manage her payments at the bank, said that these closures “affects her a lot. As new entrepreneurs do not emerge, it makes it more difficult for me to get new clients. I have been put into China by these bastards since I only had a few months in this activity.”
  • Lázaro, “They do not want a middle class to emerge and they say they take these measures because there are many raw materials and equipment of illicit origin, and where do these illicit products come from? That comes from the lack of control and disaster of state companies,” he said. “They really screwed us up.”

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[1] Torres, Fear is driving Raúl Castro to punish Cuba’s new entrepreneurial class, experts say, Miami Herald (Aug. 2, 2017).

[2] Fernandez, ‘There is no one here to raise their heads,’ they complain affected by the brake on private work, Diario de Cuba (Aug. 2, 2017).