14ymedio, Elías Amor Bravo, Economist, August 21, 2023 – The government claims its new banking reform measure, referred to as bancarización,* will be a boon for the tax system. Really? Or is it the other way around? For days now, the state-run press has been on a demagogic propaganda campaign to promote the measure, which is intended to give the banking system a more prominent role in the economy. And every other day it publishes articles pointing out the positive impact it is supposed to have on society. One recent article focused on taxpayers, claiming it will make it easier for them to pay their taxes, make the process more transparent, and facilitate the flow of the money through the financial system.
It seems is the National Office of Tax Administration (ONAT) will be in charge of implementing the measure as it relates to tax collection. Claims are that it will take effect very gradually and will be applied equally to all businesses (whether public or private-sector). Cash supposedly will continue to play a role in the banking system but the details are still being worked out. Meanwhile, the regime is sparing no effort to push the measure through.
As a tool in service to the regime, ONAT is especially interested in bancarización. It has been integrating its operations with the banking system since 1995. One milestone in the process was the creation of the fiscal bank account in 2018. That year, the Ministry of Finance and Prices issued guidelines — Resolutions 197 and 904 — that govern how such accounts are to be used for tax purposes.
In 2021 it issued Resolution 347, which affected all self-employed workers, requiring them to pay their taxes using the so-called fiscal bank account. In 2023, however, self-employed individuals were allowed to opt out of paying their taxes this way. Henceforth, these accounts will only be used for business operations and will have to be registered with ONAT, a sophisticated instrument of economic control that the regime goes to great lengths to publicize. As might be expected.
Realizing that bancarización was not proceeding at the desired pace, ONAT has been eliminating a whole series of obstacles that have discouraged bank customers from making cash deposits. In the process of finetuning the rules, it decided to make things easier for the self-employed, keeping in mind that some of them would already be opening bank accounts during the the measure’s approval process.
Apparently, ONAT recognized that it was difficult for customers to use a fiscal bank account because all the measures that would allow them to do so had not yet been put into place. Basically, a taxpayer had to deposit cash into the account, then withdraw the money to make other payments. Hence, no bancarización.
ONAT defends the new banking measures, claiming they will have a positive impact on taxpayers. As the agency’s management puts it, “The more money that goes into a taxpayer’s account electronically, the fewer times that person will have to go to the bank to deposit cash.”
The first thing to keep in mind about all this communist hullabaloo is that there is no guarantee the measures by the Central Bank of Cuba (BCC), as outlined in Resolution 111/2023, will result in a transparent or flexible tax collection system. As we will soon see, using a bank account to pay your taxes in Cuba is the same as paying them in cash, the difference being that many Cubans, almost 40% of the total, prefer to pay for things in cash. This is not going to change.
On the other hand, believing that cash will become more readily available to the public once businesses adopt the electronic payment options the BCC is proposing is a senseless, naive idea that just confirms that ONAT does not understand monetary demand and how it relates to economic indicators. If the public is allowed to choose its preferred method of payment, neither the BCC, nor ONAT, nor Díaz-Canel should question it. The public will choose cash, and not only for small tax payments. ONAT is in for a rude awakening.
As for making paying one’s taxes a more transparent operation, bancarización will do little to achieve that. If what officials want to do is to reduce frequent visits to the bank, then it will certainly do that since many accounts will essentially be frozen if the appropriate transfers cannot go through.
And if we are talking about tax audits or other forms of financial oversight, these are more likely to scare the few customers who want to pay their taxes using a bank card. Cubans do not want Treasury looking over their shoulders.
The claim that the new banking measure will finally make tax collection more efficient is another untested pipe dream that will likely lead to unpleasant surprises. At least now people are paying their taxes in cash. Nor is there evidence to support the idea that greater access to the banking system will enlarge the coffers of national, local and territorial governments. A benefit like that would only come from enlarging the tax base and not, it would seem, from bancarización. ONAT has other things to worry about, such as under-reporting of income and tax evasion. There is nothing to indicate that this measure would be effective at combatting those problems.
The numbers show there is a long way to go. According to official reports, only those who are self-employed have fiscal bank accounts. Out of a total of more than 273,000 open accounts, only a bit more than 410 are for the self-employed.
Given the circumstances, officials are opting for a more gradual approach, pointing out that regulations do not currently require tax payments be made from a fiscal bank account. There’s no rush. There are so many loose ends to tie up that the whole thing could fall apart at any moment. In fact, officials believe they have to do more to make it easier for people to open fiscal bank accounts by allowing them to use a mobile phone app from the comfort of their homes rather than requiring them to go into a branch bank. And this option, as you might imagine, is very eco-friendly.
To get a better sense of the situation, let’s look at some numbers. In 2020, first year Cubans were able to pay their taxes electronically, only 6.2% of payments were done this way. Currently, that figure stands at 55.8%. In the case of individuals, 53.2% pay their taxes electronically compared to 65.2% for businesses. In other words, 45% do not have the slightest interest in using electronic payment options to pay their taxes. The task ahead is immense.
*Translator’s note: A term used in Cuba and other Latin American countries that refers to government efforts to reduce the role of cash through a greater reliance on banks’ digital payment options. The term does not seem to have a counterpart in English so the Spanish term is used throughout this translation.
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