Complicated Law, Easy Cheat / 14ymedio, Reinaldo Escobar

A personal income tax is imposed when the monthly salary reaches 2,500 Cuban pesos (Approximately $100 US). (GNTB)
A personal income tax is imposed when the monthly salary reaches 2,500 Cuban pesos (Approximately $100 US). (GNTB)

14ymedio bigger14ymedio, Reinaldo Esconar, Havana, 8 September 2016 — The news that starting in October personal income taxes will be introduced along with a Special Contribution to Social Security has raised all kinds concerns among workers in the Cuban state enterprise system.

Prejudices solidly grounded in tradition and personal experience have raised fears that, the less understandable the measure is, the more chances there are to make mistakes and, therefore, for injustices to occur. The most widespread complaint is that salaries already are not enough to live on and any deductions from them will mean a loss of vital benefits, that is food or personal hygiene supplies for one’s family.

The argument put forth by Meisi Bolaños Weis, vice minister of the Ministry of Finance and Prices, is that thanks to this contribution people “will receive direct or indirect benefit in the medium and/or short-term, through the Social Security System,” but this does not satisfy those so far have opted to work longer to receive direct benefits immediately.

The Special Social Security Contribution (CESS) consists of a fixed tax rate of 5%. It applies to all those working in the state enterprise system who earn more than 500 Cuban pesos a month (about $20 US), provided that this amount falls under one of the following: a) additional payment from enterprise’s budget, b) implementation of pay for performance, c) distribution of profits as a stimulus for business efficiency.

Anyone with a calculator handy will notice that a worker who earns 501 Cuban pesos in a month only receives 474.95 after the 5% for social security is taken out, a reduction of 25.05 Cuban pesos, for having earned 1 peso more than 500. In the event a person earns 525 Cuba pesos, they get 474 pesos and will be losing 26.25.

Obviously Cuban employees will be watching that their salaries don’t exceed these ranges, because, paradoxically, from now on to take home 500 Cuban pesos a person must earn at least 535 pesos.

In the case of other taxes on personal income (SIP), under the provisions of the Tax System Law 113 the proceeds will go to the budgets of the municipalities in which the companies are located, paying for healthcare, education, public lighting and other services.

Thus, if the worker does not live in the municipality where he or she works, as is common, especially in Havana, they will not benefit directly from their contributions. They will not enjoy the improvements in infrastructure and services that they have helped to pay for.

According to the official figure, the average salary in the state sector today is around 779 Cuban pesos a month, but the ISIP is only applied at approximately three times this figure, starting at 2,500 Cuban pesos, where the earner will pay 3%, while those making more than 5,000 Cuban pesos will pay 5%. All those contributing are subject to an additional 5% for the CESS.

It is notable that the application of these new tax collections are not explicitly reflected in the Guidelines of the 7th Communist Party Congress, where mention of the issue is limited to generalities relating to perfecting the tax system.

Now everyone is paying attention, because work hours and earnings of this month will be reflected in October, when the taxes will begin to be levied. The only good news is that to pay the taxes you will not have register on some site or stand in line at the bank, the company will kindly deduct the contributions on the day you are paid.

The emblematic Cuban ability to find a way to cheat for every new law will be tested with this new provision.