The 10 Percent Tax on Food Affects Lower Income Cubans

Food stall that supplies its neighborhood. (14ymedio)

14ymedio bigger14ymedio, Madrid, 7 February 2022 — The Cuban government extended the application of the 10% tax on retail agricultural sales, despite the current economic context marked by runaway inflation, which reached 70% in 2021.

According to the resolution, published on Friday in the Official Gazette, the tax will be charged to those who market these products in “agricultural markets; points of sale belonging to credit and service cooperatives; agricultural production cooperatives or other forms of production, including individual producers; in fairs or other expressly authorized events and in retail units authorized to acquire and market agricultural products.”

For those who sell in areas where the administrators have capped prices or they are centralized, the tax has a bonus of half and 5% will be paid, while regulated products that are intended for medical diets, whose prices are established by the Ministry of Finance and Prices, are exempt from payment.

“The tax on agricultural retail sales was applied in 2021. There is no known evidence of any possible positive effect then. Its repetition in the current inflationary environment of 2022 is not clear,” opines the Cuban economist Pedro Monreal.

The expert has pointed out on his Twitter account two effects that he considers probable: a rise in food prices, to compensate for the payment of the tax and an increase in inequality, since “households with lower incomes spend a relatively higher percentage of their resources.”

The tax, furthermore, is regressive, since no matter how much is paid, the percentage to be paid is the same, so it has more repercussions on those who have less.

“Taxing prices in the context of rising inflation is pouring gasoline on the fire, because those tax increases are paid in the form of higher prices by consumers or are absorbed by sellers (in which case, they lose money, which does not seem reasonable). In either case, inflation will rise,” says the Cuban economist living in Spain, Elías Amor.

In the opinion of the specialist, at this time it would be more appropriate to leave it at zero temporarily while waiting for inflation to come down.

The resolution also indicates the charge of 1% on total sales for the entity that operates the facilities and that does not apply to other points of sale, including individual producers. Elías Amor points out that this will be taken into account by the merchants, who will move to where they can save that higher expense. The entities in turn pay a tax to either the Ministry of Agriculture or Azcuba according to which one administers the market.

According to official figures, retail inflation exceeded 70% in 2021, although informal market inflation is still much higher. This tax is scheduled for whenever the Government considers that “economic and social circumstances so advise,” but according to Elías Amor “nobody, in a context of high inflation, would increase the taxes that fall on consumer spending.”


COLLABORATE WITH OUR WORK: The 14ymedio team is committed to practicing serious journalism that reflects Cuba’s reality in all its depth. Thank you for joining us on this long journey. We invite you to continue supporting us by becoming a member of 14ymedio now. Together we can continue transforming journalism in Cuba.