Thursday, September 16, 2010

More details on new entrepreneurship policy

Here’s another document (pdf), apparently a Cuban government briefing paper that is being used to explain the policy announced Monday to move a half-million government and state enterprise employees to an expanded private sector.

It was first posted at the German-language site and then at Penultimos Dias, and adds some new details.

The layoffs and expansion of trabajo por cuenta propia begin in October.

The government is apparently going to address the problem of supplies, which has resulted in many licensed entrepreneurs resorting to black-market sources. This would be a big step forward, in both practical terms and in political terms, because it would show that the government is interested in creating conditions for entrepreneurs to succeed. The new policy, the document explains, is “to maintain limits on granting new licenses only for those activities that don’t now have legal means for acquiring raw materials and other materials they need, and to create conditions for the sale of these resources, which will allow the elimination of this restriction.”

Several prohibitions that now affect cuentapropistas will be eliminated. Eligibility for new licenses will no longer be limited to retirees and those with a current workplace (vinculo laboral), which would appear to open the door to those who have been working without a license and now want to join the legal system. Among other changes, they will be permitted to sell goods and services to government entities, and they will not be limited to doing business in their own municipio.

They will also be eligible for bank credit, another important change.

There is also a discussion of taxes. In addition to the current tax on income, taxes will be based on sales, the hiring of labor, and social security contributions.

The real economic impact of taxes on the sector is a function of two factors: the tax rates themselves, and the honor system where entrepreneurs (whose transactions are almost entirely in cash) keep the books on which their taxable income is based. If you document and declare less than your real income, a high tax rate is much easier to swallow.

1 comment:

Anonymous said...

Yes, but that would only contribute to maintain and expand the already existing fraud culture. It would be far more sensible to have a just taxation system. Taxes should not so high that they lead people to believe trabajar por cuenta propia is as bad as working for the State: continuing to live at subsistence levels.