Prices and Taxes in Cuba

Prices and Taxes in Cuba
October 4, 2012
Fernando Ravsberg*

Even people with the lowest incomes, such as this retired teacher, are
also required to make purchases in hard-currency stores and pay inflated
prices.

HAVANA TIMES — At the last meeting of the Council of Ministers, it was
announced that one of their objectives is to "establish principles for
the setting of prices for the public using a comprehensive approach,"
while assuring a "monetary equilibrium between incomes and the
circulation of retail goods."

This issue is essential for a large portion of the nation's population,
especially those living off of government wages paid in Cuban pesos,
despite these people having to buy some staples in convertible pesos
(which are equivalent to the dollar).

It's true that many of these items have to be imported, though the
government assures us that the national economy is no longer capable of
subsidizing these as it had done for decades. However this isn't the
only factor that inflates retail prices.

Since the early 1990's when Cubans were allowed to use the dollar, a 240
percent sales tax was placed on all products sold in hard currency. It
was said that the objective of this was to redistribute incomes, using
the money from that tax to subsidize the poorest members of the population.

Recalling the Cuban filmmaker "Titon" (Tomas Gutierrez Alea), one could
say that the script wasn't bad but the staging was a disaster. The
measure was applied to all products, even basic necessities, some of
which are only sold in the state-run network of hard-currency stores.

The disappearance or reduction of subsidies required all citizens to buy
part of their family staples in those stores, where — thanks to that 240
percent sales tax — the cost of one quart of soybean cooking oil is
equivalent to the wages of several days of work.

Then too, there are the additional "fines" applied to goods by state
shopkeepers. There are imported products that I've seen cost 500 percent
more than in their countries of origin. All this shows that the price
increases aren't really aimed at redistribution in the interest of those
who are poorest.

To prevent this theft against consumers, the government recently
announced price leveling on 100 essential items, meaning that now all
hard-currency stores are required to sell those products at exactly the
same prices.

It seems logical that now they're establishing a system of pricing that
takes into account people's incomes, though one would think they'd also
eliminate or minimize the tax burden on staples.

To really achieve the redistribution of wealth, taxes should be applied
only on luxury goods, those products that aren't necessary for life.
Applying them on milk, cooking oil, soap and meat ends up being
punishment against the poor.

Kiosks have been opened in all the districts selling products in
convertible hard-currency. One needs only to stand around one of those
to witness how many of the people who shop there are clearly poor people
who have to save every penny to buy the most indispensible items.

A few days ago people were complaining that detergent was scarce in the
hard-currency stores. The problem was actually that only large packages
were being sold, while the fact is that many Cubans can barely manage to
scrape together the 50 cents (USD) for the smallest packets.

The gradual disappearance of ration books is perhaps a measure that's
economically reasonable, but if the subsidies are removed there have to
be guarantees that no one, not even the state-run stores, will be able
to speculate when it comes to people's food.

Citizens can understand the need to pay the costs that are entailed in
the international cost of oil, transportation and business expenses; but
artificially multiplying goods by almost two and a half times to arrive
at a final price seems excessive.

In other countries of the world, their value-added taxes can approach 20
percent, which is not a negligible amount demanded by their governments
given that VATs apply to everything sold in those countries, from a
liter of milk to a house.

To improve the situation in Cuba, the Council of Ministers wouldn't even
have to change the script; it would suffice to raise taxes only on
luxury goods, ensuring the lowest possible prices for staples.

If the announced "comprehensive approach" on pricing takes into account
"the incomes of consumers," surely this measure would have the
wholehearted support of the majority of Cubans, who would feel that the
reforms were no longer economic abstractions but were beginning to
benefit their daily lives.
—–
(*) An authorized Havana Times translation of the original published by
BBC Mundo.

http://www.havanatimes.org/?p=79688