ECONOMY : Small-Business Success Returns Taxes to Cuba

For the first time in more than three decades, an unwelcome visitor has returned to Cuba: the tax collector.

As Americans puzzle over their tax returns, an island of people just off the Florida coast is even more confused.

To start with, most of the youthful Cuban population has never paid a tax.

Cubans once considered the abolition of taxes among the triumphs of the revolution that brought Fidel Castro to power in 1959. Income taxes were eliminated almost immediately after Castro’s tanks rolled into Havana, and the last vestige of taxation--a payroll tax--was eliminated a few years later, according to those old enough to remember such lore.

Cuba was forced to reimpose taxes, explained Viviana Togores, an economist who studies family businesses here, because of the success of those businesses, which were legalized two years ago.

“One group of people was earning incomes far above the rest of the population, and the taxes are an attempt to attenuate the differences a little,” she said. “These people were not contributing to the federal budget, but they were benefiting from government services” such as health care and education.

Since the profits from government-owned companies go to the federal budget, she explained, government workers--about three-fourths of the labor force--still do not have to pay taxes.

At 56, Oswaldo Gutierrez well remembers what taxes were like. In fact, he was an accountant until the revolution made his profession obsolete. Now he is a retired lawyer, whose family sells pastry on the street in front of their apartment. And he well understands Togores’ arguments for taxes.

“Every country in the world has taxes,” he said. “But it’s only fair to tell us how much it is.”

The biggest source of confusion, Cubans say, is that the government has begun imposing taxes even though the congress has yet to pass the regulations that will be used to enforce a tax law approved in December. Rules for big companies and individuals who earn dollars are clear: Companies pay a percentage of profits that varies by industry; individuals pay a graduated tax starting at $2,400.

But for Cuba’s 208,000 family businesses, the tax bite is still uncertain.

Cuban taxation officials declined to be interviewed.

Gutierrez’s business-license tax quintupled in January to 200 pesos--about $10--almost as much as a factory worker’s monthly pay. He will be allowed to credit that amount against his total tax bill. The big question is how much that tax bill will be.

“The ideal would be to put a little money away in the bank every month to cover taxes,” he said. “But we cannot budget for the taxes we have to pay.”

Further, he has heard rumors that taxes are being planned on marquees and tables, which he had planned to add to the pastry stand to attract more customers.

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The tax law provides little incentive to invest because it is based on gross income, with no provision for the deduction of expenses.

“None of the family businesses here keeps ledgers, not income or expenses or anything,” Togores said.

That’s not entirely true. Gutierrez records his transactions in a ledger, which he reviews to make sure that the pastry stand clears a profit. But without knowing what his taxes will be, he can no longer calculate his profit. “Bring back the accountants,” he said.