Cuba sharply hikes tax on imported goods in blow to small business owners, other islanders

Cuba sharply hikes tax on imported goods in blow to small business
owners, other islanders
By Associated Press, Updated: Tuesday, July 17, 6:52 PM

HAVANA — Cuba has announced the imposition of stiff new import taxes
that could substantially affect private entrepreneurs trying to get new
businesses off the ground and many others who rely on informal shipments
of merchandise from overseas.

Starting in September, Cubans who come in and out of the country more
than once a year will have to pay the equivalent of $10 a kilogram
($4.50 a pound) or more for imports, a fortune in a country where
salaries average the equivalent of about $20 a month. Non-residents,
including Cuban-Americans visiting relatives, would have to pay the new
rates even if they only make one trip to the island.

About a quarter of a million Cubans have started new businesses under
free-market reforms instituted by President Raul Castro at the end of
2010. Many have opened cafes, repair shops, clothing stalls and outdoor
stands that rely on products brought in from abroad.

Cubans with permission to travel often fund their trips by acting as
mules, coming back with bags stuffed with clothes, electronic goods,
diapers and other things that are hard to find on the island. Until now,
they would pay only pay about $0.50 a kilo ($0.25 a pound) in import
duties, with set fees for big-ticket items like televisions and
microwave ovens. Food imports were free until earlier this year, when
the government began charging duties.

The new duties were posted quietly on the website of the government's
Official Gazette and is dated July 2.

State-run newspapers have carried no mention of the new duties, but a
website of the official Radio Rebelde station ran a short article
Tuesday morning, and a vague mention of discussions about import taxes
was made on a late-night newscast.

The Radio Rebelde article is headlined "New banking and import
resolutions improve services at Cuban airports," with no discussion of
the effect the duties will have on private business.

Some details of the new law were confusing, given that the decree was
published in dense legalese and appeared to contradict itself, and that
no government officials were available to make sense of it. At times the
decree refers to taxes being imposed based on weight, and at times on
the value of merchandise.

Either way, it was clear to private business owners that they would be
paying much more, and they were not happy about it.

"It's a disaster," said Luis Carlos Espinosa, a 42-year-old who has set
up a small stand in Central Havana selling jeans, colorful blouses and
children's clothing, and who had heard rumors of the new taxes but had
not yet seen the published law. "It hurts us in every way. Where are we
going to get the merchandise? There is no wholesale market here."

Several other street vendors who refused to give their names for fear
they could get into trouble said they were angry that the government had
not discussed the changes with private business owners before putting
them into effect, and that details were still sketchy.

Castro has ushered in dramatic changes like the legalization of a real
estate and used car market, the granting of licenses for 181 types of
private sector jobs, micro-loans for small business owners, the
loosening of rules limiting independent restaurants, and a program to
turn fallow government land over to small time farmers.

But the momentum seems to have waned this year, with no major reforms
announced since December. Two promised high-profile changes, the
creation of mid-sized cooperative businesses and the elimination of
travel restrictions that keep most Cubans from leaving the island, have
yet to materialize, despite repeated assurances they are in the works.

The reforms are part of a five-year plan to shed a million state workers
and turn more than 40 percent of the economy over to the private sector,
compared to about 15 percent today. While they began in earnest in 2010,
Cuban officials say the clock started ticking on January 1, 2011, giving
the government 3 1/2 more years to complete the transformation.

Some feel they are not going fast enough, especially given the fact that
Castro and his top deputies are all over 80, and Cuba could lose a
generous ally in Venezuelan President Hugo Chavez, who is ailing with
cancer and campaigning for re-election this Fall.

"If you just look at what they keep talking about, displacing all these
people to the private sector, at the rate they're going it's not going
to happen," said Sergio Diaz-Briquets, a Cuba analyst based in the
Washington area.

"They're continuing to do it in a very methodical way, but too slow,"
Diaz-Briquets said. "From what we all can see, it's not fitting with the
targets they have set for themselves several times already."

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Associated Press reporters Paul Haven and Peter Orsi contributed to this
report.

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Andrea Rodriguez on Twitter: www.twitter.com/ARodriguezAP

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