Cuban Government Taxes on Paladares
The CubanEconomy.com site has written a great
summary about taxation of paladares in Cuba titled
Microenterprise Tax Reform,
2010
Three Taxation Cases for a Paladar or Restaurant
To illustrate
the character of the tax regime, a case of a “Paladar” is examined. It is assumed that the total revenues or gross earnings of the Paladar are 100,000 pesos per
year or a modest 280 CUP or about $US 10.50 per
day.
It is imagined
then that there are three costs of production cases: Case A, B and C where costs of production are 40%, 60 and
80% of total revenues respectively. A situation where input costs for a Paladar are 80% of total revenues is
reasonable, given the required purchases of food, labor, capital expenses, rent, public utilities etc. On the
other hand, the 40% maximum is unreasonably low.
The differing
true input cost situations (Rows 2 and 3 from the link to the graphic above) generate different true net income
(Row 6). The tax base however is determined by the legal maximum allowable of 40,000 (Row 4 and 5) and is 60,000
pesos in all three cases (Row 7).
The income tax
payable is determined by the progressively cascading scale noted above and is 19,750 in all three cases (Row 8,
based on calculations not shown here). The tax on hiring the legal minimum two employees is 25% of 150% (that
is, 37.5%) of the average national wage which was 429 pesos per month or 161 pesos for 12 months for two
employees = 3,864 pesos per year (Row 9).
A guess for the
surtax on use of public services is 1,200 pesos per year (Row 10). The total taxes then are the sum of Rows 8 t0
10 and are 26,614 per year (Row 11).
The effective
tax rate is then calculated as Tax Payment as a percentage of Actual Net Income (Row 11 divided by Row 6). For
the third case where true costs of production are 80% of total revenues, the effective tax rate turns out to be
well over 100% (124.1%). This is due to fixing the maximum allowable for costs in determining taxable income at
an unrealistic 40% while the true costs of production were 80% of total revenues.
The chief
result of this example is that effective tax rates can be much higher than the nominal tax rates for all the
activities where true input costs exceed the defined maximum. In some cases, taxes owed could easily exceed
authentic net income – assuming full tax compliance. This situation likely
occurs for all activities not covered by the simplified tax regime.
Such high
effective rates of taxation of course could destroy the relevant microenterprise, and block the emergence of new
enterprises. While under the previous policy environment for microenterprise, this was perhaps the objective of
policy. However, the objective of the new policy environment is to foster and enable microenterprise and to
create jobs.
