IDEAS home Printed from https://ideas.repec.org/p/car/carecp/99-04.html
   My bibliography  Save this paper

The Tax Regime for Micro-Enterprise in Cuba

Author

Abstract

The Government of Cuba established a tax regime for micro-enterprise as soon as it legalized the sector in 1993. It was designed to function in a difficult context in which a tax-paying culture did not exist, in which widespread non-compliance was feared, and in which some micro-entrepreneurs’ incomes were high. The tax regime included up-front monthly lump-sum payments, a 10% maximum amount of total revenues which could be deducted as costs in calculating taxable income, and an escalating tax schedule. The tax regime has a number of weaknesses which make it inequitable, inefficient, and ineffective in revenue generation. The analysis of this essay indicates that the actual incidence of the tax is higher than the official tax scale when actual production costs exceed the maximum allowable 10%, even exceeding 100% in some circumstances. The up-front lump-sum tax payments result in marginal tax rates of 100% for initial levels of revenue, followed by rate of 0% until that level of taxable income is reached where taxes payable with the tax scale are equal to the initial lump-sum payment. The tax regime discriminates against micro-enterprises which have costs of purchased inputs in excess of 10% of gross revenues. It is regressive in that the tax rates are higher for lower-income micro-enterprises up to a fairly significant level of true net income. The micro-enterprise sector also faces a more onerous tax regime than the foreign and joint venture sector of the economy. From the stand-point of its impacts on the efficiency of resource use, the tax regime restricts the entry of new firms into the sector and forces some out of business or underground, thereby reducing production, raising prices, reducing employment and reducing the generation of incomes. Finally, to the extent that firms “go underground,” refrain from starting up, go out of business, or evade taxes, the government loses revenue. A number of modifications in the tax regime are suggested in order to overcome its weaknesses. These changes could help the sector to make a more valuable contribution to Cuba in terms of employment and income generation, increased production at lower real costs and prices, and increased tax collection.

Suggested Citation

  • Archibald R. M. Ritter & J.A.Turvey, 1999. "The Tax Regime for Micro-Enterprise in Cuba," Carleton Economic Papers 99-04, Carleton University, Department of Economics, revised 2001.
  • Handle: RePEc:car:carecp:99-04
    as

    Download full text from publisher

    File URL: http://www.carleton.ca/economics/research/working-papers/carleton-economic-papers-cep/1991-2000/
    File Function: Text
    Download Restriction: None
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Archibald R. M. Ritter, 2005. "Survival Strategies and Economic Illegalities in Cuba," Annual Proceedings, The Association for the Study of the Cuban Economy, vol. 15.
    2. Cynthia Benzing, 2005. "Cuba—Is the “Special Period” Really Over?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 11(1), pages 69-82, February.
    3. Roger R. Betancourt & Jorge A. Sanguinetty, 2008. "Is There Political Will Towards Democratization in Cuba?," Annual Proceedings, The Association for the Study of the Cuban Economy, vol. 18.
    4. repec:kap:iaecre:v:11:y:2005:i:1:p:69-82 is not listed on IDEAS

    More about this item

    Keywords

    Cuba; economy; taxation; microenterprise; self-employment; employment; small business; economic policy;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:car:carecp:99-04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Court Lindsay (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.