The Tax Regime for Micro-Enterprise in Cuba
How can the tax regime for Cuban micro-enterprise be improved?
This paper discusses the tax regime for micro-enterprise in Cuba. The key features of the tax regime are:
- It was designed to function in a context where a taxpaying culture did not exist, non-compliance was feared, some micro entrepreneurs had high incomes;
- It includes up-front, monthly, lump-sum payments and an escalating tax schedule;
- It is inequitable and ineffective in revenue generation;
- It discriminates against micro-enterprises which have costs of purchased inputs in excess of 10% of gross revenue;
- It is regressive in that tax is higher for lower-income micro-enterprises;
- It is easier on the foreign and joint venture sector of the economy and tougher on micro enterprise;
- It restricts the entry of new firms and forces some out of business thereby reducing production, employment and the generation of income and raising prices.
The paper recommends:
- Establishment of net income, rather than gross income, as the tax base;
- Abolition of the monthly up-front lump-sum payments;
- Building up of the credibility of the tax system;
- Lowering of barriers to entry into the micro enterprise sector.
The paper concludes that a well designed micro enterprise tax regime could help in:
- Permitting the sector to play a more valuable role in terms of employment and income generation and the production of needed goods and services at lower prices;
- Generating more revenues than the current system, which pushes micro enterprises into tax-evasion.
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