Cuba announces tax break for private businesses

May 27, 2011 - 11:44 AM

HAVANA (AP) — Cuba announced new measures Friday to spur the island's push into private enterprise, instituting a moratorium on payroll taxes for small business owners and loosening limits on the size of private restaurants.

Under the new guidelines, anyone who hires between one and five workers will not be subject to payroll taxes during 2011.

The measure was adopted at a recent Cabinet meeting chaired by President Raul Castro and announced in Friday's issue of the Communist Party newspaper Granma. It applies to all small business owners, but is likely to have its greatest effect on private restaurants and cafes that employ waiters and cooks.

The government said it will allow such establishments to serve up to 50 diners at a time, up from the 20 that had been permitted previously. Many private restaurants — known as "paladares" — already openly skirted the size limits.

Dozens of new restaurants, some with chic decor and first-world prices, have opened in Havana and other cities since Castro's government began overhauling the economy last year, and more than 222,000 Cubans have taken out licenses to work for themselves since permission for such activities was liberalized in October.

Castro is also seeking to reduce state subsidies and trim a bloated government payroll, though his plan to lay off half a million state workers has stalled indefinitely. Economists say creating jobs in the private sector is crucial to getting that plan back on track. Cuba's Communist government still employs about four in five Cuban workers, and the state controls virtually all means of production.

According to Granma, authorities are also studying whether state-controled real estate could be put to better use by renting it out to private restaurant owners, a measure that could dramatically increase the size and marketability of the new establishments.

Most of the new restaurants have been set up in homes and back yards for lack of commercial space.

The Granma article also laid out rules that make it easier for the self-employed in several areas to claim tax deductions, and to receive a temporary suspension of their business licenses if they don't plan to work.

The economic overhaul aims to pull Cuba out of a deep fiscal morass while preserving the Communist system ushered in by Fidel Castro's 1959 revolution. More changes appear on tap as well, though it is not clear when.

Delegates to a key Communist Party summit in April approved a long list of guidelines for economic changes including legalizing the sale of real estate and cars and expanding the ranks of private cooperatives that could morph into mid-sized companies, though neither measure has yet been passed into law. The party is also studying ways to grant small-business loans to would-be entrepreneurs, create a wholesale market and improve the spotty supply of raw materials.