Cuban workers and their contribution to the treasury

Havana, Aug 2 (RHC) A significant percentage of the Cuban workers will receive for the first time in decades a substantial increase in their income, and thus they will in many cases begin to pay the corresponding taxes.

Resolution 300 of the Ministry of Finance and Prices, of July 2019, finally generalizes the progressive implementation, which had been underway for more than a decade, of the Special Contribution to Social Security by Cuban workers, and also of the Personal Income Tax, for those who receive the highest wages.

These decisions have a collecting importance for the State Budget, especially if we consider that this is the same source of those wages of the so-called non-productive sector of the economy; but above all it has an educational significance for our citizenship. Many people who never had periodic tax obligations before thus begin their civic life as taxpayers, with their duties and rights.

At present, 74% of the total income to the State Budget comes precisely from the collection of taxes, rates and contributions established by the Tax Act.

Since October 2016, more than 1 million 300 thousand workers of state entities that received wage benefits for business improvement, payment systems for results and for the distribution of profits, began to contribute monthly, according to the amount of their income, the Special Contribution to Social Security and the Personal Income Tax.

A large segment of workers already contributed the Special Contribution, especially from wage increases in some sectors budgeted since 2008.

Even before the approval of Law 113 of the Tax System in 2012, entities in business improvement applied this tax to their workers. The same happened later with those who work in the platform fishing fleet, in foreign investments, and the personnel hired by users and concessionaires in the Special Zone of Mariel Development.

On the other hand, those who work in companies with foreign investment began to pay the Personal Income Tax as of May 2017, on the same basis as the collectives of their peers in the State.

Finally, the Budget Law for 2019 envisaged implementing the collection of Personal Income Tax to new segments of taxpayers, such as athletes with contracts abroad, and sailors and other personnel working on foreign vessels, through the authorized employing entity.

Likewise, since their approval and progressive expansion, self-employed workers, land usufructuaries and those in the artistic sector have special regimes to contribute to the creation of the necessary fund for the payment of their pensions, and contribute their Personal Income Tax through an annual sworn statement.

As a culmination of this gradual process, the benevolence of the tax rates to be applied stands out in the incorporation of all the budgeted sector, with the logical purpose of not nullifying the stimulating effect of the wage increase.

The 2.5% Special Contribution for those who earn up to 500 pesos, and the 5% for the rest of the personnel who earn more than those incomes, is a necessary contribution for a social security budget that is still deficient in relation to its income historically coming from employers and, now also, from all employees; against the total retirement pensions received by an economically inactive population that is growing more and more and with greater benefits.

It is noteworthy that the treatment of this tax is very similar to that received in the business sector, with the difference that in the latter those who earn less than 500 pesos do not pay the Special Contribution.

As for the Personal Income Tax, the 3% to be applied to remunerations higher than 2,500 pesos, for the concept of scale salary, must include a minimum part of the workers benefited this time, since it will not even apply for cases in which a stimulation or another additional income can raise the total salary of this figure.

The main facility from the administrative point of view and for such taxpayers, is the application of these taxes through the withholding of the entities that pay them, including the exoneration of the presentation of the sworn declaration for the annual liquidation and payment of the Personal Income Tax, treatment similar to that of the workers of the entire business sector.

A novel element is the treatment for moonlighting , which is very common in budgeted units. If this is done where the entity has its main work contract, the entity will have to add both remunerations to determine the joint contribution of the Special Contribution, and whether or not the aforementioned 3% Personal Income Tax applies.

Apparently, those who have a multiple job in another work center, will be in that aspect in some advantage from the fiscal point of view, since the tax authorities will not demand the sum of these independent wage remunerations.

A very unlikely assumption, but also contemplated in Resolution 300, is that a worker must pay more Personal Income Tax in one month than he is going to receive in cash, either for other debts or discounts to his wage.

In this case, the legal norm states that the entity must withhold up to the limit of the amount accrued by the worker, and the difference must be recorded as a debt of the worker with the State Budget, with the possibility, as an exception, of establishing a payment agreement in several installments, and informing the Tax Administration.

Beyond these very technical specifications, what is really significant from the point of view of tax culture is that it concludes a process that began in 2008 with the first wage increases in the budgeted sector, when for the first time these state workers began to contribute to their social security, and now it comes, on the basis of a substantial improvement in wage payments, as a generality that turns every person who works today in Cuba into a systematic contributor to the State Budget.
(Taken from RHC)