Under the paternalistic communism of old, Cuba didn’t have much need for taxes. 90% of economic activity came from state-owned businesses, which turned all revenues over to Fidel Castro’s government. The government would then return a small portion to the companies to fund operations and pay workers (at very low wages) and then spend the rest freely on social welfare.
However, over the past two years, Raul Castro’s government has introduced some free-market reforms, legitimizing private commerce. This enabled every single Cuban to earn more and improve their quality of life, and many have seized the opportunity to start small businesses. Much of their economic activity, however, has gone untaxed—even as these individuals continued receiving the government’s blanket subsidies.
Now, that’s changing: Cuba has published its first comprehensive tax code since the 1959 revolution.
For one of the world’s last remaining communist enclaves, this is huge. If Raul Castro were set on clinging to Leninist ideals, he’d simply seize all private corporate profits and extend the old system. But by choosing to tax profits and incomes while allowing private companies and entrepreneurs to continue operating freely, he’s signaling Cuba’s nascent capitalism is here to stay. The new code even includes incentives for private businesses to expand and hire more workers—Cuba, it seems, wants to grow.
What’s more, the government also plans to replace blanket subsidies with a more targeted welfare system, bringing Cuba more in line with the rest of the world. At least socially and economically, it appears Cuba’s getting out of the 1950s and into the 21st century.
Here’s hoping political reforms aren’t far behind.