1st July 2024

Cuba has moved to cap the profitability of non-state entities in their dealings with the state sector, and is to exert oversight of idle well-funded, tax-related bank accounts. 

Following a week in which several senior figures including the Prime Minister, Manuel Marero, criticised the profits being made by some MSMES and the inflationary impact, the Ministry of Finance and Prices (MFP) gazetted a resolution that seeks “the containment of expenses incurred by state entities in their economic relations with non-state forms of management.”

Speaking to Granma about the decision, Vladimir Regueiro Ale, the MFP Minister, said that with the entry into force of new rules on 1 July, “only prices and rates that recognise up to 30% profit or profit margin will be accepted in goods and services that are acquired from the non-state sector, whether self-employed, MSMES, or Non-Agricultural Cooperatives.” The percentage, he told the publication, “is a significantly beneficial profit margin for this first moment of ordering relationships.” In doing so, he appeared to suggest that further changes are likely. The cap includes all relevant taxes.

“It is not a question,” he said, “of limiting this relationship, but rather of establishing these relationships with better pricing regulations.” He also stressed that state entities must improve their accounting and contracting methods, tender for goods and services from the private sector, and seek better offers in the territory in which they are located.

To this end, he emphasised the importance of upgrading economic and accounting teams in Central State Administration Agencies and locally elected assemblies, and the need to expand relevant training in ways that involve non-state economic actors that are service providers to the state sector.

The new measure, he said, is intended to “organise and optimise the resources that are generated from the state sector,” and re-order the relationship. The minister highlighted that the new measure also supported the containment of expenses in the state budgeted sector, in accordance with the country’s macroeconomic stabilisation programme, which he described as being aimed at “improving fiscal results.

According to a short announcement by the MFP it will now be up to provincial councils and municipal administration councils “to approve the maximum prices and rates for goods and services” acquired by state entities from the non-state sector, “taking into account the particularities of each territory.” A previous MFP Resolution established profit margins for the state sector.

In recent months Cuba’s private sector – with government’s encouragement in the light of its large fiscal deficit – has become an increasing source of  financing for the acquisition of raw materials  and imported goods, as well as a provider of services. The effect has been to fuel inflation, dollarisation, and extreme volatility in the island’s technically illegal informal foreign exchange rate, indirectly affecting those Cubans with little or no access to external support to meet the high cost of food, medicines and other items.

In a separate but probably related development, Cuba’s Central Bank (BCC) has said that it will block inactive business and individual tax-related bank accounts after an assessment, and will require real time mandatory declarations relating to large payments into any such accounts held by individuals. 

Speaking with President Díaz-Canel on a recent edition of the programme ‘Desde la Presidencia,’ Juana Lilia Delgado, the Minister President of the BCC, said that the Bank is proposing blocking inactive tax related accounts that Cuban businesses and individual taxpayers must open in relation to their annual tax declaration to Cuba’s National Tax Administration, ONAT.

The assessment, Delgado said, will relate to accounts  that do not accord with the levels of activity that the BCC considers a business or a specific economic actor should have. Delgado said that the measures will apply to accounts which receive large sums of money, as the Cuban authorities belive that business owners and traders are receiving payments into such accounts to avoid declaring income. 

Observing the “reluctance of both economic and private actors to participate adequately in the banking process,” President Díaz-Canel said that the issue was of particular concern in relation to private economic actors, MSMEs, and those who operate in agricultural markets. 

Responding, Delgado said that despite it being a requirement for all businesses to accept payment by bank card, many do not. The consequence, she said, is that cash is instead  concentrated “in the hands of a few.”

Observing that significant amounts of such cash is pending to the treasury,  she said: “It’s not that there is no money in the economy; there is more money than ever, but the flow has been reversed: more money leaves than returns.”

There are people, she said, “who are lending their personal accounts so that large amounts of cash can be transferred through them.”  Strong action will, she emphasised, be taken against them as such actions are “classified as a crime of money laundering.” 

The programme, which is broadcast on YouTube, ended with Díaz-Canel, stressing the need to “try to get money back into the financial banking system and reduce the demand for cash.” Cuba’s President also stressed the importance of better control over the ‘bankarisation’ process, observing that the policy relating to banking remained the solution to the problems of cash shortages in the Cuban economy.

The Caribbean Council is able to provide further detail about all of the stories in Cuba Briefing.  If you would like a more detailed insight into any of the content of today’s issue, please get in touch

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