Import tax deadline has Cuba entrepreneurs on edge

Posted on Saturday, 09.01.12

Import tax deadline has Cuba entrepreneurs on edge
By PETER ORSI
Associated Press

HAVANA -- A sudden jump in import taxes on Monday threatens to make life
tougher for some of Cuba's new entrepreneurs and will mean higher prices
for many of their customers by raising the cost of goods ranging from
jungle-print blouses to jewelry.

The new measures steeply hike duties on cargo shipments, as well as on
many bulk goods brought in by airline passengers, a crucial supply line
for many of the small businesses the government has been trying to
encourage as it cuts a bloated workforce in the socialist economy.

Officials insist the taxes are similar to those in other countries, but
many small-business owners view the change as an ominous sign.

While the published official description seems aimed at items such as
clothing, soap, food and other personal-use goods, it is so complex it
leaves importers of other products unsure if they will be affected, now
or in the future.

Some of the entrepreneurs, such as Javier Ernesto Matos, say they have
prepared for the blow by stocking up on parts before the tax takes effect.

He also has prepared for a worst-case scenario if supply dries up
entirely: "It's pretty shocking, but the strategy we have in mind is to
consolidate in a single shop and leave prices the same to recoup what we
can from our investment," said Matos, who together with two business
partners operates three mobile phone repair shops called the Cellphone
Clinic.

Others say they'll have no choice but to raise prices. That, along with
the higher taxes on goods brought in by friends, has worried consumers
in a country where the average monthly wage is about $20.

"For our family these are important items, from a little soap to a
backpack for school," a woman identified as Loraine wrote on the
state-run Cubadebate website. "We all make sacrifices to help them.
Nothing falls from the sky. Why are they turning their backs on reality?
Knowing how many shortages there are in the country, why be so strict?"

While President Raul Castro has tried to expand the private sector, the
government has done little to provide wholesale outlets where businesses
can buy parts and materials for the goods they sell, so many supplies
are either unavailable or prohibitively expensive due to high government
retail markups.

Arturo Lopez-Levy, a Cuban-born economist at the University of Denver,
said it's not unusual for countries to levy high customs duties, but
Cuba has exceptional circumstances that make it inadvisable right now.

"The right timing was to create the wholesale market first and then try
to crack down on this type of activity," Lopez-Levy said. "If you don't
have a wholesale market, then you are implementing the measures without
the proper sequence, especially if you really want to promote the small-
and medium-size nonstate sector."

"In the long term, this resolution was necessary," he said. "Right now,
it's a mistake."

The new duties seem primarily targeted at so-called "mules," who make
frequent shopping trips to places such as Ecuador, Panama and Miami and
bring back duffel bags bulging with food, underwear, shoes and electronics.

Starting Monday, Cubans who travel abroad more than once a year not only
will pay higher tariffs, they'll pay in hard currency rather than the
more-easily obtainable national peso, which trades at 24 to the U.S.
dollar and is used for most salaries.

Cubans will also begin paying dollar-based sums of $4.55 a pound ($10
per kilogram) above a certain weight to receive packages shipped by air
and sea. That rate doubles if they bring in large shipments.

The impact is already being felt by people like Rafael, a 50-something
who imports clothes to Havana. Before, he paid the equivalent of $65 in
the local currency to import 550 pounds (120 kilograms) of clothing.
Under the new, progressive duty schedule, that would apparently cost
between $1,300 and $1,800.

"This idea of raising taxes is crazy. ... I don't know where this
decision came from, because it hurts everyone," Rafael said. "But it
hurts the people the most, because we have to raise our prices."

Already costly for Cubans - a pair of jeans costs an average month's
wage - Rafael's prices stand to rise an initial $2-3 per garment and
could go up even more, he said.

He declined to be identified by his full name because his business
license only authorizes him to make clothing, but he essentially resells
imported garments.

The new rules will mostly affect clothing stands and boutiques, but
could also hurt the supply of things such as artificial nails to beauty
salons, or fabric, buttons and zippers to dressmakers.

It could also make it harder for some Cubans to visit family abroad.
Trips are often funded by agreeing to bring back large bags on behalf of
someone who pays the airfare.

The Cellphone Clinic's Matos said he began doubling his normal purchases
this summer and has stockpiled enough parts like fragile electronic
ribbons to stay in business for two more years, no matter what.

"If buying pieces becomes more expensive, if people are bringing in
less, you have to reevaluate and prices will have to rise," he said.
"It's a bad thing, because if you raise the price not everyone will come
like before. It's not worth it, you know?"

It's not clear that any state-run operation would offer some of the
Clinic's services, such as unblocking an iPhone 4.

Separate tax rates cover food and electronics, including 400 pesos (or
$17) for a Cuban to import a 32-inch or larger flat-screen TV on a first
trip, and $400 on subsequent travels.

Authorities insist they're just trying to improve service at Cuban
airports, where excess baggage clogs conveyor belts in passenger
terminals. In mid-August, state-run website Cubadebate published Customs
officials' explanation of the tariffs along with several examples.

But it did little to ease concerns, judging by the dozens of exasperated
reader complaints posted in the comments section.

"Why should a Cuban citizen have to pay the taxes in a currency in which
they themselves are not paid?" said a poster identified as Roberto
Suarez. "That's not fair. I don't travel, but I don't see the logic in
that."

Some said the regulations could force entrepreneurs to turn to
black-market goods pilfered from state-run concerns.

Others, however, predicted that Cubans, famous for their knack for
finding a make-do solution to any problem, will figure a way to sidestep
the duties.

"Something will be found to get around this," said Maria, another
clothing vendor who also would not give her last name because her
business activities exceed the scope of her license. "It always happens
in this country. It's like they say: 'He who creates the law, also
creates the cheat.'"

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Associated Press writer Anne-Marie Garcia in Havana contributed to this
report.

http://www.miamiherald.com/2012/09/01/v-fullstory/2979960/import-tax-deadline-has-cuba-entrepreneurs.html