Free Enterprise Gains in Communist Cuba PRICE OF BEING LEGAL - TAXES

Article excerpt

WELCOME to Pancho's car-repair shop, the vanguard of private enterprise in Fidel Castro's communist Cuba. The "shop" - actually a short length of street in the leafy Vedado section of Havana - has tools, electricity supplied through a line from an adjacent house, and a hand-cranked pulley suspended from a tree branch. The three young mechanics are supervised by the owner, Francisco "Pancho" Munoz.

As rudimentary as the shop might seem, to judge from the number of other "Panchos" in the streets selling food, peddling flowers, cutting hair - even repairing disposable cigarette lighters - the idea is catching on.

"What we'll accomplish here in a day would take a state-run repair shop a month," says a proud Mr. Munoz, who used to work as a mechanic in a government ministry garage. Last June, Cuba's communist regime grudgingly approved an expanded list of self-employment activities that will be officially allowed in what it insists will remain a mainly state-owned-and-operated economy. That decision followed a first, narrow approval of some self-employment in 1993. It came in response to a need to create new sources of income for people at a time when state enterprises are laying them off. It also acknowledged activities that already had existed clandestinely - and which could be better regulated, and taxed, once they were legalized. "I'd been doing this under the table since 1968," says Munoz, as his workers - two sons and a friend - hoist a car's engine from the frame. "Now I can work out in the open, but it's also easier for the government to kill me with their taxes." Today Cuba officially counts 208,000 people with self-employment licenses. Some economists say that number could rise to about 300,000. Figuring that for every person registered, two to three others are also working privately, Cuba could soon find itself with about a quarter of its 4 million workers self-employed, says George Carriazo Moreno, assistant director of Havana's Center for World Economic Studies. "That activity is not so important in the overall picture of Cuba's economic performance," says Mr. Carriazo, "but it does represent a relatively important element of a changing, adjusting economy." Including expanding agriculture cooperatives, where members work their own land for their own profit, Cuba could soon count about half its workers as self-employed, Carriazo says. Other factors, such as increased nickel and petroleum production, better harvests, and more tourists, are bigger players in what Cuban officials say was the country's 2.5 percent growth last year, and 7 percent growth in the first quarter of this year. But the expanding private economy does count for a lot with Cuba's government, in part because it offers a weary populace new ways of making money. It also gives more people access to the US dollars that constitute a parallel economy here. At the same time, it means a growing slice of Cuba's 11 million people will no longer be dependent on the state for their livelihood. That could lead people to desire less of a state role in other aspects of their life, and thus political change. Partly as a way to boost government revenues, but also as a means of controlling the fledgling private sector and its growth, the government is in the midst of implementing a tax on self-employment. …