The Cuban government has shut down 15 small and medium-sized enterprises (SMEs) this year due to accounting irregularities. Judith Navarro Ricardo, a legal specialist from the National Office of Tax Administration (ONAT), revealed that improper accounting practices were detected, such as recording equipment purchases as direct expenses instead of inventory, which artificially reduces the company's profit.
Additionally, there have been issues with the control of primary records like financial statements, which are often missing or concealed. Navarro Ricardo stated that upon confirming these issues, either temporary or permanent closures were ordered based on the severity of the non-compliance.
"As of the end of May, 15 SMEs are in this situation due to accounting irregularities. Some of these cases may lead to tax evasion charges," she told Cubadebate. "An SME that fails to maintain proper accounting and also does not correctly fulfill its tax obligations demonstrates an intention to evade, giving us the right to proceed with a complaint," she emphasized.
Recently, during an inspection of an SME in Havana, inspectors reviewed the tax on the use of the workforce, which is calculated based on the total remuneration paid to employees, applying a tax rate of 5%. The SME had not included the incentives paid to workers in the calculation. After determining the amount owed, the business owner was charged with a surcharge and fined, although it was concluded that the non-compliance was due to a misinterpretation of the rules rather than intentional.
The ONAT has identified the main methods of tax evasion in Cuba: declaring and paying below the actual income earned, omitting income earned outside the country from business operations, and using individuals who are not the true owners to conceal the existence of multiple businesses.
The government claims to have intensified its control actions, but fiscal oversight experts assert that it is unclear how much money escapes the public coffers due to tax evasion. Belkis Pino Hernández, the first deputy head of the ONAT, reported that by the end of 2023 and up to May 2024, 210 reports of alleged tax evasion were filed: 207 from individuals and three from legal entities.
Out of the total, 30 cases were closed after the debt payment was made, 117 cases were processed, and about 63 remain pending. "We are still dissatisfied and, above all, need to be more efficient in handling these processes, as only six cases have resulted in firm sentences: two in Ciego de Ávila, two in Camagüey, one in Santiago de Cuba, and one in Holguín," she detailed.
Addressing Accounting Irregularities in Cuba
In light of the recent closures of SMEs due to accounting issues, here are some frequently asked questions and answers to provide more clarity on the situation.
What are the common accounting irregularities found in Cuban SMEs?
Common irregularities include recording equipment purchases as direct expenses instead of inventory, missing or concealed financial statements, and incorrect tax calculations on workforce remuneration.
What actions has the Cuban government taken against SMEs with accounting issues?
The government has ordered either temporary or permanent closures of the SMEs, depending on the severity of the non-compliance, and has imposed fines and surcharges for tax miscalculations.
How does the ONAT identify tax evasion in Cuba?
The ONAT identifies tax evasion through methods such as comparing declared income to actual income, checking for omitted foreign income, and investigating the true ownership of multiple businesses.