RPT-In communist Cuba, the tax man cometh

(Repeats with no changes)

* Cuba publishes first comprehensive tax code

* Code signals changing economic landscape

* Tax-free life under paternalistic government on way out

HAVANA, Nov 28 (Reuters) - Most Cubans have not paid taxes

for half a century, but that will change under a new code

starting Jan. 1.

The landmark regulations will change the relations of Cubans

with their government and are a signal that market-oriented

reforms, launched since President Raul Castro succeeded his

brother, Fidel Castro, in 2008, are here to stay.

The recently published code constitutes the first

comprehensive taxation in Cuba since the 1959 revolution

abolished just about all taxes.

In the 1990s after the collapse of the Soviet Union, the

country's main benefactor, the Cuban government imposed a few

scattered taxes, but mostly preferred to maintain low wages so

it could fund free social services.

The government's free market reforms introduced over the

last two years, are designed to encourage small businesses,

private farming and individual initiative, along with plans to

pay state workers more. Under the new tax code the state hopes

to get its share of the proceeds.

The government also envisions replacing subsidies for all

with targeted welfare, meaning that the largely tax-free life

under a paternalistic government is on its way out.

"This radically changes the state's relationship with the

population and taxes become an irritating issue," said Domingo

Amuchastegui, a former Cuban intelligence analyst who lives in

Miami and writes often about Cuba.

The new code covers 19 taxes, including such things as

inheritance, environment, sales, transportation and farm land,

various license fees and three contributions, including social

security.

A sliding scale income tax - from 15 percent for earnings of

more than 10,000 pesos (about $400) annually, to 50 percent for

earnings of over 50,000 pesos, (about $2,000) - adopted in 1994,

remains in the new code for the self-employed, small businesses

and farms, but it also includes a series of new deductions to

stimulate their work.

TAX DEDUCTIONS

For example, farmers may deduct up to 70 percent of income

as costs, and small businessmen, who are taxed by income not

profit, up to 40 percent, plus various fees and secondary taxes

they pay.

A labor tax of 20 percent will gradually be reduced to 5

percent by 2017, and small businesses with five employees or

less are exempt.

Eventually all workers will pay income taxes as well as a

new 2 percent property tax, but both measures are suspended

until "conditions permit" them to go into effect.

The government admits, with an average pay of about 450

pesos per month, or $19, many workers do not earn enough to make

ends meet.

"They collect taxes for all these things around the world,

it's normal," said Havana economist Isabel Fernandez.

"But here we face two problems. On the one hand we are not

used to paying for anything and on the other our wages are so

low we can't spare a single peso," she said.

Under the old system, large and small state-run companies,

which accounted for more than 90 percent of economic activity,

simply handed over all their revenues to the government, which

then allocated resources to them.

The reforms call for large state-run businesses to be moved

out of the ministries and become more autonomous.

Under the new tax system they will pay a 35 percent tax on

their profits, but can take advantage of a myriad of deductions

ranging from amortization and travel to sales taxes, insurance

and environmental protection.

Many smaller businesses will become cooperatives or be

privately leased and taxed based on income.

The state-owned Cuban National News Agency said Cuba had

studied the tax systems of a number of other countries,

including several with capitalist economies.

"The experiences of China, Vietnam, Venezuela, Brazil, Spain

and Mexico were taken into account, but they were refined to the

particularities and conditions of the island," the new agency

said.

The new code is not etched in stone - it can be amended each

year as part of the annual budget passed by the National

Assembly, and temporarily modified for different reasons by the

executive branch of government.

"Like the reforms, it is a work in progress, a work that has

barely begun and will take time to put in place," said a Western

businessman who has worked in Cuba for almost two decades.

But, he added, "this is of course a major step forward

toward the 21st century and a modern state."

(Editing by Jeff Franks, David Adams and Paul Simao)

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