Cuba will eliminate dollar tax to boost economy

HAVANA: Cuba will eliminate Monday the 10 percent tax it has previously levied on the use of the US dollar - and widen the categories of products for which it can be used to pay - in response to the country's economic crisis caused by the coronavirus pandemic and Washington's ongoing embargo.

"We are going to eliminate that 10 percent levy even despite the hostility and the intensifying of the blockade of the United States," Economy Minister Alejandro Gil told state TV. The use of the dollar has been accompanied by a financial penalty since 2004, with the government justifying the move by pointing to the difficulty of operating in US currency in the face of sanctions.

Facing a cash shortage as the embargo tightened and its own economic reforms were delayed, Cuba last year began allowing citizens to purchase household appliances and cars with dollars via bank cards.

Despite the high demand for using dollars, consumers had to deposit their money - often received through remittances - into a bank before they could use it. With the penalty, only 90 cents of every dollar made it onto their cards. With the tax canceled as of July 20, demand could increase even more.

"It is a fair and logical measure," economist Omar Everleny Perez told AFP. "To continue supplying stores, the country needs a currency that allows it to do so."

The new rules will allow certain high-end groceries and hygiene products to be purchased using dollars in some stores, though it is so far unclear which ones. "There is a segment of the market with economic solvency," Perez said, pointing to the purchases some in Cuba are able to make.

The sale of groceries in both currencies - with one CUC equivalent to one dollar and 24 CUP equivalent to one dollar - will continue. The Economic Commission for Latin America (CEPAL) predicts Cuba's GDP will contract 8 percent in 2020 thanks to the pandemic.

Tourism, the country's economic driver, has been paralyzed for the last four months due to travel restrictions put in place to curb the spread of the coronavirus and the island has had to make adjustments in the face of an "exceptional" situation, economy minister Gil said.