THE APPLICATION OF REGULATORY IMPACT ASSESSMENT IN THE BUSINESS

THE APPLICATION OF REGULATORY IMPACT ASSESSMENT IN THE BUSINESS REGISTRATION REFORMS Branko Radulovic Principal Economic Advisor to the Council for Regulatory Reform • RIA Background and Overview • Implementation of the Business Registration Reform in Serbia of Impact Analysis (RIA) • Case Study 1 • Steps of BRR RIA • Case Study 2 Regulatory Impact Assessment/Analysis • A policy tool to help identify and if possible quantify the likely effects of a proposed new regulation, regulatory change and existing regulations – Answering the simple questions (checklist) • A detailed systematic assessment of impacts, benefits, side effects, and costs of regulation • Includes structured consultation with stakeholders and citizens • Not a substitute for decision-making but can help to inform policy decisions Regulatory Impact Assessment • RIA often based as a proportionate 2-phase model: – Screening / Preliminary Assessment (e.g. fine tuning of the existing legislative framework) – Detailed assessment if required (e.g. mayor reform) Business Registration Reform RIA • Benefits of implementing RIA in the business registration context: – Introduces structured and explicit focus on the objectives behind business registration reform – Identification and analysis of alternative options for achieving improved business registration system – Encourages analysis and quantification of costs associated with business registration procedures – Promotes well thought-out and explicit examination of expected benefits of legislative or institutional changes with respect to business registration – Emphasizes the importance of consultation with stakeholders (businesses, tax authorities, etc.) and data collection – Timely focus on enforcement and compliance issues – Identification of performance verification targets / review mechanisms Case Study 1: Detailed RIA Business Registration Reform • First (Pilot) RIA in Serbia • Basis for 2002-2003 Business Registration Reform Key analytical steps 1 2 3 4 5 6 7 1.Identify the problem, causes and consequences 2.Define the objectives. 3.Identify policy alternatives 4.Analyze their impacts. 5.Compare the alternatives 6.Prepare Regulatory Impact Statement / Document 7.Outline policy monitoring and evaluation. Stakeholder consultation & information and data collection can run throughout the process Step 1: Identify the problem, causes and consequences 1 2 3 4 5 6 7 • Delineate the extent of the problem. • Identify the key players/affected populations. • Establish the causes. Problem tree Low number of startups (newly registered companies) Large informal economy, accounting for 1/4 of GDP Difficult access to finance Expensive maintenance of the existing data base system Data produced are too unreliable for the statistical and economic analyses needed to underpin policy-making. Registration lasts 71 day, costs 202 US$ and takes 16 steps Lack of transparency and difficult access to basic company data Proportion of data that is incorrect or outdated in the Commercial Courts’ databases range from 60% to 80 % CONSEQUENCES The process of registration is expensive, time-consuming and uncertain PROBLEM Courts overburdened as registration requires almost 8 percent of the total time of judges in the commercial courts. Legal services (lawyers) necessary to register Various registration practices and five parallel databases Various data confidentiality standards CAUSES Commercial courts have limited capacity Separate registration system for entrepreneurs and for companies Lack of coordination and cooperation between various registration institutions Entrepreneurs and companies ignore their legal obligations with respect to updating Registration as judicial and not administrative procedure Complicated system of institutions responsible for registration of entrepreneurs and companies Step 2: Set the objectives 1 2 3 4 5 6 7 • Set objectives that correspond to the problem and its root causes Goals tree CONSEQUENCES: Registration lasts 71 day, costs 202 US$ and takes 16 steps Lack of transparency and difficult access to basic company data RESULTS: Registration lasts less than 20 days, costs less than 100 US$ and takes 12 steps Transparent system with user friendly data access Less than 5% of incorrect or outdated data GOAL: The process of registration is short, affordable and predictable MEASURES: Changes of the current legislative frameworks and establishment of the registration as an administrative procedure Establishment of the integrated registration system and introduce common practice Enable reregistration to separate active and inactive companies. Proportion of data that is incorrect or outdated in the Commercial Courts’ databases range from 60% to 80 % PROBLEM: The process of registration is expensive, time-consuming and uncertain CAUSES: Registration as judicial and not administrative procedure Complicated system of institutions responsible for registration of entrepreneurs and companies Entrepreneurs and companies ignore their legal obligations with respect to updating Logframe Intervention logic Improving investment climate Purpose Short, affordable, reliable and transparent registration system Specific goals Indicators International rankings Share of private sector in GDP Employment indicators Number of newly formed companies and registered entrepreneurs Customers’ satisfaction Source IMF, WEF, OECD Assumptions and risks Newly established Agency, Business Registry Data, Survey, World Bank DOB, Official statistics, Ministry of economy, Law offices Company law reform Implementation of new tax reforms Results Lower registration costs Shortened time to be registered Improved data quality Improved data availability Time to be registered Registration costs Number of steps Existence of the integrated data base Internet data access availability Percentage of incorrect data Resources: Courts provide existing documentation Companies provide data on changed status Acceptable software solutions Wages in the public sector increased Changes of the current legislative frameworks and establishment of the registration as an administrative procedure Regulatory measures Establishment of the integrated registration system and introduce common practice Enable reregistration to separate active and inactive companies. Preconditions -Political support -Available financial resources and technical solutions -Courts and local authorities willing to support -Organizational capacities Step 3: Identify policy alternatives 1 2 3 4 5 6 7 • • • • Identify policy options to meet the objectives Consider the most appropriate delivery mechanisms (regulatory / non-regulatory approaches) Narrow the range by means of screening for technical and other constraints, and by measuring against established criteria • Draw up a shortlist of potentially valid options for further analysis. BRR Alternatives • The main three alternatives analyzed are – the commercial courts, – the Chambers of Commerce, – an expert registration administrative agency, • stand-alone • associated – the commercial courts, – Ministry of Justice, – tax authorities Shortlist of potentially valid options Status quo Tax administration Not integrated system, registration is not an administrative procedure Commercial courts with new system and IT Independent governmental agency Registration as an administrative procedure Chamber of commerce Not integrated system and high implementation and compliance risk Combination Step 4: Identify the likely impacts 1 2 3 4 5 6 7 • Identify (direct and indirect) economic and social impacts and how they occur. • Identify who is affected and in what way. • Assess the impacts in qualitative, quantitative and monetary terms where possible and appropriate. • Consider the risks and uncertainties in the policy choices, including obstacles to compliance • Most difficult phase Matrix of impacts Self standing Commercial courts Chamber of Commerce Baseline Alternatives Economic Impacts Social Impacts Enforcement costs Administrative burdens Quality and availability of data Step 5: Compare the options 1 2 3 4 5 6 7 • Weigh-up the positive and negative impacts for each option. • If feasible, display aggregated and disaggregated • results. • Present comparisons between options by area. • Identify, where possible and appropriate, a preferred option. More advanced techniques • Cost benefit analysis – Direct costs easy to get • Estimates of Start-up Costs for Business Registry Hardware and Software • Annual staffing costs, etc. – Indirect costs none – Direct benefits relatively easy to get but not indirect • estimate that over the long run new system would have direct net benefits in the range of 5-7 million euros (depends on the assumptions about the GDP growth, average wage, etc) – Indirect benefits (courts efficiency, access to financing, etc.) Step 7: Monitoring 1 2 3 4 5 6 7 • Identify core progress indicators for the key objectives of the possible intervention. • Possible monitoring and evaluation arrangements • Business registration system is relatively easy to monitor and evaluate – Criteria explicit and clear (time, money, steps) – WB DOB, but customer survey, national statistics, etc. Case Study 2: TIN Registration Screening RIA • First phase of BR reform successful • Second phase encounters probles Background Serbia Time (days) Procedures (number) Cost (% of income per capita) Minimum capital (% of income pc) 2006 2007 2008 15 10 6.0 9.5 18 10 10.2 7.6 23 11 8.9 8.0 Multicriteria Analysis Single Window – Facilitating OSS Empowered OSS Temporary License Baseline Alternatives Functional criteria 1. Does the alternative reduce costs and delays for businesses? 2. Does the alternative improve legal security against tax evasion? 3. Does the alternative improve transparency? 4. Does the alternative comply with EU requirements? 5. Does the alternative improve public and particularly tax administration efficiency and free up officials for field work? 6. Does the alternative unify the registration number for various (tax, company registry, statistical, etc.) purposes? Implementation criteria 7. What legal and institutional changes are needed to implement this reform? 8. What investment is required to implement the alternative? 9. How much time is needed to implement? 2 2 2 2 2 2 43 3 43 3 422 3 23 2+ 1 2+ 2 1 1 2 2 2 1 22- 1 1 1 222- Risk Analysis • Phantom operators, damage and success rate Number of Charges 2002 2003 2004 2005 Total 225 135 104 79 543 Number of Persons 409 240 201 154 1004 Arrested 64 34 38 17 153 Detained 14 25 24 8 71 Damage €23.112.242 €12.753.917 €13.572.143 €8.901.885 €58.340.187 % detained 3,4 10,4 11,9 5,2 7,0 Source: OECE(2006) “A Report on Money Laundering and Predicate Crime in Serbia 2002-2005” based on Ministry of the Interior data. Standard Cost Model (SCM) • The SCM (Standard Cost Model) is a standardized method for measuring administrative compliance costs (administrative burdens) • Standard Cost Model : P x Q – Where P= HxT+(A+E) and Q = NxF – H = time required to comply – T = tariff – A = acquisitions and E = external costs – N = number of businesses – F = frequencies