Bureaucracy crushes small and medium companies

Too much bureaucracy damages also functionable parts of the system.

Small businessmen spend about one month per year on red tape. This costs them E1651

An almost 250-metre long snake made from about 700 sheets of forms and documents small and medium-sized companies need to fill in and deliver to state bodies each year meandered via the streets of the Old Town on September 29. Representatives of the economic think tank INESS made the snake to demonstrate visually what a burden existing legislation puts on small and medium businesses (SMEs).

Based on the INESS’s Bureaucratic Index, a small entrepreneur in Slovakia spends on average 164 hours per year in order to meet 78 obligations. Compared with the previous year, the index did not change significantly when it decreased by only one hour and one duty.

"This is not a completely gratifying result," said INESS analyst Martin Vlachynský when introducing the index for 2017, adding that they have registered an increased interest from the side of the Economy Ministry to actively solve some problems of entrepreneurs.

The Economy Ministry responded to the index by saying that there are issues that can be solved by changing the systems, but that such changes require more time while these pertain not only the Economy Ministry but also other ministries, for example the Environment Ministry.

"I reiterate that there are things that can be improved and we are heavily working on them," said Economy Minister Peter Žiga.

International Bureaucracy Day

INESS choose to present the latest index on September 29, the birthdate of economist Ludwig von Mises, author of the book Bureaucracy.

"This is why we, along with foreign partners, choose this day to be International Bureaucracy Day," said INESS analyst Richard Ďurana. "It should remind people of the time lost by paper work."

Bureaucratic Index 2017

Analysts calculated the index based on a model metal-working company with four employees, an annual turnover of E300,000, a gross profit of E15,000, who is a VAT payer, trades only within the EU, produces a variety of waste, owns a van and is located in its own building.

It spends 164 hours or about one month per year in order to meet 78 obligations, costing it E1,651. Compared with the previous year, the time required decreased by one hour after one waste management duty dropped out from all the duties of small entrepreneurs. On the other hand, the annual costs increased by E56 compared with 2016.

Duties related to remuneration and labour are the most time-demanding. These account for 38 hours. They are followed by waste duties and occupational safety, then protection of health, each requiring 29 hours of paperwork annually. Corporate tax requires 25 hours, archiving 16 hours and paperwork for the social security provider Sociálna Poisťovňa takes 14 hours. Entrepreneurs spend 13 hours on other duties annually.

President of the Slovak Small Enterprises Association Vladimír Sirotka noted that the bureaucracy burden is a big issue as out of all companies in the country 98 percent are small and medium-sized businesses. While these may account for 38-40 percent of GDP, they make up 72 percent of employment.

"This is why the impact of the administrative burden is so considerable," said Sirotka.

He added that the red tape bothers small business much more as the bigger one as these have a team of accountants, lawyers and other experts to deal with the paperwork. A small business usually has only an external accountant.

Sirotka specified that the issues that bother small and medium sized entrepreneurs the most are frequent changes in legislation; for example, the Trade Licensing Act has changed more than 110 times since its adoption. A big burden for family business is transfer pricing. Other issues burdening SMEs are that the laws change from differing dates and redundant submission of documents, just to name a just a few.

Czechs and Bulgarians need even more time

One positive aspect is that Slovak entrepreneurs have to spend less time on paperwork than their peers from the Czech Republic and Bulgaria. While Czechs need 199.5 hours to meet all their administrative obligations, Bulgarians need 175 hours. On the other hand, Slovak entrepreneurs have the highest number of duties to fulfil. Their costs are also the highest. This is because of the high average monthly wage in Slovakia compared with Bulgaria.

34 measures

"Since the fall of 2016 we have registered from the side of the Economy Ministry an increased interest to actively solve some problems of entrepreneurs, for example in the form of the package of 34 measures," said Vlachynský.

Economy Minister Peter Žiga introduced in early May a package of 34 measures that should reduce costs for businesses by E44 million and will apply to all businessmen. He promised other packages to follow.

The measures, divided into five groups, concern public administration services, increasing competitiveness, hiring of employees, as well as tax and business support.

In terms of individual measures, the package contains a measure aimed at revising health supervision through occupational health services for employees. Another measure is to increase the so-called super-deduction of expenditure on research and development to 100 percent. The measures should also make the process of acquiring construction permits more efficient and simplify the process of permitting small-scale construction. The Environment Ministry suggests reducing red tape for businessmen related to the law on waste.

"However, the transition of the proposed measures into practice is relatively slow," said Vlachynský, adding that furthermore several of them change during the approval proceedings in cabinet and parliament and are adopted in a deformed shape. Thus in the end, they do not bring in so many benefits as they originally could.

Vlachynský also lacks a systematic fight against bureaucracy, when each cabinet pursues its own priorities. More extensive electronisation of data and inter-connection of various databases would help, as state bodies often repeatedly ask for paper documents when they already exist in electronic form.
 
10. Oct 2017 at 15:14 | Jana Liptáková   link