Title: REDUCING THE SMALL BUSINESS REGULATORY BURDEN
1- REDUCING THE SMALL BUSINESS REGULATORY BURDEN
- Septi Bukula
- Tri-nations Conference
- Durban, 23-25 August 2006
2Comment by Somali aviation entrepreneur
- In Somalia we have no functioning government and
no government regulation. Thats good. There is
no corruption. - But its also a problem, with new market
entrants, standards are not regulated - So you need regulation!
3Why regulation is necessary
- Regulations are essential for a properly
functioning economy. They shape incentives and
influence behaviour and interaction among people
and can help societies deal with difficult
economic, social and environmental problems.
OECD, 2003 - Regulations can also create benefits for
enterprises by establishing an environment that
fosters healthy competition and reduces
transaction costs. Baldwin Cave, 1999
4Good regulation is
- Not unduly prescriptive and enables the regulated
to choose the most cost-effective ways to comply - Enforceable, with incentives and disciplines at
the level necessary for reasonable enforcement - Administered by accountable bodies in a fair and
consistent manner - Monitored and periodically reviewed to ensure it
continues to achieve its aims
5Bad regulation has bad results
- Impedes innovation in the market
- Creates unnecessary barriers to trade and
investment - Hampers economic efficiency
- Discourages entrepreneurship
- Can threaten the legitimacy and effectiveness of
regulation as a tool to achieve policy objectives - If burdens are seen as unreasonable, compliance
levels fall and the general level of respect for
the law could be undermined
6Regulatory madness Kenya example
- Broadway Bakery (Single Business Permit)
- Has depots in many locations throughout the
country - Delivers to depots and directly to shopkeepers
- Has to obtain 35 SBPs from 35 municipal and
county councils - Varying council license fees per vehicle
- Should there be a need to use another vehicle,
other than the one licensed as per the SBP, the
company is charged full annual fee for the
vehicle for one day
7Higher level impact of bad regulation
- To an increasing extent it is being recognised
- that unnecessary compliance costs for business
- may have adverse effects on economic growth
- and employment (EIM)
8Regulatory costs
Total direct costs
Taxes
Premiums
Financial
Admin. charges
Dues
Fines
Compliance
Substantive
Offsetting benefits
Admin. burdens
9In SA, negative regulatory impact recognised
- Inappropriate and unduly restrictive legislative
and regulatory conditions are often viewed as
critical constraints on the access of small
enterprises into the business sector and as
obstacles to their growth. Unduly strict
regulations often harm small and, in particular,
emergent enterprises and benefit the larger,
established ones - (White paper on the promotion and development of
small business)
10Historically, good intentions
- (NSBA Sec 18) The Minister may publish
guidelines on - Procedures for consultation with the dti on
proposed legislation - Assessment of the effect and application of
legislation on SMEs - Consultation with SME organisations and others
- The review of the effect of existing legislation
on small business - The Minister may identify the type of legislation
that may have an effect on small business and in
respect of which the consultations may be
conducted
11Accompanied by various positive efforts
- National small business regulatory review
- Impact assessment of the Basic Conditions of
Employment Act - Study on international best practice on
regulatory impact assessment (RIA) - SARS cost of tax compliance initiative
- Administrative burdens study
- Red tape to smart tape initiative of PSA
- Presidency efforts??
12Why focus on small business?
- It is an established fact that the burden of
regulation - falls more heavily on small businesses, not
because - they are more heavily regulated, but because they
have - the least capacity to cope (Productivity
Commission, - Australia)
13SMEs cry out about red tape!
14How the model works
- In-depth analysis - data transfers between a
business and the authority are isolated and
defined - Time for each data transfer and the level of the
person performing determined, assuming a
reasonably efficient performance - Data computed to produce cost estimates
15Benefits of the model
- Results provide insight on the exact allocation
of costs - Therefore assists in formulating strategies to
reduce compliance costs for enterprises in a
certain policy area - May not necessarily imply a change in the content
of legislation and/or public goals
16SA study on administrative burdens
- Focus on VAT and RSC levies
- Among the top identified by SMEs as causing most
administrative pain - Also cited in the National Small Business
Regulatory Review - Internationally, there has been a lot of focus on
VAT (tax legislation in general accounts for
between 40 and 50 of compliance costs) - MISTRAL (Standard Cost Model) methodolofy used
17Administrative obligations
- Obligations largely similar for VAT RSC
- Registration
- Record-keeping
- Submission of return
- Communication with authorities
- Inspections
- Notify authorities on change in status
- De-registration
18Results of cost estimates VAT
- Registration R 1 063 per enterprise
- Record-keeping R 3 556 Recurring
- Tax return R 2 471
- Communication R 97
- Inspection R 506
- Notify changes R 83
- Deregistration R 664
-
R6 027
19Estimate for recurring costs VAT
- 2002 506 098 (registered enterprises) SOURCE
SARS (2003) - Approximately 498 500 SMMEs
- Estimated recurring AB R3 billion p/year
- Large part AB caused by outsourcing costs (60
SMMEs) -
20 Results of cost estimates RSC
- Registration R161 per enterprise
-
- Tax return R1 497 Recurring
- Communication R9
- Inspection R562
- Notify changes R63
- Deregistration R103
21 Estimated administrative burdens RSC
- 2003 approximately 960 000 (registered SMMEs)
SOURCE Ntsika (2002) - Estimated recurring AB R1.4 billion p/year
- RSC AB not heavy but high due to large number of
enterprises that have to comply
22General measures to ease small business burdens
- Special assistance and guidance to help SMEs meet
their compliance requirements - Amendment of administrative requirements to make
them less stringent for small business - Ensuring that new and amended regulatory
requirements are sensitive to small business
compliance issues right from the start
23 Specific recommendations VAT
- Increase reliabibility of internal logistics and
improve image - Expand online filing possibilities
- Reduce queuing time at SARS offices
- Bring the frequency of the VAT return down
- Conduct an international benchmark study on
reduction of VAT induced admininistrative burdens
24 Recommendations RSC
- Bring the frequency of the RSC levy down
- Link the RSC levies to other taxations and
incorporate them within e-filing
25 Kenya SBP objectives
- Simplify the local regulatory environment to
encourage greater economic growth and employment -
- Reduce administration and compliance costs
-
- Generate consistent business related data for
local level planning, regulatory and service
delivery purposes - Enhance local government revenues
- Establish a stronger link between government and
the business community in order to improve
government transparency, accountability and
responsiveness
26 Kenya SBP application procedure
-
- Applicant has to physically visit Local Authority
offices to purchase the SBP application form - Relevant officer may be out of office at the time
of the visit or LA may want to inspect the
premises before issuing the application form
requiring the applicant to visit the LA offices
more than once - In completing the form, the applicant has to
refer to the previous years application and
records for certain information -
27SBP application procedure (cont.)
- Since payment accepted ONLY in cash or bank
cheque, not company cheque, most companies prefer
to use bank cheque - An application, accompanied by a company cheque,
is lodged with the bank and a bank cheque
subsequently collected - SBP application form, together with payment, is
lodged in person at the offices of the local
authority -
28SBP application procedure (cont.)
- SBP is collected in person. Sometimes collector
is informed that there is missing information or
the application form is incorrectly completed - The collector is then required to return to the
company to correct the error and resubmit the
application - Finally, if everything is in order, the SBP is
issued and the company representative returns the
second time to collect it -
29Kenya regulatory enforcement
- Bizarre regulatory enforcement regime bordering
on criminal behaviour and abundance of corrupt
practices! -
30SBP burden estimate
- Taking into account
- Application procedure
- Traffic delays
- Number of enterprises
- Single license (not multiple SBP)
- KSH 4,4 billion annually
-
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