Tear down the barriers to growth

Andrew Kinast is the managing partner of Grant Thornton Poland.

I am not sure why it has taken the ministry of economy, labor and social policy so long to decide that there are too many barriers to doing business in the country. Reading any newspaper or talking to any businessman would have achieved the end result much more quickly and no doubt cheaply. But indeed the minister quite rightly wanted to ensure that he had gotten his facts straight, and hence it is only now that the report is ready to be leaked to the press.

At Christmas I wrote a wish list of things which to my mind needed to be done to make the country a far more business-friendly environment. The ministry writing a report that is then leaked to the media to get their reaction was not on that list since I had thought that we had gotten beyond the stage of defining the problem to the point of actually doing something about it. Clearly, yet another study was required so that (hopefully) the authors and the commissioning ministry can show what radical thinkers they are.

I could at this point moan about the country being a specific basket case, but there are quite a number of other countries I can think of where the lawmakers cannot see the obvious. It is, however, the case that we appear to have accumulated all the worst examples from around Europe and elsewhere of how not to do things, adding a dose of Soviet-style control. We have a situation today where every jumped-up petty official can question the legitimate decisions of business owners. And, of course, at the same time we have totally failed to curb corruption, sharp practices and all the other things that go hand in hand with anything that is run by human beings.

So what is to be done? As I see it, there are two options. The first would be to adopt the southern European approach to life whereby you pass laws so that politicians can feel satisfied that they have done something and then close an eye to the more onerous aspects of compliance with the law and occasionally come down hard on a particularly corrupt businessman. Or, alternatively, we could go back to basics and decide quite what it is we want to achieve. Which surely is a pro-business climate both among regulators and the population as a whole.

Which brings me back to the wish list. First, taxes. Recognize that VAT is designed to tax consumption. As a side issue, it is designed to catch the parallel economy at the points where it touches legitimate taxpaying business. The numerous rules about when you can and cannot reclaim VAT are total nonsense. They are all designed to put back the moment when business can offset input VAT, and by their very nature are a tax on business (or at least a means of the state getting an interest-free loan from business).

Why not introduce flat-rate income tax and a very low rate of corporate tax? The example of Russia, which has a flat tax rate, should suffice, as the amount of tax money collected there has grown considerably as a result of reduced rates. In reality, of course, we will get a system whereby the tax reliefs that no one understands will be taken away, while the tax rates remain the same.

Additionally, something has to be done about arbitrary decisions made by tax inspectors. On a quick count and checking with my colleagues in other professional firms, our clients have made more money this year in claiming interest from the state on incorrect and overturned decisions than from their normal business activities.

Second, bring in a principle that the registration courts have to register shareholder decisions within 24 hours. Most decisions must in any case be enacted before notaries, so why do we need a second layer of fact checking? The same goes for company formation procedures.

Third, stop changing the accounting regulations and reporting formats every five minutes as these changes do not do anything to improve either the reporting or the quality of data. I have written before about adopting International Accounting Standards.

Last, repeat every five minutes that business is good and government is bad. Government cannot create wealth. It cannot even encourage entrepreneurs to be more active. All government can hope to do is to ensure that minimum legislation is in place to regulate proper business conduct and to prosecute the guilty. Most important, the government should ensure that mid-level officials in the ministries and in local authorities do not constantly block entrepreneurship (using the old principle of the gardener's dog: If I don't have business acumen, why should I allow you as a businessman to be successful?).

Which brings me to the main issue. The country has problems with its administration service precisely because it is neither politically independent nor accountable. But it really would be a radical politician who would try to deal with this most basic problem. With his popularity running below 10%, perhaps the current prime minister would have nothing to lose.