europe view no 89

EUROPE

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A plague on small businesses
Jul 10th 2008
From Economist.com


A moving story of Polish bureaucracy

IN THE bureaucrats’ ideal world, people stay still. Movement creates unpredictability, uncertainty, confusion and the possibility that people will dodge taxes or defraud the taxpayer.

So in any country, the state creates a few obstacles to discourage too much flightiness. In Germany and many continental countries it is a minor misdemeanour not to register your home address with the authorities. You need official approval to change your name.

The Anglo-Saxon tradition is different, allowing people to stretch or shrink their names at will. Posh Anthony Lynton-Blair can become plebeian Tony Blair. You can even change your name to something completely different on a whim, so long as you don’t obtain money dishonestly as a result. Similarly, you don’t have to tell the British authorities where you live. But if you have a business, it must have a real address, available to anyone who asks, with a nameplate on the door showing the physical location.

But in the ex-communist countries that have failed to reform public administration (ie, most of them) the lingering control-freakery of the Bolshevik mindset and the legacy of the Ottoman, Hapsburg and Czarist bureaucracies make these requirements far more onerous.

Take for example, the rigmarole involved in moving a one-person business (owned by a friend of your columnist) from one district of Warsaw to another. The first stage is for the owner to change her personal ID card. That takes a month. Then the business owner goes to the municipal office in the place she is leaving and informs them of the move and the new address. That information makes its way at snail’s pace through the Polish bureaucracy to the other municipal office. It typically takes three to four weeks.

During this period the business is in limbo. It is not clear which is the legal address: the old one or the new one? Where should taxes be paid? Failure to comply involves time-consuming and even costly penalties.

When the municipal office is satisfied that the move is OK, the next stage is to go to the state statistical office and have officials there register the company change of address, and update the “REGON”—the state statistical number. Armed with that, and the new company stamp, the owner then has to go to her bank and write an annex to her company’s contract with it. Then the same procedure happens with her accountant. It is hard to see why this is a legal requirement.

If the company is still in business, the owner must take the title deed or rental agreement to the new premises, notarised, and then embark on changing the records at the tax office. Here, as with all the government offices mentioned, the opening hours are inconveniently short and often unpredictable, and the queues long. Knowing the right person can speed things up considerably. But not everyone wants that kind of friendship: obligations cut both ways. The applicant then fills out several forms, each lengthy and different, which are submitted to the offices dealing with value-added tax, income tax and so forth.

Once these are processed, the company can start worrying about its customers, costs, and what its competitors have been up to in the meantime. But one obstacle still remains: dealing with the ZUS social insurance bureaucracy. That is time-consuming too, but need not be done immediately.

It is worth noting that none of this—at least in the Warsaw offices dealing with your columnist’s friend—could be done online. Poland’s government talks happily about its plans for streamlining the state machinery. For the country’s long-suffering small businesses, they can’t start soon enough.