57480 BEnER REGULATION Vol. I SERIES BETTER REGULATION FOR HIGHER ROWTH © 2010 The International Bank for Reconstruction and Development I The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved 12341312 11 10 Manufactured in the Republic of Bulgaria First printing: November, 2010 Report No.57480-BG This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Cover design by Boris Balabanov (Exchange rate effective October 29,2010) Currency Unit=Bulgarian Lev (BGN) EUR 1=1.95583 US $ 1= 1.41144 BGN FISCAL YEAR 1 January - 31 December WEIGHTS AND MEASURES Metric System ARC Administrative and Regulatory Costs BEEPS Business Environment and Enterprise Performance Survey BRU Better Regulation Unit BGN Lev (Bulgarian national currency) CEDB Citizens for European Development of Bulgaria CEG Council for Economic Growth CoM Council of Ministers ECSPF Finance and Private Sector Development Department, World Bank EU European Union EUR Euro (currency) FlAS Foreign Investment Advisory Service - joint World Bank and International Finance Corporation program IT Information Technology LARACEA Limiting Administrative Regulation and Administrative Control on Economic Activity (Act) OECD Organization for Economic Co-operation and Development RIA Regulatory Impact Assessment SG State Gazette SMEs Small and Medium-sized Enterprises Vice President: Philippe Le Houerou, ECA VP Country Director: Peter C. Harrold, ECCU5 Sector Director: Gerardo Corrochano, ECSPF Sector Manager: Lalit Raina, ECSPF Task Team Leader: Evgeni Evgeniev, ECSPF ACKNOWLEDGEMENTS ............................................................................................................... iv EXECUTIVE SUMMARY ...................................................................................................................... v I. INTRODUCTION ................................................................................................................................ 1 II. THE OVERALL BURDEN OF REGULATION ............................................................................. 3 2.1. Bulgaria's "Doing Business" Standing .......................................................................... 3 2.2. Findings from Enterprise Surveys ...................................................................................... 6 2.3. Comparing the Perceptions of Manufacturing and IT Firms .............................................. 8 2.4. Regulation at the Local LeveL ........................................................................................... 9 III. IMPROVING THE ACT ON LIMITING ADMINISTRATIVE REGULATION AND ADMINISTRATIVE CONTROL ON ECONOMIC ACTIVITy ..................................................... 11 3.1. Context ............................................................................................................................. 11 3.2. Key Issues ......................................................................................................................... 12 IV. DEVELOPING A BUSINESS-FRIENDLY REGIME OF STATE FEES ................................. 15 4.1. Context ............................................................................................................................. 15 4.2. Key Issues ......................................................................................................................... 16 V. CONCLUSIONS AND KEY POLICY RECOMMENDA TIONS ................................................ 18 5.1. Policy Level ...................................................................................................................... 18 5.2. Institutional Level. ............................................................................................................ 19 5.3. Legislative Level .............................................................................................................. 20 REFERENCES ....................................................................................................................................... 22 Table 1: Although improvements have not been uniform - and some setbacks have occurred - Bulgaria's Doing Business ranking has improved since 2004 .................. 5 Figure 1: Bulgaria keeps 51 st position in Doing Business 2011.. ..................................................... .4 Figure 2: Bulgarian firms reported spending more of their time dealing with regulations in 2008 than firms in other recent entrants to the EU ...................................................................................... 6 Figure 3: Firms report that their senior managers spend about 5 to 10 percent of their time dealing with regulatory requirements in 2009 ................................................................................................. 7 Figure 4: Fewer managers of manufacturing firms said that regulatory policies were interpreted inconsistently or unpredictably in 2009 than said the same in 2007 ................................................... 7 Figure 5: In 2007, firms in Bulgaria were more concemed about the predictability and consistency of how regulations were interpreted ................................................................................................... 8 Figure 6: IT firms had different perceptions about regulation than manufacturing firms .................. 8 This document is an Overview of three recent reports that have been prepared under an on-going Regulatory Reform Economic and Sector Work of the World Bank. The World Bank team was led by Evgeni Evgeniev, Private Sector Development Specialist, Finance and Private Sector Development Department (ECSPF), and comprised John Gabriel Goddard (Economist, ECSPF) and Tarik Sahovic (Private Sector Development Specialist, IFC) for Volume I; George R. Clarke (International Consultant, Texas A&M International University), John Gabriel Goddard and Yana R. Ukhaneva (Consultant, ECSPF) for the Administrative and Regulatory Barriers to Business (Volume /I); experts from Club "Economika 2000" were lead authors of the Ex-Post Impact Assessment of the Act on Limiting Administrative Regulation and Administrative COl1trol 011 Economic Activity (Volume 1/1), and Marc Reichel (International Consultant on administrative barriers), was lead author of the Reforming the Regime of State Fees (Volume IV). Anne T. John, Marga O. De Loayza, Nikolinka Ivanova and Vessela Stambolyiska, all from the World Bank, provided precious technical support. Hilary Gopnik, Chavdara Bosilkova, and john Felton provided editorial support for Volume I, Volume II, and Volume Ill, respectively. The World Bank team would like to thank all government officials, private business and academia, who collaborated during the preparation of the series. The team would like to acknowledge the co-funding contribution by Government counterparts of the Administrative and Regulatory Costs Survey, conducted between May and October 2009 in Bulgaria. The World Bank team is also appreciative of the feedback and valuable insights received during the January 14,2010 Workshop of the Group of 40 at the Ministry of Economy, Energy and Tourism, and the july 6, 2010 public meeting of the Council for Economic Growth, chaired by H.E. Traycho Traikov, Minister of Economy, Energy and Tourism, and attended by government officials and representatives of business associations. The four volumes were prepared under the general guidance of Theodore O. Ahlers (Country Director for Bulgaria since May 15, 2009) and Peter C. Harrold (Country Director for Bulgaria since January 25, 2010), Fernando Montes-Negret (Sector Director, ECSPF until December 21, 2009), Gerardo Corrochano (Sector Director, ECSPF since February 15,2010), Lalit Raina (Sector Manager, ECSPF), Sophie Sirtaine (Sector Manager, ECSPF), and John Pollner (Country Sector Coordinator, ECSPFIECCU5). Florian Fichtl (Country Manager for Bulgaria until July 15, 2010) provided strategic guidance during the process of consultation with public and private actors and contributed with valuable comments on earlier drafts of Volume II, Volume 1II and Volume IV. Markus Repnik (Country Manager for Bulgaria since July IS, 2010) and Sereen juma (Senior Country Officer, ECCU5), and Ivelina Taushanova (Communications Officer, ECCBG) provided valuable support to the team on Volume I. Peer reviewers of the Reforming the Regime of State Fees were Margo Thomas (Senior Operations Officer, Foreign Investment Advisory Services, IFC and World Bank) and jorge Rodriguez Meza (Program Coordinator, Global Indicators and Analysis, World Bank). Peer reviewers of the Administrative and Regulatory Barriers to Business were Jorge Luis Rodriguez Meza and Alistair Nolan (Head of the Investment Compact for Southeast Europe, OECD), whereas peer reviewer for the Ex-Post Impact Assessment of the Act on Limiting Administrative Regulation and Administrative Control 011 Economic Activity was Marc Reichel (international consultant). The team is thankful also to Irina Astrakhan (Lead Private Sector Development Specialist, ECSPF), Paulo Correa (Lead Economist, ECSPF), Stella Ilieva (Senior Economist), Sereen Juma (Senior Country Officer, ECCU5), and Rosalinda Quintanilla (Lead Economist), all from the World Bank for reviewing earlier drafts of the reports and providing helpful comments and suggestions. Special thanks go to John Pollner (Lead Financial Officer, ECSPF, World Bank) for working closely with the teams and providing timely suggestions and comments for the improvement of earlier drafts of all four reports. Bulgaria has made great strides in the past six years in improving the business environment by reducing the administrative and regulatory burden on the business sector. In 2008 the World Bank's Doing Business ranked Bulgaria one of the world's top ten refonners, as a reduction in regulations and procedures made it easier to start and conduct a business in Bulgaria. Key indicators of the regulatory burden have continued to improve over the past two years. But the global economic crisis has hit Bulgaria hard, and it has been difficult to keep the momentum for regulatory refonn strong. In these demanding times, however, it will be even more critical to extend the refonn agenda. Bulgaria will need a more friendly business environment with a sound regulatory system to correct for market failures that inhibit investment and innovation. This report summarizes the findings of three topical studies recently completed by the World Bank: Administrative and Regulatory Barriers to Business (Volume /I) studies the overall burden of regulation for companies in comparison to other relevant EU peers; The Ex Post Impact Assessment of the Act on Limiting Administrative Regulation and Administrative Control on Economic Activity (Volume /II) makes an assessment of how this act has been enforced, identifies and estimates the impacts of the act, and provides recommendations for amendments; Reforming the Regime of State Fees (Volume IV) examines how refonns to the structure of state fees could decrease the regulatory burden for finns. These World Bank reports identify ways in which Bulgaria can further remove obstacles to business regulation. This recognizes that achieving pre-crisis growth levels, raising labor productivity and improving the business environment will require continued reforms to eliminate administrative and regulatory barriers to business. These reports argue that innovative, smart regulation will reduce the regulatory burden for businesses as procedures and regimes are simplified and streamlined. And the government will also benefit from an improved regulatory environment as it will require fewer resources and less time to administer the regulation needed for an efficient economy and a dynamic society. The adoption of legislation, policies, and institutional reforms have created the foundation for Bulgaria's improvements to its business environment. The enactment of the Act on Limiting Administrative Regulation and Administrative Control on Economic Activity (LARACEA) in late 2003 was considered a significant achievement by economic policymakers. This act remains the basis for meaningful refonn going forward. More recently the Bulgarian government cooperated with international partners to improve the institutional framework and monitoring of regulatory policies. The adoption of the Better Regulation Program 2008-2010 became the cornerstone of regulatory reform. As part of this program, the Better Regulation Unit (BRU) at the Council of Ministers (CoM) was established in 2008, followed by a training program for administration personnel and preparation of regulatory impact assessments of important legislation. In the spring of 2010, under the new administration, the Ministry of Economy, Energy and Tourism developed an Action Plan to reach a target of 20 percent reduction of the administrative burden by 2012, and the government prepared a new Better Regulation Program to cover the period until 2013, which was approved by the Council of Ministers in May 2010. The regulatory and administrative reforms to date have had concrete results. In surveys of companies in Bulgaria, senior managers report spending less time on dealing with regulations in 2009, compared to 2008 and 2007. And Doing Business 2011 documents reductions in the number of procedures, the time to register, the cost of registration, and minimum capital requirements. Bulgaria has also reduced corporate taxes and improved the regime of paying Bulgaria's business environment is ranked in the top third of countries worldwide (Set of 183 countries), but the regulatory burden in Bulgaria is still higher than in most other ED countries. As well as ranking below the well established economies of Europe such as top ranked UK, Denmark, and Ireland, Bulgaria is less attractive to business than other recent EU entrants, such as Estonia, Lithuania, and Latvia. As Bulgaria ranks i h in the context of the new EU-IO, clearly there is room for improvement. Although Bulgaria has made progress through legislation, policies, and institutions, there is substantial room for improvement in the administration of regulations particularly at the local level. Municipal authorities often add additional burdensome administrative procedures and fees to the cost of doing business, even when in some cases these are directly prohibited by the LARACEA Act. In addition, inefficiencies in the administration of regulation at the local level, such as duplication of documents and a lack of a centralized electronic registry, make it more difficult and costly for both companies and administrators to do their jobs. In 2008, senior managers in Bulgaria reported spending 10.6 percent of their time dealing with requirements imposed by government regulations, a higher figure than in other new EU entrant states. The regime of state fees is particularly burdensome for business. An outdated legal framework, weak institutional structure, and lack of government policy for setting state fees has resulted in an unchecked increase in fees, which rose by as much as 60 percent between 2005 and 2008. A number of state fees are so high that they seriously harm competition by functioning as barriers to firm entry. Although the State Fees Act specifies that fees should be set to achieve cost recovery, this requirement is largely ignored, and state fees are often used to fund state bureaucracies. Concern about the predictabiJity of regulation remains higher in Bulgaria than in other new ED entrants. The 2009 Administrative and Regulatory Costs survey indicated that over half the managers of Bulgarian companies felt that regulations were applied inconsistently and unpredictably. The lack of a consistent, predictable, fair, and transparent regime for administrative fees makes doing business in Bulgaria unduly difficult and less competitive. This report offers several specific recommendations that will help ease the regulatory and administrative burden on companies doing business in Bulgaria: · The government needs to develop and adopt a general policy as well as internal guidelines to articulate straightforward criteria for establishing state fees and to improve transparency. This policy must be backed up by a public institution with the authority to enforce the guidelines, coordinate among institutions and stakeholders, approve the setting of state fees, and monitor results. Clear guidelines and a mandate to enforce them will not only streamline the fee-setting process and make it more equitable, but it will give businesses the confidence in predictable regulation they need to plan for the future. · The mandatory use of regulatory impact assessments (RIAs) to evaluate the cost of key legislation on all stakeholders needs to be adopted, as already mandated in the LARACEA Act for new regulatory regimes. The wider application of RIAs will significantly improve the quality of legislation and policies. Impact assessments will not only ensure that regulation is not unduly burdensome on business, they will answer business leaders' call for increased stability, consistency, and transparency of legislation. · An electronic Administrative Register needs to be set up to improve compliance with rules and regulations, and to raise efficiency, predictability, and transparency. An electronic register at the central and local level would give businesses the knowledge they need to comply with rules and regulations, and provide h d i . ra i h I he n en£' ce res:rnilltinn" P.ff1~;~~·l .. It would also make administrative procedures clearer, thereby reducing corruption, improving predictability of policies, and increasing the business sector's confidence in stable regulation. · Local conditions for doing business need to be improved. Doing away with redundant rules and inefficient practices at the local level will save businesses time and money. Specifically, there is a need to streamline or eliminate requirements to submit documents that have been issued by the municipal authorities themselves, curb the unlawful imposition of registration regimes, and shorten issuance processes. Improvements could be instigated by pilot programs that follow international best practice models and that encourage competition for efficiency among municipalities. These would complement the development of a fiscal decentralization model for Bulgaria. Underlying all these reforms, should be a strengthening and enforcing of theLARACEA Act and implementation of the Better Regulation Program 2010-2013. Amendments to the LARACEA Act need to be made so that its objectives are more easily interpreted and enforced, and to ensure that there is a clear avenue for institutional support of its mandate. The Better Regulation Program currently lacks an institutional framework, particularly since the phasing out of the Better Regulation Unit (BRU) in mid-2009. Reinstatement of the BRU as a separate authority with a strong mandate would re-energize the momentum for regulatory reform in Bulgaria. As before, the BRU could report directly to the Prime Minister's office and count on solid long-term financing for the management, monitoring, and control of the Better Regulation Program. Issue Recommendation.-----:-----:::---:-~ Timeline* Redundant rules and ineffective practices at the Support the implementation of pilot cases that Short-term local level. Local administrative services are improve local administration practices and burdensome for businesses in terms of: (i) enforcement conditions for doing business including through of additional requirements that are not directly related regulatory, administrative and institutional to or necessary for the facilitation of regulated reforms that follow international best practice and commercial activity: (ii) requirements to submit further the objectives of the Better Regulation documents that have been issued or already available Program 2010-2013. from the municipal authorities themselves; (iii) lack of public registers and limited utilization of electronic government tools; (iv) unlawful impOSItIOn of registration regimes; and (v) lengthy issuance rocesses. ---"~"---~--~-~--~------------~-~----------------- Non-transparency of the regime of state fees. The Develop a Policy on State Fees, addressing: Short-tenn lack of an overall policy, and transparent procedures to i) identification of the function of state fees; to set and raise state fees, harms the business climate. ii) decision on subsidizing or not of the state fees; Mid-term Moreover, the link between fee revenues and bonuses iii) decision on retaining fee revenues by public that is allowed by the current regime of state fees agencies; creates the wrong incentives. The fact that some iv) methodology for establishing a cost recovery executive agencies can retain a considerable percentage based approach; (25-75 percent) of fee revenues for their own budget v) amendment of the outdated State Fees Act or and mostly distribute this as bonuses to employees adoption of a new Act that supports a modern fee creates an incentive to increase fees. Thus. agencies structure. focus more on the revenue-generating function of fees (and fines) than on the legal requirements, namely the principle of cost recovery. Even where the principle of cost recovery is applied, agencies tend to inflate the cost by including expenses beyond the specific service ~f!12I~~~~_~.~~._~_~_~_~_~_~~_~_~_~. ___~~~_~----l---._._._~~_~_~~~._._._~~~~_~_~~~._. _ _ ~ ~_~_~_._.~ Weak state authority responsible for the Better Give an official mandate to the Better Regulation Short-term Regulation Program. The authority to manage, Unit at the CoM Administration to report directly to monitor and control the implementation of the Better to the Prime Minister, with an established budget Mid-term Regulation Program is split between the Ministry of to carry out this work. Economy, Energy and Tourism and the CoM Administration. This institutional framework has the potential to shelve or delay government measures in the regulatory refoml area and reduce accountability for _____ ~_,:-:c:--,_--==.==:'-- .=-::--::--:-=-~_~.::::=___ __ ~:~_:::::- ~_~ -t~~-~-~~~.~-- Weak enforcement of the LARACEA Act. scope Amend the LARACEA Act to increase its scope Short-term of the LARACEA Act is limited; there is scant and improve its: to application of the principle of silent consent; the (i) administrative implementation provisions; Mid-term institutional framework is inadequate; and the adoption Oi) institutional support resources and functional of a new regulatory regime is not preceded by the measures; development of an ex-ante impact assessment as (iii) rules for calculation of administrative required by the Act. Moreover. irregular regulatory charges including for local level jurisdictions. regimes and superfluous administrative procedures continue to be introduced by municipalities and central authorities without due regard to the requirements in the Act (e.g. introduction of registration regime for cgll1"11_e£~ill!...~!lishment at the local level). I Issue Recommendation Timeline* There is no institution in charge of monitoring and Empower a state authority to deal with the Short-term approving state fees. It is essentially up to the regime of state fees and adopt a single-cost to executive agency or ministry in charge to apply the calculation model for setting such fees, to be Mid-term State Fees Act according to its o\Vn interpretation. The reHected III secondary legislation and/or Act does not empower the government to adopt implementing regulations. secondary legislation on issues such as prescriptions on the application of the cost-recovery principle. No entity within the government has the responsibility to review fee proposals or to request changes. Wbile the CoM is in charge of approving proposals for amendments in tariffs, none of its members would have the time, specific responsibility or the technical knowledge to apply the State Fees Act consistently. This practice results in unpredictability and excessive discretionality I~_ setting of state fees. Low transparency and predictability of regulations. To increase transparency and predictability of -~r-------- As per 2009 Administrative and Regulatory Costs regulations: (ARC) Survey, over half of the managers of all types of (i) Amend the Law on Normative Acts to Short-term firms in Bulgaria stated that regulations were applied introduce the regulatory impact assessment to inconsistently and unpredictably. Although taxation is (RIA) as a mandatory tool for important Mid-term one of the areas that has achieved substantial progress legislation and policies. in recent years, the greatest area of concern related to (ii) Set up an on-line Administrative Register Mid-term to taxation, was the frequency of rule and rate changes. documenting regulatory regimes and procedures Long-term to hold public bodies accountable according to a Qublished set of rules. _ *Short-term «1 year); Mid-term (1-3 years); Long-term (>3 years). INfRODUCTION Removing regulatory obstacles that create barriers to business is a major objective for economic policymakers. 1 There is broad understanding among policymakers and development practitioners that microeconomic reforms aimed at strengthening property rights, unleashing competition, and reducing the cost of doing business are critical to creating a sound investment climate and promoting economic growth (World Bank 2004; World Bank 2005; Lewis 2004). It is also commonly agreed that these changes need to be credible and sustained for private firms to respond by increasing investment and production (World Bank 2005). This report summarizes the findings of three topical studies of the World Bank: Administrative and Regulatory Barriers to Business (Volume lI) studies the overall burden of regulation for companies in comparison to other new EU peers and specifically assesses IT and manufacturing companies and the role of key stakeholders. The Ex-Post Impact Assessment of the Act on Limiting Administrative Regulation and Administrative Control on Economic Activity (Volume lIl) makes an assessment of how the act has been enforced, identifies and estimates the impacts of the act, and provides recommendations for amendments. Reforming the Regime of State Fees (Volume IV) examines how reforms to the structure of state fees could decrease the regulatory burden for firms. The private sector responds far better when it has confidence that the state will not reverse or supersede regulatory decisions by changes in policies or legislation. The more uncertain and risky the legal and administrative environment for economic activity, the more likely it is that aggressive rent-seeking and short-term profit-taking will replace longer-term investment (FIAS, 2009). Successful regulatory reform is therefore not just about cutting the immediate regulatory barriers or administrative burden but also about making a good investment climate an ongoing objective in policymaking. Reducing regulatory costs and barriers to entry and exit can support the recovery and boost long-term growth. Relatively easy access and exit from the market facilitates the reallocation of productive resources, as inefficient firms pull out of the market and allow for the growth of new dynamic firms. In order to become fully operational, firms also need to obtain licenses and deal with inspectors for standards, health, safety, and environmental protection. Superfluous, inefficient administrative procedures and inspections, or illegal practices that affect the regulatory regimes at the central and municipal levels, cost businesses unnecessary time and money, reducing their productivity and potential to grow. Well-designed and applied administrative procedures can help stimulate business productivity as well as reduce public sector costs. The private sector is the most obvious beneficiary of streamlined administrative processes because it becomes more competitive and operates more predictably under established rules. However, the government also benefits from an improved regulatory environment. Innovative or so called "smart regulation" reduces the regulatory burden for businesses when procedures and regimes are simplified and streamlined. At the same time, the public sector becomes more efficient as it requires fewer resources and less time to administer. I Regulation is often used to mean legal or administrative instruments to achieve policy objectives, whereas the r()sts to a company of providing information to the Government or a third party (consumers or shareholders), . . . . . . " Bulgaria has made progress in recent years with the Better Regulation Agenda. Upon joining the EU, Bulgaria made progress in the area of regulatory reform by adopting the European legislation through the acquis communautaire. In 2003, the country moved forward with the adoption of the Act on Limiting Administrative Regulation and Administrative Control on Economic Activity (LARACEA) and with the establishment of the Council for Economic Growth (CEG) one year earlier. In fact, the CEG promoted the introduction of Regulatory Impact Assessment (RIA) in Bulgaria, which was also an important step forward. In 2007, the Ministry of Economy and Energy emerged as a strong champion of Regulatory Policy and RIA initiatives by working closely with other line ministries, business associations, think tanks, and the World Bank. One year later, the leadership role was transferred to the Better Regulation Unit at the Council of Ministers (CoM) Administration, directly reporting to the Prime Minister. 2 This Unit took the lead in coordinating government efforts to prepare the Better Regulation Program 2008-2010. 3 The government put regulatory reform at the top of its agenda, and business' confidence in the government increased in this area, as reflected in 2009 surveys among firms and the Doing Business indicators. However, local conditions for doing business are lagging behind. In 2009, 167 municipal regimes were abolished. For instance, the "Registration of a Commercial Establishment" regime introduced in contravention to national legislation by 140 municipalities was eventually revoked in 110 of them by 2009. However, about 30 municipalities continue to illegally apply this regime. In addition, municipal authorities enforce additional administrative procedures (formalities) which cost money and time for business. For instance, some of the documents required from businesses are already available in government records or are generated by the local authorities themselves (e.g., submission of a document that proves the payment of local taxes and fees). Furthermore, public registers are not used and electronic submission of documents is not practiced at the localleve1. 4 The new Administration has contributed to progress in the area of regulatory and administrative reforms. The government came to power in July 2009 and soon afterwards created the Council on Administrative Reform as an Inter-ministerial council chaired by the Minister of Finance. Proposals for a reform in the field of payments in the state administration were discussed, and a government report is expected to come out on the state administration payment system. In addition, a reform for streamlining of the administrative structure was initiated in September 2009-a 15 percent cut in administrative expenditure was targeted by the end of 2010. Furthermore, the Ministry of Economy, Energy and Tourism prepared in the spring of 2010 an Action Plan for reduction of the administrative burden for business by 20 percent until 2012,5 and in May 2010 the Government approved a new Better Regulation Program, developed by government authorities, covering a period until 2013. 6 2 See World Bank (2008a) for more on policies of the Bulgarian Government in the regulatory reform area. Results from the first year of the Better Regulation Program are summarized in World Bank (2010a). 4 The administration often asks the business to provide their court registration and Unified Register for Identification of Economic and Other Subjects (BULSTAn, which the administration can access itself because the information is available in the public registers . .:; · · · 1 .... · ~ - ~ . THE OVERALL BURDEN OF REGULATION The regulatory system impacts day-to-day business transactions and shapes the incentive framework for investment, which can have multiplier effects for the effective contribution by private enterprises to the economy. Reducing the burden of regulation, therefore is not only a matter of administrative reform, but is also intricately integrated with economic policy making and putting in force an enabling economic environment. The Better Regulation Agenda in Bulgaria is challenged by the impact of the global financial crisis. The recession in high-income countries, which had an impact on the demand for Bulgaria's exports, and the global financial crisis, which reduced capital inflows and lowered domestic demand, hit Bulgaria in late 2008, and the economy contracted. 7 The new Bulgarian government introduced prudent fiscal policy and achieved a low gross debt level as a response to the global financial crisis. 8 However, this had the unfortunate effect of pushing the regulatory reform agenda to the periphery of govemment priorities. One of the reasons for this was that the agenda envisioned cost-reducing payments (e.g. fees) from businesses, which implied reduced revenues for the govemment. In times of fiscal consolidation, the tradeoff became difficult. Given the depth of the downturn affecting Bulgaria's economy, it is crucial to develop a business-friendly environment that will help increase productivity. The Bulgarian government needs to sustain its efforts to raise labor productivity and to compete on global markets. Bulgaria will need a labor force with the capacity to innovate-absorb, adapt, develop and commercialize new technologies and processes. And Bulgaria will need a more friendly business environment with a sound regulatory system to correct for market failures that inhibit productive and innovative investment and to reconcile the interests of firms with the interests of economic and social development. 2.1 Bulgaria's "Doing Business" Standing Regulation in Bulgaria is not as burdensome as it is in many countries in the world, but Bulgaria's ranking in the Doing Business is less favorable than that of many EU countries. In the most recent Doing Business 20 JJ (World Bank, 201 Oc), Bulgaria ranked 51 st out of 183 countries, similar to its ranking last year (World Bank, 2009a). Although this shows that regulation is not as burdensome as in many countries, Bulgaria compares less favorably with other countries in the EU and with the new entrants to the EU (Figure 1). This suggests that Bulgaria could improve its ranking. 7 Unlike in high-income countries, the global financial crisis is having a different impact in Bulgaria - it is not a financial crisis, but it is a demand crisis. In addition. the real exit rate for finns in Bulgaria has been much higher than expected, For more infonnation. see Ramalho, Rodriguez-Meza. and Yang (2009). and Correa and Iootty (2009). 8 Tntf'rnational rating agencies. like Moody's and Standard & Poor's, have increased their ratings for Bulgaria in Figure 1: Bulgaria keeps 51st position in Doing Business 2011 120 109 100 80 80 70 63 60 56 49 51 45 46 41 42 37 40 30 31 32 n 23 24 25 26 17 20 13 14 4 6 'J 0 ~ -"" v v c > .~ r, ".j", ri r;; r;; > cc ""2 .., Q :::l ~ ':J r r;; .., v Q '"" ~ r;; '"" r;; ~ :> C -g '"" -"" Q C r;; .., -= <5 "-' Q ::; ::; 33 ::; r;; -' r;; ~ 'Q" " -;:: ."., :::; r;; :> > r U Q Q " ":J ~ "- LL !; VI V' w ~ r, ~ LL ~~~__ Pr~edures (num.!J.~ _ _ ~___~~~:~~t fi2010J ------------r---l~--- __~ . ._ _. Time da s ) . 32 +- ~~8 ___J C Cost % of income er ca it~_ _ ~4.____ +--k.6 I Dealing with Construction Permits r-'2 .~-----l------~----~-~---------I-- I I r------------~---_+__- Cost (% of income er ca itaL___ ~ _~ __ 4.4.~1 IR,gi,t~~Pro~rtv- ~--" P,ooed""'l"-mnl>.,L Time (days) _un _ _ ~__________ - - - +___ -----T--~-2__- 475.2 -1L~_ _L_ 15_ r-G<1t~~"~if~}l~:I~~~-- 8 ~ -T--- 24 f-r-- -~- ---~-·-f~£~i~!:~~~:;i~;Jl;i~~~===~~-T-===~~~---=--=t~~E .. - __._.__._._.___-_______ Private bureau coverage (% of adults) ..J 0 T 13.1 ~~t[~estors Extent of disclosure index (0-10) I 10 I 10 - Extent of director liabili!Lin..~~){ (0-10) i 1 ~_L __ I--____ ~~ ______.______ _+__E"cas"'' ' e of shareholder suits index (0-10) I 7 7 i __ I-~tr.e~n.£th of investor protection index ~O) I 6 _ _ _ 6 .____ fJ>~yil1lLI~){~.s_____________ Tfaymel1!~(number per year) . _ Il~____ 17 f----------------+-Ji..~ (hour.s..E~r year) i 6]6_ 616 1 Total tax rate (% profit) 46 29 __ ITfadingAcros~Borders Documents to export (number) 7 5 i I Time to eX2..0rt (days) I-- 26 23 E:~~=- i,i ~~~~::~=J~;;~;:;er). li~3 15;1 Time to import (days) 25 21 t==- L§t:lfCl!"~~~rttr31cts j Cost to import (US$ per container) Procedures (number) --.----- 1201 40 1666 39 Fc'o,~~a ~U:i:"'.:-~-i!~li~a~r(:~;~,~~~=~:-:-:-. m ;[s ~-----=-=-=-=-=------~il11~~rs) 3.3 3.3 ___.__________ ~ ___l~o..s! (% ~~~'!!.eL__________.____________ .. 9 9 Source: Doing Business 2011 (World Bank, 2010c). Note: The most recent Doing Business 2011 report refers to data obtained by June 2010. Improvements in the area of regulation have continued. Doing Business 2011 (which includes data through June 2010) reports that since Doing Business 2010 the CEDB-Ied government had reduced minimal paid-in capital for limited liability companies to EUR 1 from EUR 2,500 and decreased the total tax rate by 2.4 percent, reaching 29 percent of profit. The indicator "Getting a Credit" improved due to an increase in public registry coverage (37 percent of adults compared to 34.8 percent the previous year) and private bureau coverage (13.1 percent of adults compared to 6.2 percent the previous year). These results demonstrate the potential for continued improvement along a number of dimensions. There is a need for further government efforts in specific areas, such as dealing with construction permits, enforcing contracts, and closing a business. Bulgaria is far behind in tenns of dealing with construction permits. Estonia, ranking highest among new EU members in tenns of this indicator, has 14 procedures, taking 134 days and 29.9 percent of income per capita. 9 Enforcing contracts is another indicator that requires further improvement. In contrast to Bulgaria, in Hungary this takes 35 procedures, 395 days and costs 15 percent of the claim. 10 Furthermore, to close a business in Slovenia it takes 2 years, and it costs 4 percent of the estate, with a recovery rate of 50.9 cents on the dollar, which is much less than in Bulgaria (Table 1).11 2.2 Findingsfrom Enterprise Surveys There are differences between the Doing Business indicators and survey data. 12 These differences can indicate uneven implementation of regulatory requirements, differences between written regulations and the way regulations are implemented, and differences in the scope of coverage. Figure 2: Bulgarian firms reported spending more of their time dealing with regulations in 2008 than firms in other recent entrants to the EU 14 ';,,, 12 L \. 9.3% lIY" Estonia Slovakia Slov~'nia Romania lilhuanltl LJlvi< CLcch BlIl~,tlrkl PclJnd llungtHy Rep Source: BEEPS (2008-09), Note: Figure 2 includes information on all sectors, not just manufacturing firms. Senior managers in Bulgaria report spending 10.6 percent of their time dealing with requirements imposed by government regulations, although this differs across sectors and types of companies. This was slightly higher than in most other new EU member states (Figure 2). For example, managers in Estonia reported spending on average only about 5.5 percent of their time. As per ARC survey findings, senior management of a new Bulgarian manufacturing firm spent 10 percent of their time and the average manager of an IT firm reported that their senior management spent about 11 percent of their time dealing with regulatory requirements (Figure 3). 13 10 In Luxembourg, ranking highest among EU members, it takes 26 procedures, 321 days, and costs 9.7% of the claim. A new Civil Procedure Code, enacted in July 2007 and effective from March I, 2008, addresses the issue of enforcing contracts in Bulgaria. However, there are many other indicators, assessing the judicial performance, that are not covered by the Doing Business or enterprise surveys. As per Bulgaria: Resollrcing the Judiciary for Performance and Accountability (World Bank, 2008b), the judicial system demonstrates modest improvements. Even more, in some areas, it seems to be deteriorating, demonstrated by indicators pertaining to case disposition, case allocation, and average cost per case. II In Finland, ranking highest among EU members, it takes less than a year to close a business and costs 4% of the estate with a recovery rate of 89.4 cents on the dollar. 12 A new Administrative and Regulatory Costs (ARC) Survey, carried out as part of the report Administrative and Regulatory Barriers to Business (Volume 11), provides evidence on the reduction in the burden of regulation. The survey was conducted between May and October 2009. The survey covered 318 manufacturing and information technology (IT) firms. It was commissioned by the Better Regulation Unit at the CoM and was conducted by AFIS Agency. The research tool was developed by the World Bank team. For more information, see World Bank (20IOb). This survey, as well as the earlier Business Environment and Enterprise Performance Survey (BEEPS) and Enterprise Survey, collect information on firms' actual experience with regulations and regulatory authorities. D Throughout the report, whenever the term the 'average manager,' 'average firm.' or 'median firm,' or 'median manager' is used, it refers to the average or median response on that particular question. This is used because it is Figure 3: Firms report that their senior managers spend about 5 to 10 percent of their time dealing with regulatory requirements in 2009 New MJllufacturlng Old tnaf1LlfJeturillg IT Source: Bulgaria ARC Survey (2009). Although the burden on managers has fallen in recent years, a continuing concern is the consistency and predictability of how regulations are enforced and interpreted. Over half the managers of all types of firms in the ARC Survey said that regulations were applied inconsistently and unpredictably (Figure 4). Although high, this figure has dropped since the 2007 Enterprise Survey when as many as three quarters of respondents expressed this concern, more than any other new EU entrant (Figure 5). Substantial progress was made in taxation in recent years, but the greatest area of concern related to taxation was the frequency of rule and rate changes. Figure 4: Fewer managers of manufacturing firms said that regulatory policies were interpreted inconsistently or unpredictably in 2009 than said the same in 2007 Source: Bulgaria ARC Survey (2009), Enterprise Survey (2007), BEEPS (2005). Figure 5: In 2007, firms in Bulgaria were more concerned about the predictability and consistency of how regulations were interpreted 60C: l1 30l~V 10";, 0 "v ",<::5 ,'0 [:)" ~& II I IIII f,)"" ",<::5 ,0 ,<'7 ..?> ,:::- <::;0 ~~ ,.% (..,~ ,.'<, <::;0 <\ i::''0~ ,,'» «:-0<:- 0<~ .,sv '1>0<~ ~, 'V ~,,?:t ~e"<' 'Xv ,~ ,,~ c.:'i"" '0' ~.;;; v .s"J ,,-,,}, <0 Q;.v Source: BEEPS (2005) and Enterprise Survey for Bulgaria (2007). Note: 2005 BEEPS data are provided for all other new EU member states. This figure contains information on all firms - not just manufacturing firms. 2.3 Comparing the Perceptions of Manufacturing and IT Firms The ARC Survey distinguished manufacturing firms, new manufacturing firms (established after 2006), and firms in the IT sector, including companies that are located in Sofia, Plovdiv, Varna, and Bourgas. 14 The areas of regulation that manufacturing firms considered most problematic were competition protection, compulsory certificates, standards and certification, and instability of regulatory policy. Between 14 and 26 percent of manufacturing firms in the ARC Survey stated that these were serious problems (Figure 6). Concern about the instability of regulatory policy was consistent with the data from the 2007 Enterprise Survey. Figure 6: IT firms had different perceptions about regulation than manufacturing firms 30"<., 15'\, 10"0 IT Source: Bulgaria ARC Survey (2009). 14 Bulgarian manufacturing has increased its importance lately. In fact, as per EUROST AT data, the share of manufacturing production in Bulgaria between 1999-2006 increased, unlike the EU-25 average. Moreover. the manufacturing industry accounts for 89 per cent of total export in 2009. In the economic context, IT has become very significant too. The annual rate of value added increase for the IT sector in Bulgaria is 21 per cent, which is much higher compared to the EU-25 average (4 per cent), as per EUROSTAT data and estimates bv the Mini~tnJ M.na~ ahfRotimposed to: raise extra 'funds. Generally, the analysis indicates that, for compa1hdrtglil\tmy'r..egimes e:ltinnined, local governments do not impose fees simply to raise reguIatfirrtqsoff..tJe ;feels cover the \~xpenses relating to the provision of the service. ofli!T ~l ~a!ii~e~.a,mte.:'.fo~ issuNlg administrative decisions in accordance with regulatory w 1Ie l't! ercerW,,,,· ,1pt , C' re mes lSt2"enerally reasonable. than lor anurac ~m6 ,'" ,,:'. e Duplication of documents needs to be reduced. Some of the documents required by 2.4 IR~.dfI~r~tie~ fl3'1f:\ ~usinesses are available in government records or generated by tft~ lOcal authorities themselves (e.g., proof of local taxes and fees). This duplication The :s . ' " ) l.. v "Registration of a (~ir"}l.:;rc~' Estar:' . J .' ,I. ~,~':-";'.. . . I le~sla&JRc9\Pq~ffilm~M~ntntral tH~iRklb~tWIMli~~~~fiiu?llBrg~fr~riJ~~bfiatib'n:ill ;iudr~~~;:IW:':' '.~I·! .';"l-:: ':t -,:; ,<~.: I '. A review 0,,' four reg~il~~;) .. ~' ~eg:1.,d~~ '.(I .:;. .~,--,:':~~~ ·· ! :;, +l.:J·t'"' ?--1'.:1';' '"'? '''..i;;;~~p:: .~~_,:.. (Rlzgrlllt~ 1'f\JyW.sy.~~.\~vr~ I~t t.~f. ~Q~~l. \~#-,~ SJI ~s~~P"J.. -- ;rN.~ ~$. ..r{ig~W"Jlev~o; imple~tWe ~Jf~ ~ptp,tl:!~~n':.h.~ i1ot)een:1l~tJiyy,e~;·:Hl1i{3-plg-' " <' i;", tit. · :i':;' .:,.,:, -.. . ~~ :'i/Vn., ".,I "' ... , _ "'0 _,,_ e_ '". ~-<'I-." '- ' ·· '" , 1.J "...,/ e T.here are .unnecessarily hi~h local taxes and local fees. Some municipalities, Th e mmetS8fhcg~len{t'lg9M,eg:Htt'ylR~1~ft1fPfeven, impose both high taxes and fees, which e ~OMplkJ:iwtthdtH:~tbt1 )a~tk~,pqsit1~ irITk ;r~g,'f ';:<;1;\;:-' -·r.t: imr:ememed at the local leve: ir'~~'_;!!(': ~Ll~ ;-," ~ '." ';. ·-p;-r -"',' -,·;t" u ~',::'~'~ ~';:ti:,.~ ~"1.~ C'I e lihcrenuitllio sJiDkago!lbtttiwe.eD:: the 'quality of' administrative service and the e 'Il'3il~~~ity $I~itn~~1~omc,.r~~t:r!!m,e!lt srste~~~. ~upi~~p~H~~s~ such a~.,Lo~~~p" 4, '7iFoF~l, aqgim~~rr;,.~liH;~'r:¥!K high .in terms. of t~e~gual~.fY, t ~f a}lniinistrative' serv!c~~. }'Qs.efiti§'.pf:av~ilability . ~ nD~ ra~Wi;"l:. .~::: ".1._~ ... ~ , . . of el~ctronic8,P~ernfuent .aCllLatl( n Of' ......, systems; " . . '._ . e ~~~ fill be'~-o !COr~bltiohbetwee'n the- '~siie fof municipalities and the &rtjlbittioflind~rsfjfue~kalt municipalities are perceived by business to have low corruption (e.g., Silistra and Targovishte, I st and 2nd rank), while other small -15--~.l¥l-R· IClpalities ~~~,r~ce.iyed to have high corruption (e,g., Yambol and Pazardjik, 16 ~:n~~~WJs 28 th and 2St ). But some large municipalities (e.g. Bourgas and Varna, 24th and 17 ibid. 27 rank) are also perceived as having high levels of corruption. 18 It should J:.e :'f ' ;' . Bulgaria. but ,:',e IMPROVING THE ACT ON LIMITING ADMINISTRATIVE REGULATION AND ADMINISTRATIVE CONTROL ON ECONOMIC ACTIVITY The Act on Limiting Administrative Regulation and Administrative Control on Economic Activity (LARACEA) exerted a favorable influence by reducing regulatory and administrative burdens on business, but the Act needs to be amended to make a stronger impact. Despite the progress in reducing regulatory and administrative burdens, several obstacles persist in the enforcement of the Act. The World Bank (20 lOa) conducted an ex-post impact assessment of the LARACEA Act. The study concluded that the major problem for the Act is "the broad state intervention in economic activities as manifested by the presence of a large number of regulatory regimes introduced by special laws that result in reduced transactional efficiency and competitiveness of the economy." 3.1 Context The adoption of the LARACEA Act was a significant step forward in the process of regulatory reform in Bulgaria. The LARACEA Act was adopted in 2003 to facilitate and encourage economic activity by defining and placing openly justified limits on the regulations and controls imposed on businesses by nation.al and local government bodies. The Act was intended to reform the regulatory environment by simplifying administrative regimes and administrative control. Through its most important provisions, the LARACEA Act: i. Sets up the guiding principles of legislation and administrative procedure related to economic activity. Among these, the principles of economic freedom (proclaimed by Art. 19 of the Constitution), proportionality, and legitimate expectations are of particular importance; 11. Provides that all regulatory regimes and requirements for permits, certifications and notifications of separate deals and actions must be substantiated in a law. It defines two types of regulatory regimes: licensing and registration; iii. Introduces the requirement that regulations at all levels must be justified by a clearly defined necessity (from the viewpoint of national security, environmental protection, or the personal and material rights of individuals), thus limiting the discretionary power of regulators; IV. Introduces compulsory ex-ante economic analysis and impact assessment for each regulation, which must be made public, as well as a requirement for informing in advance those persons (stakeholders) who will have obligations or be subject to restrictions by virtue of a new regulation; v. Limits the power of administrative bodies to require applicants to submit proof of circumstances which are certified before another administrative body and which are properly entered in a register; VI. Defines the obligations ofthe administration in exercising its powers; vii. Introduces the principle of "silent consent" for issuing permissions and certificates; viii. Constitutes the main set of rules for executing control on business activities; ix. Adopts a list of economic activities covered by a licensing regime. The purpose of the Act was to establish rules restricting unjustified intervention of state and local authorities in the activity of entrepreneurs and commercial companies. A majority of experts and business leaders believe that the Act created the basis for a more favorable regulatory environment in Bulgaria. However, some proposals in the initial draft were not included in the adopted version of the Act. These included issues such as, (i) considering the option of non-introduction of a regulation; (ii) the requirement for official exchange of information and documents among institutions;21 (iii) the application of the principle of "silent consent" to registration regimes; (iv) the possibility for the administration to authorize business associations to perform self regulation, and other matters. Since its adoption, the Act has been modified sixteen times. Implementation of the Act has been inconsistent, and there have been high levels of non compliance with the provisions of the Act on the part of central authorities and municipalities. . The Act did not amend secondary legislation, which resulted in illegal application of regulatory regimes by the executive and by local municipalities. In addition, the LARACEA Act was designed as a common legal Act, to become a clear model for administrative regulation and control. It was intended to serve as a sound basis for the creation of a package of special administrative acts that would affect the business environment. Some of the provisions of the act-including deadlines for issue of registration approval by public authorities and introduction ofthe principle of "silent consent"-exist only de jure. 3.2 Key Issues The report Ex-Post Impact Assessment of the LARACEA Act (Volume III in this series) found that the LARACEA Act was critical in advancing regulatory reform and improving the business environment in Bulgaria, but also identified several shortcomings: 22 · Limited scope of the Act. The Act stipulates the main principles of regulatory impact by distinguishing between two types of regulations: (i) licensing and registration regimes and (ii) regulations referring to individual deals or single actions. However, most of the regulation of business remains beyond the scope of the Act and is subject to the Administrative Procedures Code and other special laws. · Limited application of the principle of "silent consent." Art. 28 of the Act states that this principle, whereby a business application is presumed to be approved unless it is denied within a certain period of time, applies to the issue of permits and certificates for individual deals or actions, unless otherwise provided by another law. In general, special laws avoid the application of the principle of "silent consent." Only six laws apply this principle. · The adoption of a new regulatory regime is not preceded by the development of an ex ante impact assessment as required by the Act. No ex-ante impact assessment is ever made during the drafting and submitting of new regulatory regimes. The Act also mandates that the impact assessment be published on the Internet or made public in another adequate way; this also is not the practice. Most of the 16 amendments to the Act relate to the introduction of new regulatory regimes, yet there is no evidence that this requirement of the Act has been fulfilled. 21This principle was introduced later on by amendment to the Law, SG 7412009. 22World Bank (201 Ob). The report also outlined a policy framework by focusing on the coherence and consistency with governmental and ED policies and initiatives, as well as by touching upon relevant documents on regulatory reform, followed b anal sis of the oal and ob'ectives of the Act and identification {)fnprfro",,~~~~ :_-1: __ · r · Inadequate institutional framework. The Act does not have an adequate institutional framework. This results from three main factors: o Lack of an effective sanction and control system for enforcing the Act. Although a sanction and control system has been created to ensure that public officials carry out their duties as per the Act, it is non-functional and not applicable, since the responsibilities to impose sanctions are assigned to the heads of administrative structures. 23 o Lack ofa truly functional integrated register ofadministrative regimes. The Act contains only a list of licensing regimes and the requirement that all administrative bodies that issue licenses and make registrations shall keep a special register for each procedure. A study of 41 existing licensing regimes indicates that in 12 of them either no register is available, or a register exists but is not publicly accessible, which contravenes the provisions ofthe Act. 24 o No official authority holds clearly assigned responsibility under the Act for its implementation, to control its performance or to suggest necessary amendments. The lack of such responsibility can hardly be compensated by the general administration of the CoM, or another functional or line ministry. Given the findings of this report, the Act has not been incorporated as an integral part of a general strategy for reduction of administrative burdens on business and restricting bureaucratic interference. This demands constant efforts on behalf of the government, since bureaucracies do not tend to readily surrender their powers and prerogatives. These problems generate several impacts: · High costs to businesses related to applying for and obtaining licenses, registrations, permits, and certificates. These costs can be measured both in ternlS of financial expenses and of loss of valuable time. In financial terms, the most important are the losses resulting from fees for permits (Table 1). Sometimes these fees are unrelated to the real costs of services delivered to business and are used rather as a tool for generating income for the bureaucracy.25 In this way, services are double-financed: first, tax-payers pay, and the budget distributes resources for administrative services to business, and, second, the same service is financed again in the form of additional material incentives to officials in administration. v As per Art. 30 (1) of the LARACEA Act, the mayor or the minister is to impose a fine of BGN 1,000 (EUR 500) to 5,000 (EUR 2,500) on an official ofhislher own administration for not implementing the provisions of the Act, unless another sanction is applied. Hence, there is no external sanction or control mechanism over civil servants. This makes it likely that delays or mistakes by civil servants go unpunished. An additional disincentive for sanctions is that the amount of a possible fine is very high. Another factor is that businesses are subject to numerous inspections resulting from multiple types of administrative regulations; this increases the possibility of one or more officials violating the ternlS of the Act. 24 Attempts so far to build such registers have achieved only partial success. The first to be created was the Register of Administrative Structures and Administrative Acts at www.government.bglras/regimes/index.htmL Though still accessible on the Internet, this Register has not been updated recently. It lacks a list of introduced registration regimes, procedures on different regimes are not presented, and the classification of regimes is not correct (e.g., so-called coordination regimes exist). The other functioning register, which can be found at http://www.egov.bg. features a better structure. However, listed regimes are not grouped and classified properly. In addition to the regimes stipulated in the Act, there are also regimes for permission, notification, certification, etc. Infornmtion on the site is not regularly updated. For instance, it still contains the procedure for issuing licenses to expert evaluators, even though such licenses have been abolished. Internet links to institutions responsible for carrying out the procedures are missing. Although the site was designated as a single point of contact under Directive 2006/1 231EC, it lacks both the required functionality to serve the purpose and an English version. 25 For example, the fee for registration of a pharmacy was BGN 5,000 since 2000. This led to lack of pharmacies . . Fees Act does not empower the government to adopt secondary legislation on issues addressed in the Act; there are no specific statutory guidelines or prescriptions for the application of the cost-recovery principle by the central administration. Similarly, the government has not issued internal--administrative provisions"in this area; each ministry and executive agency applies its own methodology ~It\Pt:p?si'iii.~~~_ fees or raising existing fees. 4.2 Key Issues The Regime IJf Sht~ '" tr.' 1 j B·· , , . . . , ~~\~~ttJ.W~ 'i~U1!p~mwtN.regarding the fee structure in Bulgaria: bus;,ne'&tiYif>%~;ltageHlieji;!'aseft1'SYgnificantly. A Governm'ent report from 2009 .ass'esse-d the Bulgar~&rnbr-C'a§e(}ffiifafiff-s SHween·January 2005 and November 2008 and concluded that sectors'~He tefalWetage growth in percentage of the fees (excluding the Ministry of Health State reWf;itS ~ t!l{}-Nfedi'cJ~1 froducts in Human Medic.ine Act) i~ 60 percent." ,This ~s judgm@iW!ina pm\\t.~AA~)Y:Jff~lished seryi~ ~ wtw cnl~WYe)waPJ!t~\~ f~@~ew,~~ap tq' ~3~gt!rg~k·q~t of which the weiglJt of the newly established fees is 73 percent, and the increase of the amount of The r~~~fJf!fwif!~xl.eformiflg t.:(e .1egi;'u~ i)lStflt~ Fus 'f/olunte iVI, an$.lyzed rjH~ Jegal, institu~o1}91 k ~S? IPa,wj,~~jJli~v41IJ!i!f¢tNtfulml!f.r Qf,pr,i!i; tf,t!tb~},;~ss a~JlviJiJnj}l~1!f. r~com~s~f,g~~S.dI~s~8bfe'c~t81Jirty ~i~bi£'fb'ry"m~ti§ures_! lli)dh~diU1n~t8\1~~I1ae~:on:rit1~ o dlagn?~\lFtmble~ IS YfflE ~ef'f~(Jlf!il ~J~ stNf t<,,; :t~'" ~G;;e::'I'PXlty, i~ Rot~ a'ti'{t ' 1J:.:~~W>~Wf!: ~it~ ttt~Im:~~%&:,Yftma~m~S'~BrrbgH%r~}:s~-}Ri ,rit~~{l~~~~ht6r~~lf.1t~~~fi~ yl~w'ih~~JgHJem~ mstltutwnal as-neets, ofnCli'E:tln n lJro .rtr: ~ t'w ,('.~r"'etlfl ,?;:e."" ' . . ~ . -nle laCK ora' conslstemtpreolctaofe:lalr, ana 'transparent regime for adllllmstrative fees makes doing business in Bulgaria unduly difficult and less competitive. SMEs, in 4.1 tfUO~tace high and ever-changing entry licensing fees or annual fees that can constitute a heavy financial burden. Tile Blaria.n ten~IJI,,'.adEi~'l~~:I':>,I!'jJn "')'; $J t~'"a,\ < (,~-. ~'~"H'f,' i'.~,-('.l:'4ff;~,,;,,:.l, ~'~:"!~, t:. 01,', ~ of 20d'J. the Jf.~f!¥MfffWtl3'fBc~afW'!! _~~o~t J~e ~!f~e.,{~(Jf!!l:'U:w'!lr.4(W~:~~ff~··, J>&.s!11H~J th~· respect' ~~&tb~fllh~:i~~W~,sg;qt~X~iJfesl;~~y~edI;18[ea~e:1Is,;~n~~,~~?~ly,~",~l!lC~ ;f ?, c~,~?-t! 9f,:M e level isc ;~an" governffil!flP~~ri(<;~9ry\\Bf~~~~~~d?fI0Rr~pr~s: .f~0J!l. !?f!~:2g ~~~~'J~,~~:(20-~~, ;·:\8~?; b~a~pn.C!H:?~a: state btID~tet'\)1me~sS~t~t~YfofF~l),.'.I~Li3lJllgana are no~ slgnificantfy higher dian those of other countnes m tIie regIOn or of OECD countnes. But the survey covers only the most Articleilh~tahth§dffilh\:HFlft:i~'::fel!~;:;'fi1\:~'ttlmuhftive 'effed=:of many small fees can also be burdenso~{m~C~ar·IS'&h';with,th-e·6est 'EU~>peifdthih's"sbows;th'at tht!f~'is a lot of room ~or .....Cf"llJ(.l~lV.DJ:IIIt.D.lV.." ' C''r..,,;"J '-'~"'.'""J" " _"~" ....1" ~_t ""'~ Ji1' ,~,~ u~· . _a ....~l~ · 11 rrnri..,..j~"''''f'tl·''r' .. . . t ,,' ·. t.. _.# ·· _.· ... ."·(,,,;. t. I. '('C' · :':'1':" SJw@lIflu'l~MN." ~flj.~qf~B~tf,J~'~~i4i~ftWWIi~'~fj .r,,~ih.JIsfnrr tlhei\U.fttII't(Jtl}CiAotfiM nNftivt'FonS i tt4qt, #nd~iDefll\it~JlIeJ~Jl(_r.~s '1 (:tr.<:rwi:,~ In ~ec~or-'§pf£bicoJffi)~W~ft?a;Lef~Y~~e reasi/n for ike'unchetke'lipiilhd oftarlf/i;:i'tift're. fit~ mdepeB\¥ru}etWQYpeg ub'r15tJlfcy 113HJedivel~ tRal ate re1eVat'lf fdf'"h"dtrtlhistnttive le~s~ full :t~~r recovery match.es..oyer.all revenues with overall costs (e.g., the Australian cost recovery 27 Worl41BfiW~m~~~centive functions stimulate economic activities (e.g" Danish Commercial 28 State aoo ~'\}nfP8M~s'.~.enby);C\sboial-fimctiohs provide assistanoe to lower income groups ~(panges~,8-:,ti6eMIhh)r; IFelThftiPr':.fur on Administrative Costs). In Bulgaria, apart from Art. 2 of - Art 4 tLefi'er 0' or - - - te F·>~s'\· 30 Art: 1~~rat~~j~s ~\~~s Act, 'whIch specifies that fees should be based on cost recovery, there is thigi~()DI asrai,qi-neral cost catct!latioll ill which. the~overall costs are calculated for a specific administrative unit. llnit6:£0Soomps.i, then be offset'by fees.paid, for an estimated number of applications. -rec15mny aWI:qy.iry petspect.rve,' the :cost-recovery method aims to set fees 'equal to the administrative costs afuobigftd Utith