Measuring Administrative Costs in Serbia Branko Radulović

What is the Standard Cost Model? The Standard Cost Model (SCM) is a simple way to measure administrative costs and administrative burdens. The SCM disaggregates administrative requirements (requests for information) into necessary steps (activities) that need to be done, measures time and other costs needed, and, based on the frequency of these steps and the number of entities subject to regulation, calculates total administrative costs and administrative burden.

What is not measured? What is measured? Expenses of... Paying taxes, customs duties, charges, fines... Adjustment to technical requirements and standards Acquiring professional licences Waiting to get licences, approvals, etc. Appeals and court proceedings “Annoyance costs” National level Construction permitting procedures not taken into account Business sector Not administrative costs of individuals Includes service of process fees, but not charges E.g. forestry charge Costs of procedure are measured, but actual charge is not taken into account

Detailed, simple and understandable What gets measured gets done Pros Cons Detailed, simple and understandable What gets measured gets done E.g. daily takings, travel orders Easily adjustable and correctible Not statistically representative But compatible with survey Issues in estimating savings Would time lost have been used productively? Are regulations actually implemented?

Comparability with other countries Measurability Aims Comparability with other countries Measurability Comprehensive assessment of administrative costs carried out for the first time Some 30 proposed procedures measured using SRP – not enough to provide an objective assessment of success Identifying new avenues to cutting costs

How were procedures selected? Basic criteria – reach, frequency, costs Final tally: slightly under 800 administrative compliance requests Survey used the 20/80 rule 20% of procedures generate some 80% of costs 20% equals about 150 procedures

Large number of post-SRP new and amended regulations “Regulatory tsunami” Large number of post-SRP new and amended regulations 900 800 Laws 700 Gov’t orders 600 354 475 Regulations 500 400 300 186 214 203 200 100 195 80 116 42 2009 2010 September 2011

If I… ...have a fiscal cash register ...pay VAT ...sell... …and register staff ...pay VAT ...have a fiscal cash register ...to cosumers ...sell... …employ staff… ...tobacco If I… ...import or export ...have a vehicle ...package holidays ...take part in public procurement ...own office space ...issue securities …generate waste or emissions ...sound equipment ...use...

Example (1) Registering staff for pregnancy leave Compliance Requirement Type of Request for Information Appropriate Body Regulation Imposing Requirement Article Administrative Activity  Tariff (Hourly Rate, in RSD)   Time Required (in Minutes) Administrative Fees and Other Direct Costs (mail, forms, etc.) Potential Actual Registering staff for pregnancy leave   Other Social Services Centre Law on Financial Support for Families with Children (Official Gazette Nos. 16/2002, 115/2005 and 107/2009) 10 Getting acquainted with request for information 324.60 30 Preparing new data and documentation 45 180 Copying, marking, etc. 20 Submitting forms 60 Filling in information

Example: Registering staff for pregnancy leave Cost of Administrative Activity Frequency(Annually)   Number of People/Businesses Subject to Regulation  Total Number of Administrative Activities at the Annual Level Total Administrative Costs Total Savings/Additional Costs Potential Actual 162.3 1 30,918 5,017,918 243.45 973.79 12 371,016 90,322,520 361,290,081 270,967,560.43 54.1 138.2 20,071,671 51,273,822 31,202,151.14 324.6 120,430,027 108.2 40,143,342 Σ P x Q P (Price) = Tariff x Time + other expenses Q (Quantity) = number of businesses x frequency of requests

Ratio of administrative costs in GDP stands at about 4,2%, or €1.35 bn Total of 157 procedures covered (nearly 300 individual calculations) Assuming Lower Wages Assuming Higher Wages (x1.2) Overheads (x1.2) 20/80 rule Ratio of Administrative Costs in GDP 2.31% 2.77% 3.33% 4.16%

Most expensive administrative requirements Maintaining business records 27,432,590,141 Inventory of assets and liabilities 7,081,702,749 Import and customs clearance of goods 3,612,397,443 Auditing 2,588,024,328 Daily report ledger 2,198,290,714 Keeping turnover and payments ledger (retail) 2,125,127,476 Payment of daily takings 1,940,657,550 General public procurement procedure 1,285,771,954 Registering staff for social security 1,269,598,788 Preparing and filing PP OPJ and PP OD forms (for PAYE/withholding tax and contributions) 1,082,112,970 Invoicing 1,071,122,519 Servicing fiscal cash registers 944,215,893 Deregistering staff for social security 928,752,320 Registering staff for pregnancy leave 578,155,190

A minimum of €66.9 mn in savings identified Potential for savings in as many as 90 procedures Assuming higher wages and overheads, savings amount to €96.3 mn Reforms would result in a 7.4% decrease in administrative costs Percentage slightly higher if administrative burden concept is used

Preliminary calculation of major potential savings Keeping turnover and payments ledger (retail) 2.125.127.476 General public procurement procedure 636.434.896 Preparing and filing PP OPJ and PP OD forms (for PAYE/withholding tax and contributions) 615.344.325 Invoicing 425.313.244 Mandatory company reports published in daily newspapers (sum total) 420.603.444 Registering staff for pregnancy leave 311.110.903 Preparing daily turnover reports (catering establishments) 302.779.389 Application for licence for retail sale of tobacco products 188.018.270 Issuance of certificate of taxes paid 134.085.966 Certification of health insurance IDs 113.843.902 Electronic registration with BRA (sum total) 99.945.058 Forestry charge payment procedure 99.182.658 Filing M4 forms 95.067.067 Entry of years of service into employment IDs 94.649.310

How can administrative expenses be reduced? Remove requirements Forestry charge, retail ledger, employment IDs Reduce requirements Keeping documents – five instead of ten years Simplify procedures Pregnancy leave Ensure government bodies exchange information IT solutions and service BRA, Foreign Currency Operations Inspection, Tax Bodies... But private sector as well (invoicing) Better user instructions

Comparison with other countries Administrative burden in Austria 2.8%; Czech Republic, 2.8%; Denmark, 2.1%; Netherlands, 1.7% Serbia has begun to make cuts, but a great deal of work still lies ahead EU countries needed several years to achieve target reduction of 25%