28.05.2012, staggering costs of inefficient regulation in mongolia, olin mcgill

Staggering Costs

of Inefficient Regulation

May 28, 2012

Ulaanbaatar, Mongolia

Olin McGill

Business Environment Reform Advisor

Working Documents On Competitiveness And Business Enabling Environment -- Mongolia

Good News for Taxpayers

• GDT now issuing digital electronic signatures

• Beginning June 1, digitally signed returns eliminate

paper returns for:

– Corporate income tax

– VAT

– Employee withholding

• GDT, MOF, MOSA, and BPI forming working group

to implement true e-filing from accounting software

• GDT is counting the costs of inefficiency for

taxpayers

GDT Calculates savings for CIT e-filers• 5 hours to file paper returns (to and from office)

• X 3,405 MNT average hourly wage of an accountant MNT (monthly

600,000 MNT) = 17,025 MNT ($13)

• + 6 km average round trip to tax office X 700 MNT taxi per km = 4,200

MNT

• + 8 MNT per return X 8 pages each return = 64 MNT

• = 21,289 MNT ($16.25) per return

• X 4 time per year = 85,156 MNT ($65) per taxpayer per year

• X 55,331 CIT electronic filers per year

• = 4.7 billion MNT ($3.6 million) per year savings

• BPI Calculations: Small businesses pay $1.56 in transaction costs for

every dollar paid in VAT

• (Estimates on total tax reporting burdens underway)

Georgia’s Unprecedented Reforms – 2005-2009

Georgia’s Theory of Change:

Aggressive incrementalism:

• “A poor transitional country

needs poor transitional

laws.”

• Eliminating agencies with no

capacity to do their jobs

can’t make things worse

• Fix what you can as fast as

you canKakha Bendukidze

Former State Minister of Reforms

Coordination

Annual Savings to Business & GOG

USAID’s Annual ROI

-- $57 to $1

1,000

Th

ou

san

ds

Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07

99,161 Lari 101,882 Lari 95,814 Lari 113,102 Lari 122,317 Lari 128,354 Lari 138,337 Lari 146,628 Lari 156,758 Lari 163,028 Lari 175,162 Lari 179,584 Lari 183,457 Lari 195,545 Lari 196,292 Lari 206,934 Lari

#N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A 126,790 Lari 135,374 Lari 157,946 Lari 168,639 Lari 169,713 Lari 180,739 Lari 188,048 Lari 189,796 Lari

#N/A #N/A #N/A 152 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A 42




#N/A #N/A #N/A 152 143 134 125 115 106 97 88 79 70 60 51 42




#N/A #N/A #N/A 152 143 134 125 115 106 97 88 79 70 60 51 42

#N/A #N/A 44.63% 45% 46% 47% 48% 49% 49% 50% 51% 52% 53% 53% 54.25% 54%

49

344 Source: NBG

CAGR: 43%

0

100

200

300

400

500

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10

Th

ousa

nd

s

Construction Loans (in millions of GEL)

127

963 Source: NBG

CAGR: 66%

0

200

400

600

800

1,000

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10

Th

ousa

nd

s

Mortgage Lending (in millions of GEL)

Dealing with Construction Permits

Georgia’s Construction Sector Growth

Indicator2005 2006 2007 2008

Number of square meters under issued

building permits in Tbilisi (million sq.

meters)

1.0 1.1 1.5 2.4

Total Sales (million GEL) 779 1,125 1,605 -

Value added (million GEL) 245.9 401.4 630.6 -

Number of employed persons 38,560 46,681 52,572 -

Average monthly salary (GEL) 292.3 391.0 495.1 723.0

Ruthless transactional efficiency:

• Government should never ask a

citizen or business for info it already

has

• Each interaction between business

and government is an opportunity for

corruption. Eliminate as many as

possible

• Streamline and automate everything

and investment will follow

Georgia’s Theory of Change:

Vakhtang Lejava

Chief Adviser to the Prime Minister

Government of Georgia

Paper work Cripples Mongolia Meat Exports:

Agency Purpose Required Documents

Mongolian Taxation Agency To certify meat exporter doesn’t owe taxes - Copy of State Registration Certificate

MNCCI Certificate of Origin

- Copy of State Registration Certificate

- Copy of Sales Contract

- Invoice

- Packing list

GASI and the Central

Laboratorytest results

- Copy of Certificate of Origin


- Copy of Sales Contract

- Application form

GASI Conformity Certificate


- Certification of Origin

- Test Results

- Invoice

- Application form

NARTAM & Railway Admin. CMR transport documentation- Copy of Sales Contract


MCGA customs clearance

- Sale of Goods Contract


- Conformity Certificate

- CMR

- Certification of Origin

- Taxation Certificate

- Export Certificate

Trading Across Borders in Mongolia

Import

ProceduresDuration

(days)

US$

Cost

Documents

preparation (8)28 110

Customs clearance

and technical control4 60

Ports and terminal

handling2 130

Inland transportation

and handling13 2,100

Totals 47 2,400

Export

ProceduresDuration

(days)

US$

Cost

Documents

preparation (8)28 145

Customs clearance

and technical

control

2 60

Ports and terminal

handling2 130

Inland

transportation and

handling

14 1,930

Totals 46 2,265

Export Documents -- Comparing Mongolia and Best Practice

Economy TAB

Rank

#

Docs# Days

Days

per

Doc

Total

Cost

Cost per

Doc

Bil

l o

f L

ad

ing

Cu

sto

ms

Ex

po

rt

De

cla

rati

on

Co

mm

erc

ial

Invo

ice

Ce

rtif

icate

of

Ori

gin

Insu

ran

ce

Ce

rtif

icate

Packin

g L

ist

Tech

nic

al

Sta

nd

ard

/ H

ealt

h

Ce

rtif

icate

Tra

nsit

Do

cu

men

t

(Ch

ina

Cu

sto

ms

)

Mongolia 159 8 28 3.5 $145 $18.13 X X X X X X X X

Georgia 54 4 4 1.0 $255 $63.75 X X X X

France 24 2 3 1.5 $51 $25.50 X X

Canada 42 3 3 1.0 $225 $75.00 X X X

Estonia 3 3 1 0.3 $200 $66.67 X X X

Japan 16 3 4 1.3 $80 $26.67 X X X

Korea, Rep. 4 3 2 0.7 $50 $16.67 X X X

Panama 11 3 4 1.3 $150 $50.00 X X X

Sweden 8 3 2 0.7 $100 $33.33 X X X

Austria 25 4 2 0.5 $130 $32.50 X X X X

Belgium 36 4 3 0.8 $179 $44.75 X X X X

Czech Rep. 70 4 8 2.0 $105 $26.25 X X X

Import Documents – Comparing Mongolia with Best Practice

Economy TAB

Rank

#

Docs

#

Days

Days

per

Doc

Total

Cost

Cost

per

Doc

Bil

l o

f L

ad

ing

Cu

sto

ms

Im

po

rt

De

cla

rati

on

Co

mm

erc

ial

Invo

ice

Ce

rtif

icate

of

Ori

gin

Insu

ran

ce

Ce

rtif

icate

Packin

g L

ist

Tech

nic

al

Sta

nd

ard

Healt

h C

ert

ific

ate

Tra

nsit

Do

cu

men

t

Ch

ine

se

Cu

sto

ms

Term

inal

Han

dlin

g

Re

ce

ipts

Co

lle

cti

on

Ord

er

Mongolia 159 8 28 3.5 110 $13.75 X X X X X X X X

Georgia 54 4 8 2.0 255 $63.75 X X X X

France 24 2 5 2.5 101 $50.50 X X

Denmark 7 3 2 0.7 203 $67.67 X X X

Korea, Rep. 4 3 2 0.7 65 $21.67 X X X

Sweden 8 3 2 0.7 130 $43.33 X X X

Canada 41 4 4 1.0 185 $46.25 X X X X

Estonia 3 4 1 0.3 200 $50.00 X X X X

Hong Kong 2 4 2 0.5 100 $25.00 X X X X

Ireland 21 4 5 1.3 165 $41.25 X X X X

Israel 10 4 4 1.0 120 $30.00 X X X X

Eliminating 5 documents Saves:

Export:

5 docs X $18.13

= $90.65 per shipment

$90.65 per shipment

X 64,630 shipments

= $5,858,710/year

Import:

5 docs X $13.75

= $68.75 per shipment

$68.75 per shipment

X 200,936 shipments

= $13,814,350/year

Impact of Mongolian efficiency savings

Reduce time to prepare documents by 17.5 days of

• Import: 47 now – 17.5 days = 29.5 days

• Export: 46 now – 17.5 days = 28.5 days

• 15% = average annual opportunity cost

• 0.04% = average daily opportunity cost

Annual savings for investments in trade

• Import: 17.5 days X 0.04% X $6.6 billion = $46.2 million

• Export: 17.5 days X 0.04% X $4.8 billion = $33.7 million

Same investment can fund:

7.8 deals a year at 47 days (365/47)

12.4 deals a year at 29.5 days (365/29.5)

Each day’s delay reduces trade 1%+:

Export:

1 %

X 17.5 days

=17.5%

X $4.8 billion 2011 exports

= $840 million lost

Import:

1 %

X 17.5 days

= 17.5%

X $6.6 billion 2011 imports

= $1.16 billion lost

$840 million + $1.16 billion = $2 billion/year lost

Impact on GDP of Reducing Time to Trade

CountryTAB

Rank

Days to

Export

Days to

Import

2011 GDP

(PPP)

(Billions)*

Avg/Day

Export (Mln)

Avg %/Day

Export

Avg/Day

Import

(Mln)

Avg %/Day

Import

Afghanistan 179 74 77 29.99 152.10 0.51% N/A NA

Azerbaijan 170 38 42 93.02 474.40 0.51% 213.95 0.23%

Kazakhstan 176 76 62 216.4 1103.64 0.51% 497.72 0.23%

Kyrgyzstan 171 63 72 13.1 60.26 0.46% 53.71 0.41%

Tajikistan 177 82 83 16.01 40.86 0.26% 121.27 0.76%

Turkmenistan N/A 71 92 41.51 273.45 0.66% 163.05 0.39%

Uzbekistan 183 71 92 94.04 50.74 0.05% 24.47 0.03%

AVERAGE 0.42% 0.34%

Mongolia 159 46 47 13.28 56.06 45.29

Export: 17.5 days X $56.06 million/day = $ 981.05 million/year

Import: 17.5 days X $45.29 million/day = $ 792.58 million/year

$1,773.63 million/year lost GDP

• 65% increase in nominal GDP per capita (from $1,484 to $2,450)

• 67.6% increase in nominal GDP (from $6.4 billion to $10.7 billion

• 121% increase in tax revenues (from 2 billion GEL to 4.4 billion)

• 31% increase in exports ($866 million to $1.1 billion)

• 76% increase in imports ($2.5 billion to $4.4 billion)

• FDI as a percent of GDP increased from 7% in 2005 to 19.8% in

2007, falling to 12.2% in 2008, and 7.1% in 2009

• Total bank deposits grew 34 % annually, from $535 million to $2.5

billion

• Private Credit (consumer and business loans) grew 39 %

annually, from $533 million to $3.1 billion

Georgia’s rapid growth 2005-2009:

How Business can support reforms:

• Quantify the costs and complain bitterly

• Separate efficiency from policy

• Fill out World Bank Doing Business surveys

accurately

• Participate in task forces focused on short-term

change

• Celebrate incremental reforms exuberantly

– GDT’s digital electronic signature initiative

– CGA and GDT pre-Nadaam reforms