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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 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
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
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 152 143 134 125 115 106 97 88 79 70 60 51 42
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 152 143 134 125 115 106 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 State Registration Certificate
- Copy of Sales Contract
- Application form
GASI Conformity Certificate
- Copy of State Registration Certificate
- Certification of Origin
- Test Results
- Invoice
- Application form
NARTAM & Railway Admin. CMR transport documentation- Copy of Sales Contract
- Copy of State Registration Certificate
MCGA customs clearance
- Sale of Goods Contract
- Copy of State Registration Certificate
- 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