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. Last Updated: 07/27/2016

Red Tape Growing for Firms

The government's much-trumpeted efforts to do away with the red tape suffocating small businesses has in reality made life for them more difficult, according to a World Bank survey released Monday.

"Existing practices are very far from the [new] benchmarks," the World Bank said in summing up a survey of 1,927 small- and medium-sized businesses in 20 regions. "Companies are seeing little improvement to date and say that the situation is getting even worse on some administrative barriers."

Furthermore, the bank said, "the extent and costs of regulatory burdens increase significantly as the size of the firm increases."

The survey, which was conducted in March and April, is the first in a series of half-year reports about business perceptions and red tape prepared by the World Bank at the government's request.

The government asked for the report to determine whether its measures to cut red tape in registration, inspections, licensing and certification were working.

The results disappointed Economic Development and Trade Minister German Gref, who has pushed strongly for making the investment climate more conducive to small business. Small business is expected to one day become the backbone of the Russian economy, as it is in the West.

"This means that more radical and effective measures should be taken by the government," Gref said after previewing the World Bank survey late last week.

Of the enterprises the World Bank surveyed, 74 percent were founded from 1987 to 1999, 16 percent were founded before 1987 and the remaining 10 percent appeared after 1999.

The largest portion of the companies, 29 percent, operate in the trade and retail sectors. Twenty-one percent provide services, and 14 percent are involved in industrial production. The others were split between construction, research, food and agriculture.

Only half of the companies reported growth in 2001, while just a fifth increased their number of staff in the second half of 2001, the survey found.

"I keep wanting to expand my business, open up new shops, but every time I think about what I have to go through to get the needed licenses I give up the thought," a survey respondent was quoted as saying.

Companies named high taxes and the tax authorities as major obstacles to growth. Economic instability, changing regulations, tough competition and a lack of access to loans were among the other problems they identified.

One of the more recent steps taken by the Kremlin to help small business is legislation simplifying their taxes. The bill, which has been passed by the State Duma and is now awaiting approval by the Federation Council and President Vladimir Putin, gives businesses with no more than 100 employees and an annual turnover of less than 15 million rubles ($477,000) the option of paying a single tax of 6 percent of revenues or 15 percent of profits.

Another law aimed at helping small business by limiting various government inspectors to one visit every two years was implemented at the start of the year.

But the World Bank said the number of different inspections shot up after the law came into force. It did not elaborate.

The cost of getting approval from inspectors -- bribes -- also increased, the survey said. Smaller firms have fewer problems with regulators and the bribes for various inspections grew substantially in proportion to the company's size.

Also, companies that had been operating for more than 10 years found it easier to deal with administrative barriers than those that were founded in recent years.

Registering a new company can take from one week to a month if a consultant is used and up to three months if the company registers on its own, the survey said. The cost of starting a business ranges from $1,000 to $1,500, with the higher amount including consulting fees.

One respondent complained in the survey: "When a license expires, I need to visit 10 to 15 agencies to renew it. But what is the purpose if all of the inspections are done regularly anyway?"

"I do not want to break any laws, but the government is forcing me to do so," said another.