Study of Small and Medium Enterprises in Azerbaijan - IFC

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View from an entrepreneur: “I am a partner of a foreign company and one of the main requirements of my foreign partners is the observance of all safety norms at the workplace. For the purpose of receiving information and clear directives from the regulating agency, I visited the local fire safety service management. On my request for all fire safety norms and standards, the local management chief stated that this information is confidential and cannot be disseminated, since it is reflected in the internal reporting and service codes. How, in your opinion, can I ensure observance of those norms, which are required from me, if I have no idea what they are?” b) Requirements are based upon obsolete rules Survey respondents frequently claimed there are some requirements that were used in the past and possibly were relevant then, but as of today these requirements need to be revised and modernized because of the changes in business activity. View from an entrepreneur: “Why do we need so many sinks for different products? Abroad, due to modern types of detergent and cleaning means, it is allowed to use one kitchen sink for different items. But according to our requirements, I have to install, at the minimum, three sanitary areas. My café’s kitchen will be the size of the main hall, which is unrealistic.” View from an entrepreneur: “There are some norms for trade, which are basically leftovers from the Soviet period. It is necessary to review these standard requirements, because when they were issued, the term ‘private business’ was alien to everybody, the population in the cities was smaller, and, correspondingly, the number of services was significantly lower, so the [requirements] could be posted in the most suitable parts of town. There are no more ‘specialized’ places, and we base ourselves as we find appropriate. Yet the old requirements exist and we regularly pay the inspectors to get around these obsolete norms. We need to change the legislation and stop this awful practice.” c) The administrative fines often set up in a discretionary manner Sometimes the size of the fine makes the unofficial payment a less costly i.e. an economic option. The scale is only being communicated during the on-site inspection, with an aim to stimulate the entrepreneurs to engage in discussions over an alternative settlement. 100 St u d y o f Sma l l a n d Me d i u m Ent e r p r i s es in Az e r b a i j a n
View from an entrepreneur: “The satisfied inspector will not impose the highest measures of administrative penalty. Therefore, as a rule, they don’t impose a fine on me. But sometimes, when they have to meet the fine collection’s monthly planned amount – they may impose an insignificant fine on me, in addition to the bribe.” 6.2.2.3 The appeals system is not satisfactory In general, entrepreneurs do not appeal inspection findings due to two main reasons: (a) entrepreneurs do not want to appeal; and (b) entrepreneurs have no trust in a positive solution to the legal challenge. a) Why entrepreneurs do not complain The prevalent opinion of entrepreneurs is that for the successful continuation of their business activity, they need to maintain so-called “good relations” with inspectors and state officers. View from an entrepreneur: “I can’t say that everything is ideal in my enterprise. The inspector turns a blind eye to some problems, and I in turn pay for it. But even if I wouldn’t have any problems, I would never complain against the inspector anyway. Why would I complain and spoil the relations with him, what will that change?” b) Why entrepreneurs do not believe that a legal challenge can be positive The research shows that the entrepreneurs do not believe it would be beneficial to complain or file suits against individual inspectors or government services. View from an entrepreneur: “To complain about an inspector – equals a serious headache. Firstly, it is difficult to prove any wrongdoing of the inspector, but he will prove a lot against you. Secondly, the court’s visits and expenses for the proceedings will take so much time and money, that it may be infinitely easier to ’come to an agreement’ with the inspector. Thirdly, why spoil my relations with the inspector and the service, which he represents. They may blacklist me and my enterprise and then I have at a minimum to relocate to another district, because all the officers will work with me only officially, which is a very, very complicated situation. And finally, even if I prove my point legally and the inspector is displaced, another one will come and nobody knows if he will be even trickier to deal with.” Aze r b a i j a n Bu s i n e s s En a b l i n g En v i r o n m e n t Pr o j e c t 101
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Study of Small and Medium Enterpris
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Study of Small and Medium Enterpris
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5. Business Permits................
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Foreword and Acknowledgements IFC,
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critically examines all areas of op
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of each formality. Special attentio
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Policy Recommendations Business Reg
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Problems Sources of Problem Recomme
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Business Taxation Problems Sources
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Capital: Baku Country’s populatio
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The state, ultimately responsible f
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1. Methodology 1.1 Background The s
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the share of economically active co
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Scope of activity Official statisti
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2. SMEs in Azerbaijan The aim of th
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Meanwhile, the number of small and
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Table 2.2 Statistical information o
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The “typical” small enterprise
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According to the IFC survey, more t
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2.5.3 Legal disputes Most entrepren
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3. Business Registration In January
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According to the law previously in
Page 51 and 52: 3.4 Economic impact estimate Accord
Page 53 and 54: tion duplicate is addressed to the
Page 55 and 56: the local tax inspectorate for regi
Page 57 and 58: 3.10.3 Introduce the electronic reg
Page 59 and 60: 3.10.7 Simplify the liquidation pro
Page 61 and 62: Business registration before ‘one
Page 63 and 64: Process map of one-stop-shop busine
Page 65 and 66: Registration for individual entrepr
Page 67 and 68: 4.1 Licensing: the legal framework
Page 69 and 70: Chart 4.1 Number of activities requ
Page 71 and 72: While the Rules specify limits for
Page 73 and 74: Chart 4.6 Economic impact of licens
Page 75 and 76: Annex 4.1 Checklist of issues for d
Page 77 and 78: Based on the IFC survey estimates,
Page 79 and 80: 5.2 Permits coverage The Azerbaijan
Page 81 and 82: Box 5.4 An example of overlapping p
Page 83 and 84: 5.4 Permit expenses Azerbaijani leg
Page 85 and 86: Chart 5.9 40% Average percentage of
Page 87 and 88: 2.4. Specifying in the law a unifor
Page 89 and 90: Annex 5.1 Procedure for obtaining c
Page 91 and 92: Annex 5.2 Checklist of issues for d
Page 93 and 94: The most significant legal act in i
Page 95 and 96: 6.1.2 There is no effective mechani
Page 97 and 98: 6.1.4 Entrepreneurs are not aware o
Page 99 and 100: IFC’s analysis showed that only h
Page 101: 6.2.2.1 The inspections process and
Page 105 and 106: Chart 6.11 Average registration in
Page 107 and 108: going in the opposite direction. In
Page 109 and 110: clearly defined circumstances, or a
Page 111 and 112: Annex 6.2 Presidential Decree No. 7
Page 113 and 114: The bulk of individual entrepreneur
Page 115 and 116: Items 1-9 are collected at the firs
Page 117 and 118: The IFC survey reveals that one in
Page 119 and 120: Table 7.5 Main tax obligations of a
Page 121 and 122: Chart 7.3 IFC Survey: Complexity of
Page 123 and 124: 7.3.2 Tax inspections negatively af
Page 125 and 126: 7.3.5 The cumbersome VAT administra
Page 127 and 128: • Introducing clearer and more el
Page 129 and 130: Chart 8.1 Development of Credit Ins
Page 131 and 132: More than 90 percent of entrepreneu
Page 133 and 134: Chart 8.9 The loan interest rates o
Page 135 and 136: Case study of a Baku-based glass an
Page 137 and 138: View from a bank employee: “One p
Page 139 and 140: Box 8.2 Examples of a successful cr
Page 141 and 142: Box 8.3 Examples of alternative mec
Page 143 and 144: 9. Foreign Trade The volume of fore
Page 145 and 146: Box 9.1 Customs regimes under the C
Page 147 and 148: As Chart 9.1 illustrates, 98 percen
Page 149 and 150: Table 9.1 A comparison of the proce
Page 151 and 152: The comprehensive system of mandato
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Table 9.2 Average costs for imports
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Box 9.5 Customs payments The Custom
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Box 9.8 An excessive number of docu
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Moreover, due to the underdeveloped
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Expected impact More comprehensible
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9.5.6 Accelerate WTO accession of A
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Chart 9.5 Goods importable upon app
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Azerbaijan has been long pending a
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List of Laws 1. The Tax Code of the
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Statistical Annexes Aze r b a i j a
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Chart A1.3 Individual Entrepreneurs
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Chart A1.7 Individual Entrepreneurs
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Chart A1.14 Three Major Types of Ob
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Registration Chart A2.1 Entrepreneu
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Chart A2.8 Three Major Problems Occ
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Chart A3.3 Existence of Licenses by
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Chart A3.9 Three Major Obstacles to
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Chart A4.4 Obtaining of Any Permits
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Chart A4.10 Time Required to Obtain
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Chart A5.4 Application for Credit o
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Chart A5.12 Average Interest Rate (
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Chart A6.3 Entrepreneurs That Under
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Chart A6.8 Authorities That Made In
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Chart A6.13 Breakdown of Number of
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Chart A6.19 Average Duration of One
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Chart A6.25 Small and Medium Enterp
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Chart A7.3 Small and Medium Enterpr
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Chart A7.8 Reported Share of Busine
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Chart A8.3 Usage of Optional (not c
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Azerbaijan Business Enabling Enviro
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