Study of Small and Medium Enterprises in Azerbaijan - IFC

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Business Permits Problems Sources of Problem Recommendations Expected Effect Overregulated and nontransparent permit system, with many overlaps, duplications 1. Lack of unified and clear legislation on permits and similar administrative formalities and requirements; 2. Uncontrolled introduction of new permits by government agencies adding to the lack of legislative clarity. • Review the number of permits, their scope and issuance process and create a registry of all permits; • Identify by law the list of government agencies that may issue permits and the related aims of such permits; • Stipulate clear grounds for the introduction of new permits, providing that these permits must: – Require government control for protection of public health and safety, as well as environmental protection; – Relate to allocation of scarce resources; – Not foresee additional or specific requirements. • Reduced entry cost for new businesses and cost of operations for the existing ones; • Increased number of active companies; • Increased tax revenues; • Fewer permits that conflict with the principles of market economy and free trade; • Reduced expenses to entrepreneurs; • Faster development of priority sectors for the country. Process of issuance, revocation of permits is unclear and burdensome 1. Lack of unified and clear legislation; 2. Lack of coordination between the government agencies; 3. Low level of professionalism on the part of officials issuing permits. • Adopt a procedural act on granting permits; • Introduce the “silence is consent” and “self-certification” principles in the act; • Specify in the act a uniformed permits issuance procedure and provide a checklist of generic grounds for its refusal; • Introduce the “one-stop-shop” principle for issuance of certain types of more common business permits; • Monitor procedural practices and establish ethics standards and performance evaluation for issuing officials; • Increase the level of legal, procedural and institutional awareness of officials through seminars and trainings. • Reduced time and associated fees that entrepreneurs spend on obtaining permits; • Improved overall process and reduced possibility of arbitrary decision-making by officials; • Reduced administrative burden on entrepreneurs; • Greater transparency and confidence building between entrepreneurs and officials; • Accelerated process of issuance of permits through a more professional behavior of officials; • Fewer inclinations of the private sector to engage in illicit activities of offering unofficial payments. 14 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
Problems Sources of Problem Recommendations Expected Effect Permits need to be renewed too frequently 1. Lack of unified and clear legislation. • Extend the validity period of permits by adopting the law on granting permits following their thorough reassessment. • Reduced expenses for entrepreneurs; • Reduced workload for government agencies and thus costs of their operations. Lack of knowledge of entrepreneurs of their rights and obligations 1. Lack of access to information by entrepreneurs. • Increase the legal awareness of entrepreneurs through: – Simple step-by-step guides made available to entrepreneurs; – Clear procedural maps, available in issuance office; – Increase dialogue between the private sector and government by holding seminars, training, and informational round-tables; – Broadcast public service announcements on television focused on procedural changes. • Introduction of higher standards regulating the procedure of obtaining permits; • Improved access to information; • Lower opportunities for unofficial payments; • Increased legal protection of entrepreneurs. Business Inspections Problems Sources of Problem Recommendations Expected Effect Virtually all entities face a large burden of official on-site inspections 1. No regulatory limitation on the number of inspections; 2. No efficient mechanism of control over state authorities. • Agencies without a risk based inspection (RBI) system should develop it; • Tighten control over state agencies to reduce the number of ”informal” inspections. • More efficient distribution of regulatory authority’s resources; • Reduced number of complaints by entrepreneurs; • Greater compliance of SMEs with standards and regulations; • Total number of annual inspections of SMEs reduced; • Mechanisms encouraging entities to voluntarily comply developed as well as effectively sanctioning violating entities; • Opportunity for abuse by either side minimized; • Increased efficiency of business management. 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 15
Page 1 and 2: Study of Small and Medium Enterpris
Page 3 and 4: Study of Small and Medium Enterpris
Page 5 and 6: 5. Business Permits................
Page 7 and 8: Foreword and Acknowledgements IFC,
Page 9 and 10: critically examines all areas of op
Page 11 and 12: of each formality. Special attentio
Page 13 and 14: Policy Recommendations Business Reg
Page 15: Problems Sources of Problem Recomme
Page 19 and 20: Business Taxation Problems Sources
Page 21 and 22: Problems Sources of Problem Recomme
Page 23 and 24: Problems Sources of Problem Recomme
Page 25 and 26: Capital: Baku Country’s populatio
Page 27 and 28: The state, ultimately responsible f
Page 29 and 30: 1. Methodology 1.1 Background The s
Page 31 and 32: the share of economically active co
Page 33 and 34: Scope of activity Official statisti
Page 35 and 36: 2. SMEs in Azerbaijan The aim of th
Page 37 and 38: Meanwhile, the number of small and
Page 39 and 40: Table 2.2 Statistical information o
Page 41 and 42: The “typical” small enterprise
Page 43 and 44: According to the IFC survey, more t
Page 45 and 46: 2.5.3 Legal disputes Most entrepren
Page 47 and 48: 3. Business Registration In January
Page 49 and 50: 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
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4.1 Licensing: the legal framework
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Chart 4.1 Number of activities requ
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While the Rules specify limits for
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Chart 4.6 Economic impact of licens
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Annex 4.1 Checklist of issues for d
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Based on the IFC survey estimates,
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5.2 Permits coverage The Azerbaijan
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Box 5.4 An example of overlapping p
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5.4 Permit expenses Azerbaijani leg
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Chart 5.9 40% Average percentage of
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2.4. Specifying in the law a unifor
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Annex 5.1 Procedure for obtaining c
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Annex 5.2 Checklist of issues for d
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The most significant legal act in i
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6.1.2 There is no effective mechani
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6.1.4 Entrepreneurs are not aware o
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IFC’s analysis showed that only h
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6.2.2.1 The inspections process and
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View from an entrepreneur: “The s
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Chart 6.11 Average registration in
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going in the opposite direction. In
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clearly defined circumstances, or a
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Annex 6.2 Presidential Decree No. 7
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The bulk of individual entrepreneur
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Items 1-9 are collected at the firs
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The IFC survey reveals that one in
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Table 7.5 Main tax obligations of a
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Chart 7.3 IFC Survey: Complexity of
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7.3.2 Tax inspections negatively af
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7.3.5 The cumbersome VAT administra
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• Introducing clearer and more el
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Chart 8.1 Development of Credit Ins
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More than 90 percent of entrepreneu
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Chart 8.9 The loan interest rates o
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Case study of a Baku-based glass an
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View from a bank employee: “One p
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Box 8.2 Examples of a successful cr
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Box 8.3 Examples of alternative mec
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9. Foreign Trade The volume of fore
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Box 9.1 Customs regimes under the C
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As Chart 9.1 illustrates, 98 percen
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Table 9.1 A comparison of the proce
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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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Study of Small and Medium Enterprises in Azerbaijan - IFC

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