1. Third Administrative Cost Measurement Study Serbia
Branko Radulović

2. Third Administrative Cost Measurement Study
First Study: 2010; Second Study: 2012
Third Study: 2014
Objectives
Identify burden of administrative costs faced by businesses
Identify new cost-cutting options
Comparison (limited) with countries where findings of similar studies are available

3. Standard Cost Model
The Standard Cost Model (SCM, or ‘Dutch Model’) is a simple method for measuring administrative costs and burden of compliance
Used to:
Examine new regulations and burden of compliance they may pose
Measure current administrative costs (burden of compliance)

4. Standard Cost Model (Continued)
Works by disaggregating procedures (information requirements) imposed on entities subject to regulation into individual administrative activities that entities subject to regulation are required to perform
Based on time needed to perform each activity and cost of each activity, the SCM measures administrative costs and undue administrative burden

5. Financial costs (taxes, customs duties, etc.)
Costs of Compliance
Costs of compliance
Financial costs (taxes, customs duties, etc.)
Structural costs of compliance – Changes to production processes or products to ensure alignment with regulations
Administrative costs
Administrative costs incurred to activities of the business it would perform even in absence of regulation
Administrative burden: Administrative costs incurred due to presence of regulation

6. Information Requirements
Entail collection, reporting, or recording of information as mandated by regulatory authorities
Not just data collection and reporting: this also includes keeping records of information for the purpose of making it available to inspection authorities or submitting it when required
May include requirements to notify the state or third parties
Each information requirement entails undertaking various administrative actions, such as collecting data, becoming acquainted with regulations, etc.

7. As a rule, includes administrative fees but not charges
What is not measured?
What is measured?
Costs of:
Paying taxes, customs duties, charges, fines...
Compliance with technical requirements and standards
Obtaining professional titles
Waiting to obtain licences, approvals, etc.
Appeals and court proceedings
‘Annoyance costs’
National level
Construction permitting procedures not taken into account
Business sector
Not administrative costs incurred by private individuals
As a rule, includes administrative fees but not charges

8. Standard Information Requirements – 12 Requirements
No.
Standard Requirement 1
Notice of activity or event 2
Reporting 3
Information (labelling) for use by third parties 4
Other information for use by third parties 5
Application for individual licence or approval 6
Application for general authorisation or approval 7
Registration 8
Product or process certification 9
Inspection by government authority 10
Co-operation with inspections and record-keeping 11
Application for subsidy, grant, etc. 12
Other

9. Standard Administrative Activities
No.
Standard Activity 1
Understanding information requirement 2
Staff training in connection with information requirement 3
Collecting necessary information based on existing data 4
Adjustment of existing data 5
Preparation of new data and documentation 6
Preparation of information materials (e.g. advertisements, etc.) 7
Submission of forms 8
Meetings (internal and with third parties) 9
Verification (includes assistance to inspection authorities) 10
Photocopying, labelling, etc. 11
Provision of information 12
Completion of forms 13
Procurement of IT equipment and supplies 14
Other

10. Information requirements and specific data
Regulation
Law, Government Order, Rulebook...
Information requirements and specific data
Reports, licences, permits, certificates, registration
Administrative activities
Standardised means of applying legislation
Time
(H)
Tariff
(T)
Additional cost
(A)
No. of entities
subject to regulation
(N)
Frequency
(F) x + x
Cost of individual administrative activity (P)
No. of administrative activities per year (Q)
Administrative costs = P x Q

11. How were procedures selected?
Primary criteria – reach, frequency, cost
Slightly under 800 administrative requirements considered
‘80:20’ Rule applied:
20% of administrative requirements create 80% of administrative costs
Marked concentration of administrative costs: limited number of administrative requirements create most administrative costs

12. Renewed Increase in Regulatory Activity in 2014

13. 81 laws and 900 byelaws enacted in 2013 Annual regulatory activity in 2014: over 1,000 regulations
NEW REGULATION BY TYPE, 2014
TOTAL
ENTERED INTO FORCE
REPEALED
Laws (new) 29 26 3
Laws (amended) 70 36 34
Government Orders (new)
115 79
Government Orders (amended) 45 21 24
Decisions (new)
411
221
190
Decisions (amended) 83 40 43
Rulebooks (new)
209
183
Rulebooks (amended)
131 77 54
Orders (new) 5 2
Orders (amended) 1
Instructions (new) 8
Instructions (amended)
Total
1110
690
420

14. Example: Savings due to amended requirement to audit financial statements
Business Size
Old Law, Financial Statements for 2013
New Law, Financial Statements for 2014
Large
925
336
Medium-sized
2,878
1,225
Small
92,104
8,812
Micro /
83,386
Total
95,907
93,759
Audit is mandatory for financial statements of large and medium-sized legal entities (categorised as such under accounting legislation), public entities (under legislation governing capital markets, regardless of size), as well as of all legal entities and sole traders with annual revenues of more than EUR 4.4 mn in the preceding fiscal year (‘statutory audit’)

15. Savings due to limited reach of mandatory audit of financial statements

16. Online tax returns
Introduction of online tax returns has contributed to quicker, more efficient, safer, and cheaper filing: all documents can be filed using the Tax Administration’s e-Porezi portal
Major step in eliminating unnecessary administrative procedures

17. Example: VAT return
Procedure has remained the same (i.e. taxpayer is still required to complete VAT return; this is a recurring activity at the monthly or quarterly level, depending on volume of turnover)
Taxpayer may file individually or through accountant
Monthly or quarterly
Key assumption: percentage of taxpayers filing individually vs. through accountants
Quarterly VAT filings: vast majority of taxpayers use accountants
Measurement of administrative costs associated with VAT has revealed the average user now needs just five minutes to file a return, as opposed to one hour under the old arrangement

18. Costs of filing VAT returns reduced by 48%

19. Findings: 3.46% of GDP Assumption
Lower salaries and costs of engaging third parties
Higher salaries and costs of engaging third parties++
Fixed costs
(x1.2)
80:20 rule
Initial estimate before adjustment I
II=Ix1.2
IIIa=Ix1.2
IIIb=IIx1.2
IV a
IV b V
2010
2.26%
2,72%
2.72%
3.26%
3.39%
4,07%
4.20%*
2012
1.95%
2.34%
2.81%
2.92%
3.50%
3.67%*
2014
1.93%
2.32%
2.78%
2.88%
3.46%
Initial and first estimate were adjusted following publication of revised GDP data and new data needed for calculation
++ Salaries of staff with undergraduate degrees higher by 50%; salaries of staff with college degrees higher by about 5%; costs of engaging third parties vary widely, highest and lowest values must be determined

20. Pregled ključnih indikatora
Indicator
2010
2012
2014
GDP (RSD mn) at current prices
3,067,210
3,584,236
3,908,470
GDP (EUR mn)
29,766
31,683
33,319
Average gross monthly salary
54,532
57,430
61,426
Average gross hourly rate* (at 168 hours per month)
324.6
341.8
365.6
Average gross hourly rate (EUR)
3.15
3.02
3.12
Calculated total administrative costs (TACs), RSD mn at current prices
69,319
69,733
75,101
Total administrative costs as % of GDP
2.26%
1.95%
1.92%
TACs as % of GDP (80:20 rule)
2.83%
2.43%
2.40%
TACs, assumed lower costs w/ fixed costs and 80:20 rule
3.39%
2.92%
2.88%
TACs, assumed higher costs w/ fixed costs and 80:20 rule
4.07%
3.50%
3.46%
Initial estimate (before data review)
4.20%
3.67%
TACs, higher level (RSD mn)
124,835
125,519
135,182
Change to TACs (higher level, RSD mn) -
684
10,347
Inflation (2010 cumulative = 100) GDP deflator
100
116
125
TACs as % of GDP, change relative to 2010
-13.96%
-15.02%
TACs in EUR mn
1,211
1,110
1,152
RSD/EUR exchange rate (annual average)
103.0
113.1
117.3
RSD/EUR exchange rate (at end of year)
105.5
113.7
121.0
Pregled ključnih indikatora

21. Costs and savings in EUR
2012
2014
Calculated savings
Total estimated savings
Registration
18,442,871.24
20,813,660.78
2,370,790
Tax Administration
109,145,576.72
105,972,053.44
-3,173,523
Accounting
281,775,387.11
272,047,592.92
-9,727,794
Customs – foreign trade
35,447,646.21
42,300,752.64
6,853,106
Intellectual property
621,318.01
674,529.98
53,212
Maternity leave
2,644,072.69
2,846,201.77
202,129
Transportation
5,923,693.78
6,930,033.96
1,006,340
Labour law
38,124,288.70
42,111,316.14
3,987,027
Insolvency
721,567.66
578,219.35
-143,348
Other
117,075,420.05
123,917,563.68
6,842,144
Inspections
1,310,592.81
1,266,531.16
-44,062
NBS / Commercial banks
662,996.46
732,114.12
69,118
TOTAL
611,895,431.47
620,190,569.93
8,295,138

22. Reduction in administrative costs of 15 %
Usual EU target is to reduce administrative burden by 25%
Between 2010 and late 2014 Serbia managed to reduce administrative costs by 15%
Review of some calculations is expected to reveal slightly greater savings
This is a relatively good result

23. Comparison with other countries
Administrative burden by country: Austria 2.8%, Czech Republic 2.9%, Denmark 2.1%, Netherlands 1.7%
Latest calculations: Greece (13 areas in 2011 – 2.3%), Cyprus (8 areas – 4.38%)
Serbia has begun to reduce costs but a lot remains to be done
EU countries needed five to seven years to reach 25% target

24. Key actual savings?
Application of new accounting and auditing regulations
Electronic tax returns
Some recommendations and easy savings remain to be calculated but are to be implemented – regulations amended in 2015:
Health insurance cards
KEPU ledger