Poland tries to adopt a more business-friendly face

By bne IntelliNews March 22, 2007

Patricia Koza in Warsaw -

The Polish government this week released a long-awaited package of government reforms designed to weed out the bureaucracy that is hampering the business sector, though business groups remain unimpressed with it.

Prime Minister Lech Kaczynski, at a news conference on the premises of the Warsaw Stock Exchange, announced Monday a "first step" toward untangling government red tape by promising to cut the time to register a new company from 30 days to three. In addition, the numerous inspections of businesses now permitted would be limited.

The PM's best business face

Last week, the Finance Ministry said it would reduce the high disability insurance tax, a major factor that keeps employers from hiring new workers.

"A lot of smoke, no fire," is how Maciej Krzak, chief economist for the Polish Confederation of Private Employers' Lewiatan group, describes the announcement.

PM Kaczynski, whose ruling Law and Justice party saw its popularity dip recently below that of the opposition Civic Platform, called the package "a first step towards economic freedom." But Krzak says that while the government speaks of liberalizing the climate for entrepreneurs, its deputies are trying to push through parliament legislation to restrict the building of new supermarkets. "Their efforts are counterproductive," he says.

A recent World Bank report ranked Poland 114th out of 175 countries with regard to the ease of doing business. Its overall ranking of 75 was the lowest in the 27-member EU, placing it between Pakistan and Swaziland.

Among the areas the government hasn't dealt with are procedures for obtaining licenses. The World Bank's "Doing Business" report said businesses had to undergo an average of 25 procedures taking 322 days, dropping Poland to 146th place in that category.

"This is the thickest point of the regulations," says Krzak. "There's been enough talking about these things; let's stop talking and do something."

Give me a Kluska

The so-called "Kluska package" of government initiatives announced Monday is named after Roman Kluska, founder and former head of the computer company Optimus SA, who lost his business and much of his fortune after being wrongfully accused of embezzlement and tax fraud. He was vindicated by the Polish Supreme Court after being under investigation for 18 months.

At the news conference, Kluska spoke of the hoops that businessmen must jump through simply to get established. "The scale and complexity of the procedures is shocking," he said. "If this government shows enough determination, all of us will be winners."

Ironically, the business confederation said it had not been asked by either Kluska or the government, for its input.

bne's talks with business representatives and analysts identified these major problems still confronting business:

--non-wage labour costs. These added costs are equivalent to at least 21% of an employee's salary. The Finance Ministry has promised to lower the disability insurance tax by 7% as of 2008, which should cut labour costs by an estimated 15%. The cut was originally to have begun in 2006;

--burdensome registration procedures. Although the Kluska package addresses this issue, it's mainly addressed to small start-ups and does not address the problems at larger firms;

--taxation of seasonal micro-enterprises. The business lobby is seeking legislation that would allow seasonal enterprises, such as ski or seaside resorts, to not pay taxes or insurance in off-season. There are 1.6m micro-businesses in Poland, employing from one to nine workers. This point wasn't included in the Kluska package;

--zoning issues. Business managers face a host of problems dealing with property ownership issues, construction regulations and other spatial management issues that are primarily the province of local governments;

--judicial issues. The courts are lagging behind in enforcement of business contracts. The World Bank study found it takes an average of 980 days for a business that sues to win a suit for breach of contract;

--taxes. The World Bank report found Polish companies made an average of 43 tax payments a year, and its workers spent 175 hours preparing them.

Send comments to Patricia Koza

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