Very good indicator for future investors
Belarus on path to joining top thirty states for the best business conditions
By Kirill Yemelyanov
The recently published Doing Business-2013 report by the World Bank and the International Finance Corporation gives grounds for optimism, placing Belarus 58th among 185 countries — up two positions on last year.
Some might say that, after all the efforts made, the rise in ranking should come as no surprise and is even quite modest. However, it’s always easier to rise through the ranks from the lowest positions; each step achieved from this point requires huge efforts. Importantly, the Doing Business rating is viewed as among the most authoritative worldwide, so even the smallest advance is worthwhile. Ten parameters are used to determine the final index, among them ‘Starting a Business’, ‘Dealing with Construction Permits’, ‘Paying Taxes’, ‘Gaining Credit’ and ‘Protecting Investors’. As for launching a business, specialists state that Belarus is in the top ten for ease of company registration, requiring just five short procedures. In 2005, 16 procedures were needed and registration took over two months.
Belarus is still among the most active reformers in the region, being much ahead of Russia (112th position) and Ukraine (137th), though behind Kazakhstan (49th) and its western neighbour of Poland (55th). Belarus has risen across five parameters (of ten), with its progress in ‘Paying Taxes’ most impressive — up from 158th to 129th place. Much has been done to simplify the taxation procedure. Companies now pay less profit tax and are encouraged to make payments and provide documentation online.
“We were tasked with reaching 70th position by 2015,” notes the Deputy Minister for Taxes and Duties, Ella Selitskaya. “Speaking of our expectations for 2014, we aim to join the top 100 for ‘Paying Taxes’. The structure of our taxes meets that used in the Customs Union and European states and, over the past four years, our number of taxes has almost halved. We’ve abolished payments into the Republican Fund for the Support of Agricultural Produce and Food Manufacturers and Agrarian Science, the tax to purchase automobiles and several local taxes and duties.”
Interestingly, in comparison to other Customs Union partners, Belarus uses fewer taxes and its rates are truly competitive. For example, profit tax in Belarus stands at 18 percent (20 percent in Russia and Kazakhstan) while income tax is 12 percent (13 percent in Russia). However, Russia and Kazakhstan have lower VAT. Of course, Belarus’ major budgetary funding comes from VAT payments (27-28 percent) while Russia and Kazakhstan have mineral resource recovery tax as their main source of budgetary revenue. As Ms. Selitskaya notes, states rich in raw materials can find revenue from other sources than VAT. In the EU, VAT rates are rising: over the past two years, the UK has increased this tax from 17.5 percent to 20 percent, while France has raised VAT from 19 to 21 percent, Italy from 21 to 23 percent, Hungary from 25 to 27 percent and Spain from 16 to 18 percent.
Other good news is that, in 2013, the tax burden on small businesses (using the simplified system) will fall, as tax rates are to be reduced from 7 to 5 percent for those not paying VAT and from 5 to 3 percent for those who do pay. In addition, the criteria for calculating gross revenue and the number of employees is to be reduced, allowing enterprises to qualify for the simplified system. This should allow entrepreneurs to raise salaries and create over 20,000 additional jobs next year.
According to the Director of the Privatisation and Management Institute, Pavel Daneiko, the latest business ratings show that Belarus is gaining quite an attractive business climate — especially as regards launching a business. Naturally, it takes time to smooth out every wrinkle, so more work lies ahead. Sadly, Belarus’ ratings for ‘Gaining Credit’ and ‘Resolving Insolvency’ have worsened (104th position from 97th, and 56th place from 42nd respectively).
The Head of the Association for Small and Medium-sized Businesses, Sergey Balykin, sees the improved business-rating as a good trend, which is especially vital on the eve of the Belarusian Investment Forum — scheduled for November 15th. Before injecting money, investors certainly study a country’s rankings.