The Government of Lithuania is now debating policy proposals submitted by the Sunrise Advisory Committee, an official body that was established by the Economic Ministry with the goal of improving the business environment in many crucial areas, including taxation, customs, labour relationships, capital markets, etc. The Sunrise Advisory Committee is a broad initiative of the current administration that was brought to life after a Sunset Commission had been launched. The Sunset Commission is charged with the task of eliminating unnecessary bureaucracies and reducing the number of regulatory authorities.
Recently, the cabinet has approved a package of proposals submitted by a Sunrise task force that are aimed at curbing the expansion of government bureaucracy and eliminating its most harmful practices. LFMI Vice President Ugnius Trumpa is the head of the task force.
The task force formulated 18 principles which, if integrated into the Law on Public Administration and other legal acts, would help curb the rampant bureaucracy in all institutions that are involved in regulating business activity. Proposals were made to abolish a number of regulatory measures that duplicate the existing regulations or simply cannot achieve the goals they are designed for. The task force proposed to abolish mandatory bills of lading, to ensure an automatic recognition of quality certificates issued in EU and EFTA countries, to simplify the requirements of reporting to the Statistics Department, the State Tax Inspectorate and the State Social Insurance Fund, as well as to revise the procedures for company registration.
To accelerate the policy-making process, the task force’s recommendations were, at the initiative of LFMI, submitted to the Sunset Commission. The commission approved most of the proposals and forwarded them to the government as a package of measures aimed at increasing the efficiency of state governance. A cabinet meeting endorsed the bulk of the proposals in June.
The proposed changes would improve significantly the work of regulatory agencies with those regulated. Given that they would affect all governmental institutions involved in business regulation, their adoption would improve conditions for all businesses irrespective of their area of activity or type of enterprise.
The first package of proposals was formulated with the aim to reduce the number and functions of regulatory authorities and to ensure that they are established only when there is a clear-cut objective to address specific, tangible concerns. This would prevent duplication of regulatory functions, simplify the apparatus of state governance as well as cut administrative expenditures. This is crucial for reducing business risks and regulatory constraints imposed on private enterprises.
The second package consists of proposals regarding specific regulations: mandatory certification of goods and reporting to governmental institutions.
The following outlines the Sunset Commission’s proposals aimed at increasing the efficiency of state governance that have been approved by the cabinet.
· To supplement the Law on Public Administration with a provision requiring that all public administration institutions provide a detailed report on their activities every five years to a government-appointed institution that will be authorised to make decisions regarding the continuity of the reporting institution and its functions.
· To supplement the Law on Public Administration with a provision stipulating that public administration institutions are established for a limited period of time (e.g. 5-10 years), depending on the nature of functions that they perform.
· To establish a provision that the expediency and efficiency of regulations and restrictions that are applied to business entities must be revised a year after their taking effect and subsequently no less than every five years.
· To ensure that regulatory authorities prepare and publicly present annual reports.
Legal constraints on regulation
Taking into account the practical aspects of administering regulatory functions, the task force has proposed to establish the principles that are common in legal theory but are constantly violated in practice in Lithuania. Regulatory authorities often abuse business people’s unawareness of their own rights and the limits of power that regulators exercise. The current situation breeds abuse of power and corruption.
· To prohibit state and municipal institutions from taking any actions with regard to private individuals that are not allowed by the law.
· To establish a requirement that all methods, procedures and requirements of government regulation are officially approved and published in the official journal Valstybės žinios. Requirements that have not been announced as mandatory in the Valstybės žinios may be disregarded.
Separating legislative and executive powers
Many bureaucratic impediments to business activity are triggered by ill-conceived and unlawful regulatory practices. Most problems related to inappropriate public administration, however, originate from flaws in the legislative process and the enforcement of legal provisions. Quite often, even acceptable statutory provisions are distorted when the task of creating enforcement procedures is delegated to the institution that is responsible for their implementation. When the principle of separating the legislative and enforcement processes is violated, conditions are created for the abuse of executive procedures and arbitrary interpretation of laws.
· To prohibit public administration institutions from interpreting and applying laws in an expanded manner.
· To ensure that legal acts are created not by executive authorities but by state institutions to which these executive bodies are accountable.
· To ensure that only laws or legal acts adopted by institutions authorised by law establish mandatory requirements. Such requirements should not be set by institutions that will be responsible for implementing or controlling compliance with them. Re-delegation of powers should not be allowed.
Planning and controlling regulation
Business and business supervision problems are often caused by inadequate administration of regulatory authorities. In the world of business, competition makes company directors and owners constantly improve their administrative skills and practices. If a private company is mismanaged, its owners, executives and employees suffer the damage. But if a state institution is mismanaged, the consequences also fall on consumers. Improper management of controlling functions impede business activity as well as increase business risks and costs.
· Inspections of business activity should be planned. Inspection plans should be approved by a supervisory institution. In the case of unplanned inspections, inspectors should obtain an authorisation from the head of a structural department of the supervisory institution.
· Every inspection should be registered in a document, indicating what was inspected, who performed the inspection, what methods were used, what violations, if any, were detected, the place and date of the inspection, etc. Explanations of the inspected person or entity should be enclosed.
· Amendments or supplements to legal acts that establish new obligations for private agents should come into force as of the beginning of a new financial year or so that private agents have every opportunity to properly prepare for compliance.
Equal conditions for the same types of enterprise
Unequal requirements applied to business entities are another factor that complicates the execution of regulatory functions and distorts competition. Quite often, in the pursuit of political or personal interests, regulations were adopted to relieve conditions for some businesses and to complicate them for others. As a result, a practice was established whereby regulations or requirements are differentiated depending on the type or scope of business. The prices of government-issued licenses, for instance, may range from 30 litas to one million litas or more.
No restrictions, preferential treatments or other special rules that are applied to entities of the same legal status should be established on the basis of the scope or individual characteristics of a business activity. The same legal conditions should be applied to all enterprises engaged in the same type of business.
A time frame for decision making and information exchange
Bureaucracy is marked by protracted decision-making and a lack of responsibility on the part of public servants. As long as public servants have a discretionary right to decide when and whether to issue licenses, certificates, authorisations and other documents, there is a risk that decisions will be delayed deliberately or unconsciously, and conditions will exist for the abuse of such non-transparent procedures. The only way to accommodate relationships between public servants and business people is to reduce the powers of public servants, to reduce the number of licenses and other mandatory permissions, and to establish a clear time frame for adopting decisions or issuing official documents.
· If a government-authorised institution does not respond to a request from a private subject regarding the adoption of a certain decision or the issue of a permission or approval within a given period of time established by law (e.g. 30 days), the response should be considered to be positive.
· Government institutions should be required to exchange information themselves. Private subjects should not be required to provide the same information to several institutions or to transfer it from one institution to another.
Recognition of EU and EFTA quality certificates
Mandatory quality certification of imported goods is the most time-consuming and costly regulation. There is a widespread belief in Lithuania that quality is guaranteed by the government rather than the market. Lithuania does not recognise quality certificates issued not only in developing countries, but also in countries with strong economies and proper governance. A quality control system has been established under which all imported goods are subject to mandatory certification before they can enter the country. A monopoly of certification institutions has been created in which the prices of quality inspection are set arbitrarily and regulatory functions are abused. This system distorts competition between local and imported goods. Also, it narrows the stock of goods and increases their prices, thus imposing additional costs on companies and consumers.
Quality certificates issued by EFTA and EU countries should be recognised unconditionally for all goods, except agricultural products and food stuffs (KN I-IV groups inclusive). No additional requirements should be applied in Lithuania.
Simplifying reporting requirements
Companies are required to submit all sorts of information about their operations and performance to government authorities. Since the flow of such information is not centrally planned or co-ordinated, the number of reporting requirements is constantly increasing. Different institutions may request the same information or the same information is required to be submitted in different format. In addition to providing basic indicators, companies are often required to make additional calculations. This inflicts additional paperwork and costs on enterprises. Quite often, sanctions and fines are applied for delayed submission of, or failure to submit, information.
· The forms of statistical reporting should be simplified. All requirements to submit indicators that are not needed for state governance or require special monitoring or are impossible to collect should be eliminated.
· The frequency of data submission should be reduced, and procedures standardised and automated. An integrated information management system should be created.
There is hope that these proposals will be implemented immediately upon their approval by the government. This will provide a basis for a wider revision of the regulatory system and a significant improvement of the business environment.