GEO

Delays in enactment of legislative reforms demonstrate government inefficiency

21 January, 2015

 

Early December 2014, the Parliament passed several bills proposed by the Government and MPs through a simplified procedure (only one reading). This saw a series of draft laws that were meant to take effect in 2015 be delayed to 2016. It seems the Government maintains the practice of postponing important reforms. In part, this demonstrates its ineffective functioning. The following important reforms, which were to be enacted from January 1, 2015, are worth noting:

  1. The requirement to use cash register devices was going to enter into force from January 1, 2015 for those individuals, who do not use hired labor force and pursue economic activity at sale points, including at stands, located on the territory of markets.

Sponsor of the bill which delays the enactment of the law: Government

Author of the bill which delays the enactment of the law: Ministry of Finance

According to the explanatory note, the bill was proposed due to the necessity to prolong concessions afforded by the tax law in order to avoid negative consequences of their abolishment.

Our comment: Presumably, the phrase “negative consequences” implies discontent of certain persons. The adoption of this bill has been delayed every six months since 2012.  The mentioned individuals are exempted from using cash register devices when, most probably, many sale points on the territory of markets have quite high turnovers. This delay further complicates tax administration problems in the country. The enactment date was first delayed until July 1, 2014, later – until January 1, 2015, and now – until January 1, 2016. Due to the fact that this draft law will affect many individuals pursuing economic activities, the Government probably has refrained from taking an unpopular step. Should this trend to pander to segments of the electorate continue, it is unlikely that the bill will be enacted even then, especially considering that 2016 is the year of the parliamentary elections. As a rule, at such times, decisions of the Government are motivated by electoral considerations.

  1. In accordance with the Law of Georgia on Accounting and Financial Audit, International Financial Reporting Standards (IFRS) and International Financial Reporting Standards for Small and Medium-Sized Entities (IFRS for SMEs) were going to become mandatory norms for financial reporting from January 1, 2015. In addition, auditors/audit firms were going to be required to become members of professional associations.

Sponsor and Author of the bill which delays the enactment of the law: MP Davit Onoprishvili (Free Democrats)

The author of the bill noted that, together with the Ministry of Economy and Sustainable Development, intensive work is still underway to improve and approximate the bill with EU Directives.  According to him, for this reason, it was necessary to delay certain deadlines in the law for another year allowing to regulate this profession in compliance with the best practice of the world. The author of the law also pointed out that the opinions of currently existing professional organizations also need to be consulted and sufficient timeframes need to be determined for state agencies so that they could carry out their functions effectively.

Our comment: The Government initiated this bill back in 2012. Considering the fact that the Government is familiar with the EU Directives operative in this field, it is unclear why the relevant measures have not been taken earlier. It is also interesting as to know what has already been done in this area – an issue about which the explanatory note is silent. The requirement to perform financial reporting in accordance with the International Financial Reporting Standards (IFRS) would significantly improve both the financial reporting of companies, including calculating the taxable incomes, and their effectiveness as existing regulations are completely insufficient for substantial financial reporting. The fact that taxpayers use local regulations instead of international standards also poses serious problems to the auditors of financial accounts of the taxpayers. Additionally, it is unclear as to why the introduction of the requirement for auditors/audit firms to become members of professional associations was delayed for the third time as this, among others, would support the professional development of auditors/audit firms.

  1. Processing of insolvency cases was going to be carried out mandatorily through an electronic system, which means that it would be possible to perform the law-ordained actions electronically.

Sponsor and Author of the bill which delays the enactment of the law: MP Tamaz Avdaliani (Georgian Dream)

In accordance with the explanatory note of the bill, the delay was required due to the complexity of creating electronic case processing system for insolvency and the resolution of issues relating its administration. “Due to objective circumstances, it is still impossible to create and ensure functioning of electronic system for simplifying and regulating relations between parties involved in insolvency cases. Therefore, delaying the roll-out of the electronic system is required.”

Our comment: The phrase "objective circumstances" cited in the explanatory note requires better justification. The Parliament passed the bill on the electronic system on June 29, 2012 allowing the law to be enacted on January 1, 2013. In the end of 2012, the enactment of the law was delayed until January 1, 2014 and in the end of 2014 - until January 1, 2015.  This bill has also been delayed for the third time.

  1. The mandate of the National Bank of Georgia to be the supervisory body of investment funds was expiring, which was also delayed for another year. The explanatory note mentions nothing about the reasons for the delay.

Sponsor and Author of the bill which delays the enactment of the law: MP Davit Onoprishvili (Free Democrats)

Our comment: In this case as well, it is confusing as to why MP Davit Onoprishivili does not deem necessary to provide explanations for this delay. Further, the Parliament’s practice of not providing explanations for delaying the enactments of important norms is unacceptable.

  1. Tax concessions for tobacco materials and products were going to be abolished.

Sponsor of the bill which delays the enactment of the law: Government

Author of the bill which delays the enactment of the law: Ministry of Finance

According to the explanatory note, the bill was proposed due to the necessity to prolong the concessions afforded by the tax law for a certain period of time in order to avoid negative consequences of their abolishment.

Our comment: The phrase “negative consequences” needs to be explained. Also, it is interesting in which way this prolongation of the concessions is in harmony with the Government’s recently restricted policies in this field, namely, the increase of the excise tax on tobacco products.

  1. Several laws and bylaws were going to be developed in the area of nuclear security.

Sponsor of the bill which delays the enactment of the law: Government

Author of the bill which delays the enactment of the law: Ministry of Environment and Natural Resources

The explanatory note mentions that development of the relevant normative acts is currently underway and additional time is required to do so in compliance with the international standards/norms and the best practice in the area of nuclear and radiation matters.

Our comment: It would be helpful if the explanatory note had included the list of international standards and norms it contemplates. Also, more concrete explanations need to be given as to why the bills could not have been developed by the deadline.

  1. The tax exemption was going to be abolished which temporarily applies to amelioration infrastructure of the country relieving it of the property tax.

Sponsor of the bill which delays the enactment of the law: Government

Author of the bill which delays the enactment of the law: Ministry of Agriculture

According to the explanatory note of the bill, the prolongation of the tax exemption was necessitated by the fact that the service fees of the United Amelioration Systems Company of Georgia are low because they do not include the property tax, technical exploitation and other expenses. In addition, the Georgian National Energy and Water Supply Regulatory Commission still has not determined tariffs for amelioration services based on the tariff methodology. For this reason, the company cannot ensure the payment of the property tax from its income.

In conclusion, this is not the first time that the Parliament has delayed enactment of passed legislative acts. In the opinion of Transparency International Georgia, the frequent delays of bills demonstrate the Government’s ineffective functioning which may be caused by the following factors:

  • incoherence of the public policy process – in the given cases, this is demonstrated by weak internal coordination among the government agencies when developing legislative bills as well as by not ensuring/not being able to ensure the involvement of stakeholders etc. It seems that the relevant agencies and officials often cannot perform the required preparatory works to make sure that the approved laws may be implemented.
  • improper planning of legislative cycles – in our experience, we have witnessed many cases where the author of a bill is not aware of the enforcement procedure and mechanisms of the bill, administrative or other expenses and the balance between the mentioned expenses and the good brought about by the law.
  • lack of regulatory impact analysis in various areas – Explanatory notes of bills usually do not include the analysis as to how the bill will impact on the economy and various areas important for the country or as to what negative unplanned effect may arise as a result of its adoption and implementation, which is a serious problem in terms of regulating in a correct manner.
  • non-consideration of local context – often, legislative process involves negligently adopting foreign legal norms without considering local context and public policy goals for which the law is adopted.

Moreover, these delays demonstrate that the Parliament is not properly carrying out its supervisory function over government actions. Moreover, the explanations offered in explanatory notes of bills usually are not convincing or they are not provided at all. In such situation, the Parliament should require the authors of the bill to provide the corresponding justification, but does not.

Due to these reasons, it is not surprising that enactments of laws are delayed or existing laws function ineffectively and do not ensure achieving their goals.

Author: TI Georgia