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Economic Survey of the Czech Republic 2004: The legal environment for businessEconomic Survey of the Czech Republic 2004: The legal environment for businessEconomic Survey of the Czech Republic 2004: The legal environment for businessThere have been steps to increase co-ordination in business policy though key specific issues still need to be tackled
Positive organisational changes have been made in business policy. A deputy prime minister position has been created to enhance the co-ordination of growth policy. Also the administration of business policy has been put under one umbrella organisation the Business and Investment Development Agency (CzechInvest) and co-ordination and cross-fertilisation in policymaking will also be enhanced by a newly formed advisory council. As in many other countries there is a host of programmes to attract FDI, support small-and-medium enterprise and encourage R&D and the use of new technologies. The enhanced facilities for co-ordination in business policy should be complemented with regular evaluation of the composition and cost effectiveness across general and targeted financial support schemes for businesses. More generally, reform to regulatory frameworks should get high priority. In terms of specific issues:
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The corporate tax rate of 28 per cent is to be cut back to 24 per cent by 2006 and targeted tax advantages mean the effective tax rate is much lower than this. However, targeted tax breaks are distorting and less visible. For this reason, the efficiency of the tax system could be improved through reduction in targeted tax breaks, creating room for tax cuts.
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In regulatory reform, the most significant developments are taking place in bankruptcy legislation. Productivity growth has long since been hampered by a system that allows too many poorly performing firms to continue operating and does not adequately prevent asset stripping. And, even when operations cease, assets can be tied up in long legal proceedings. In addition to a pending amendment to strengthen the position of creditors a new act on bankruptcy legislation looks set to be implemented that should cut back incentives to delay application for bankruptcy and increase the possibilities to salvage viable parts of businesses through a ‘reorganisation’ procedure. The implementation of reform to bankruptcy legislation should no longer be delayed.
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The Czech Republic ranks rather poorly in international indicators of the administrative requirements to set up a business, and this detracts in particular from the incentives to set up small enterprises. Entry on the commercial register is the most widely criticised aspect of the administrative process, involving extensive paperwork and often taking several weeks to complete. The prospect of speeding-up business registration, as contained in pending legislation, is therefore welcome and further delays of reform should be avoided.
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A reputation for corruption is also weakening the business profile of the Czech Republic and the development of countermeasures needs to continue. Plans to introduce ‘integrity testing’ for civil servants should help dissuade corrupt arrangements between the public sector and business and plans for a ‘crown witness’ programme should help successful prosecution in corruption as well as other illegal business practices. In addition most ministries have introduced hotlines to allow the public to report suspicions about corruption. Cutbacks in regulation and red tape would also help reduce opportunities and incentives to engage in corruption.
Weak network-industry competition is making communication and energy services unattractive for businesses
Competition issues remain in some network industries and are also a mark against the business environment. In telecommunications, despite the progress in reform, dominance of previously state-run Cesky Telecom is a concern. Prices for some telecommunication services are, on average, high and delay in infrastructure and market development has slowed the spread of high-speed internet. It is intended that this issue, along with others, including the efficiency of the regulator, will be dealt with in a new telecommunications act. Strong market dominance is also an issue in the energy sector. The state-owned gas company was sold entirely to the German company RWE and competition remains weak. In electricity, vertical and horizontal unbundling has to be completed and the incumbent, CEZ, still has significant interests across production, distribution and sales. Across the network industries, unbundling is an important instrument to enhance competition and should be implemented wherever appropriate.
4.1. Case-loads in bankruptcy and settlement
Thousands
1. Where either bankruptcy has not been decided or it has, but other proceedings continue.
Source: Ministry of Justice.
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