Authorities ignored recommendations from experts in patent-based entrepreneurship. Comment by Info-Prim Neo

Two years ago the Business Consulting Institute (BCI) performed a study on the current situation and on the perspectives of patent-based entrepreneurship development. The research was funded by the Bizpro - Moldova project and aimed for the Government, which should have taken it into account when elaborating the corresponding policies. Considering the current conditions, extremely tense in respect to the government-patentees relations, Info-Prim Neo believes it would be useful to review the research’s materials and recommendations that might have become even more actual as time went by. But first of all – an introduction in the field, in a language accessible for the general public, since the subject of the patent is rather crossing the strictly economical relationships area. [What is the patent-based entrepreneurship activity?] The entrepreneurship patent is a form of organisation of entrepreneurship that allows individuals to perform entrepreneurial activities within a specific range of areas. This form of business differs from other forms due to the following main aspects: the registration and patent granting procedure, the range of activities, the taxation and the accountancy scheme, the control and sanction procedures. Performing the patent-based entrepreneurship is a simplified form that substitutes the enterprise activity for the socially disadvantaged layers of the population. The patent-based entrepreneurship does not require state registration of the holder nor the procurement of a licence, the holder is not subject to the requirements related to the control and monitoring mechanisms, and the interaction with financial institutions is not mandatory either. Also, the patent holder does not bear any expenses for the procedure of establishment and registration of institution documents, for various registration fees, the procurement of accountancy documents and so on, needed for an enterprise. The patent presents a series of advantages and disadvantages both for the state and for the entrepreneur. The main advantages that patentees benefit from are: the registration as entrepreneurs is rather simple, some taxes are already included in the patent fee, the evidence system is simple, the investment risk is minimal, while for the State, respectively, a layer of potential entrepreneurs is formed, the unemployment and the grey economy rates are reduced. As disadvantages, the entrepreneurs most frequently mention the limited range of activities they can perform under patent-based entrepreneurship, the restrictions regarding staff employment, the relatively low income. As for the State, the main disadvantages relate to the possibilities of covering tax evasion by patent, breaking consumer rights and the unfair competition for the registered companies. [Where is the patent-based entrepreneurship spread?] International experience shows that the patent-based entrepreneurship has been known in the USSR and some Central and Eastern European countries (Hungary, Romania, Bulgaria), and is currently transformed into adapted forms. In comparison to Moldova, countries that allow the patent-based entrepreneurship practice following regulations: there are 1-3 types of patents instituted; there are criteria established for persons aiming to become patent holders; patent holders are registered as entrepreneurship subjects; the patent can be applied by both companies and individuals. Also, the problems and the perspectives of small business development differ in Moldova from the ones in more experienced countries in market economy creation (Romania, Ukraine, Russia). The principal trends are the consolidation of the organised business, the orientation of patent-based activities towards some of social importance, the official recognition of the entrepreneurship activity, including the extension of the patent-based entrepreneurship range, both for enterprises and individuals. The current trends of the entrepreneurship development and the activities performed by the decision-makers in the elaboration and adoption of means to support the small business activity reveals that the patent-based entrepreneurship is one of valuable perspective. [The situation of the patent-based entrepreneurship in Moldova] Following the general framework described above, two years ago, BCI has elaborated another study, offering the governanment data regarding the place and the importance of this particular form of entrepreneurship in the national economy, as well as some recommendations. Thus, according to the estimates, the turnover of the sector of patent-based entrepreneurship represents 14% of the annual GDP. This activity involves 6% of the population employed in the national economy or 10% of the private sector employees. The labour productivity of these entrepreneurs is 4 times greater than the average in economy. Patentees account for about 60% of the annual net small business sales. [The level of sums incoming from the patent fees is comparable to the sum paid as taxes of the organised small business.] BCI also states that the indirect effects of this sector's impact consist in the legalisation of ex-unofficial entrepreneurs, the reduction of the unemployment, the education of a small layer of small entrepreneurs and the increase of their level of life. There are factors that convince the entrepreneurs to choose the patent as an activity form, among which there are clearly evidenced that some taxes are already included in the patent fee, also the lack of state registration, of the need to make financial and statistical reports and to keep the accountancy evidence. For rural citizens, the patent-based entrepreneurship practically represents the main modality to organise a business. This is due to the lack of greater incomes needed to create and manage enterprises, and also due to the fact that the economical activity of the patent-holders is not of significant proportions, so the registration of enterprises is unnecessary. From the branch viewpoint, the largest share in the domain of patents is held by retailers (84% of the holders), lately there has been identified an increase in the share of the services and microproduction spheres. From the territorial viewpoint, Chisinau is the irrefutable leader, holding over 1/3 of the number of patents, while patentees in the Central and Northern raions of the Republic hold the leadership in the spheres of service provision and merchandise production. Patent holders are thus a competitive enemy for large firms, contributing through their activity to the improvement of service provision. Their retreat from the service market would contribute to the concentration of the trade in the hands of several commercial firms. According to BCI, the biggest problems of patent holders are related to the legislation instability, civil servants’ corruption and the high level of patent fee. Within a series of particular activities there is a clear problem of exaggerated trade and customs duties. The most frequent legislation infringements performed by patent holders, relate to the retail of alcoholic drinks and tobacco products, running activities that are beyond the allowed activities list, defying the rules of trade and consumer rights protection, the lack of proper papers confirming the products origin, the performance of activities beyond the expiry date of the patent and employment of workers. The evaluation of the specialists’ opinion shows that the real number of patent holders could grow in the next few years if there is a mutually advantageous atmosphere of constructive collaboration established between them and the State. [What has been recommended and what was implemented by the Government?] Actually, the establishment of a „mutually advantageous atmosphere of constructive collaboration” has been one of the general recommendations of the BCI experts. Other ones, more concrete, related to the improvement of the legal and institutional framework of the patent based entrepreneurship through: the enlargement of the range of activities subject to patent based entrepreneurship; the extension of the patent as a unique taxation system over a series of small business enterprises, especially from the rural areas; the legal registration of specific customs tax possibilities within import-export activities of patent holders, especially, the adoption and the mutual recognition of similar documents of merchandise originated in neighbouring countries (Romania, Ukraine); allowing the employment of up to 3 persons (both family members and other persons) by paying an additional patent fee of 75% of the fee value for the respective area; the application of a system of establishment of patent fee value, for every type of activity, proved as reasonable from the economical viewpoint; the establishment of a special tax for merchandisers – patent holders who sell products subject to excises. The way the government has reacted to the experts’ recommendations is clear enough right now. It completely ignored these recommendations, starting up more activities restricting the patent-based entrepreneurship. Today, BCI experts explain the government’s reaction by the fact that during the last 2-3 years the trade has increased significantly in Moldova. As a result of the remittances from abroad, the trade activity has been activated, including through the means of patent holders. In the meanwhile, they have covered a part of the trade market, restricting the large firms' affairs. In parallel to Romania joining the EU, it is expected to observe a continuous growth of the trade's share, including international trade. Both due to these and some other reasons, the experts don't exclude the possibility that the government’s actions have been the result of the lobby from some companies in close relation to the government that intended to forestall some considerable incomes on the Moldovan market.