Pakistan Policy Note—Enhancing the Business Environment 79560 Pakistan Policy Note 3 Mehnaz Safavian, Sarwat Aftab, and Sarmad Shaikh Enhancing the 1 J une 2 0 1 3 Business Environment For developing countries like Pakistan, where small innovation; in the public sector, on administra- and medium-size enterprises make up a large share tive efficiency and service delivery. of the economy, the quality of the business environ- ment is a critical policy area for governments to The business regulatory environment is particu- drive economic growth, create jobs, and encourage larly relevant for small and medium-size enterprises private sector competition. Subnational analysis of (SMEs)—the key drivers of competition, economic the business environment finds that the regulatory growth, and job creation, especially in developing and administrative burden of complying with busi- countries (World Bank 2013). Pakistan is no excep- ness regulations varies considerably across cities. tion: SMEs are a key element of its economic The policy focus can therefore benefit from design- landscape, and up to 99  percent of establish- ing, implementing, and analyzing reforms through ments employ 1–20 workers (Pakistan Bureau of a subnational lens to enhance that environment. At Statistics 2005). Collectively, SMEs in Pakistan the provincial and district levels, such an approach provide about 78  percent of nonagricultural can maximize the impacts of reforms; at the federal employment, contribute almost 40  percent of level, it can monitor, compare, and benchmark sub- GDP, and account for some 30 percent of manu- national performance. facturing exports (Jamil Afaqi and Seth 2009). THE WORLD BANK GROUP SOUTH ASIA REGION A country’s regulatory environment affects busi- Given the importance of SMEs in the private sector, it nesses at almost all stages of the business life cycle. is important to understand the quality of the business Business registration regulations apply when environment, identify opportunities to make reforms entrepreneurs decide to start an enterprise. with impact, and better position the economy to be Tax and customs regulations apply when firms more competitive in serving the domestic and exter- produce and export goods. Contract enforce- nal markets. This note highlights the quality of ment laws apply in almost all areas of business Pakistan’s business environment, as measured operations. Business regulations, when prop- by the World Bank’s national and subnational erly designed and implemented, can be a major Doing Business indicators. Reform recom- catalyst for establishing new businesses and mendations pinpoint the key areas where pol- expanding existing ones. Conversely, a regula- icy changes could have the most impact. And tory environment that impedes businesses cre- the benchmarking of regulations across the ates more incentives for entrepreneurs to seek globe shows how Pakistan compares with its loopholes and offer bribes—and thus breeds neighbors and global competitors. The note corrupt economic practices (The Economist discusses the impacts of business regulations 2012). In the private sector, such practices have across Pakistan and suggests national, pro- broader implications on entrepreneurship and vincial, and local reforms in six key aspects Pakistan Policy Note—Enhancing the Business Environment of doing business: starting a business, dealing trading across borders, and dealing with con- with construction permits, trading across bor- struction permits) showed that there had been ders, registering property, paying taxes, and no changes or reforms since the 2010 report. enforcing contracts. Today, Pakistan is ranked 107 of 185 economies on the overall ease of doing business rankings, The note uses international and subnational data — down from 76 of 181 in 2008 (Figure 1). Fig- the former to highlight how the country com- ure 2 shows Pakistan’s 2013 global rankings on pares with the rest of the world on national each Doing Business indicator. 2 business environment indicators and reforms, and the latter to highlight how Pakistan’s cities A review of global comparators masks considerable compare with each other on good practice and variation across Pakistan’s business environments. potential reform programs. But why empha- This variation highlights the importance of size national and subnational reforms? Some subnational laws and regulations as well as the reforms fall exclusively under the federal gov- consistent implementation of those at national ernment’s purview (such as registering corpo- level. More important, a review of that variation rations), while others are dealt with exclusively in Pakistan’s provinces and cities can highlight by the provinces (such as registering sole pro- the country’s good practices, the opportunities prietorships). And for federal regulations, pro- for peer-to-peer or government-to-government vincial and local implementation is critical to learning, and the potential for committed pro- their effectiveness. National and subnational vincial and local governments to create world- reforms are complementary and can have pro- class, competitive business environments in found provincial impacts, so this note high- their areas. lights the reform recommendations at all three levels of g ­ overnment—federal, provincial, and Local, district, and provincial reforms are impor- district—all of which affect Pakistan’s business ­ tant in many areas of the regulatory environment, environment. though some reforms can of course take place only at the national level, as prescribed by the constitution or The international comparisons draw from the Doing relevant legal framework. The 18th Amendment Business 2013 rankings, and the subnational com- to the constitution, approved in 2010, devolved parisons are from the Doing Business in Paki- several powers, rights, and responsibilities to stan 2010 report, because subnational reports provincial governments and, in turn, to dis- are produced only at the request of a client trict governments. District governments are government. In 2012, a review of three of the closer to the impacts of business regulations subnational indicators (starting a business, and are potentially better suited to design local Figure Ease of doing business, South Asia, 2008 and 2013 1 2008 2013 (improvement) 2013 (decline) 185 Rank 1 Sri Lanka Maldives Pakistan Nepal Bangladesh India Bhutan Afghanistan Source: World Bank 2013. Figure Pakistan’s global rankings across Doing Business indicators, 2013 2 Pakistan South Asian median 185 Covered in Doing Business in Pakistan 2010 Rank 3 1 Getting Paying Enforcing Registering Dealing with Starting Trading Resolving Getting Protecting electricity taxes contracts property construction a business across borders insolvency credit investors permits Source: World Bank 2013. reforms and to advocate for—and contribute No single city does well on all indicators, and ­to—­federal reforms. best practices vary by city (Table 1). It is there- fore enough to start the reform process by Several recent enhancements in the regulatory envi- introducing measures that have succeeded ronment focus on implementing current reforms more in other cities. In fact, Pakistani cities have a effectively instead of attempting to introduce new lot to gain from adopting the best regulations ones. Local reforms allow considerable peer- and practices that are working elsewhere in learning opportunities among districts. Several the country. A hypothetical city, “Pakistana,� districts have better approaches to business adopting all the best practices identified in regulations and more efficient implementation Doing Business in Pakistan 2010 would have processes than others. Local reform managers ranked 69 of 183 e ­ conomies—16 places ahead can learn from successful practices in other dis- of the country’s global position in Doing Busi- tricts to expedite reforms in theirs. ness 2010. Table Subnational Doing Business rankings, 2010 1 Dealing with Ease of doing Starting a construction Registering Trading across Enforcing City and province business business permits property Paying taxes borders contracts Faisalabad, Punjab 1 2 6 1 3 4 2 Multan, Punjab 2 6 1 7 3 5 4 Lahore, Punjab 3 3 3 4 3 13 8 Islamabad, Islamabad Capital Territory 4 1 8 3 1 11 10 Sheikhupura, Punjab 5 9 8 5 3 7 6 Gujranwala, Punjab 6 13 2 6 3 10 4 Sukkur, Sindh 7 10 4 10 11 3 1 Peshawar, Khyber Pakhtunkhwa 8 3 6 9 10 8 8 Karachi, Sindh 9 3 10 11 11 1 3 Rawalpindi, Punjab 10 8 5 7 3 12 10 Sialkot, Punjab 11 12 11 1 3 5 10 Quetta, Balochistan 12 6 12 13 2 9 13 Hyderabad, Sindh 13 11 13 11 11 2 7 Note: The ease of doing business is calculated as the ranking on the simple average of city percentile rankings on each of the six topics. The ranking on each topic is the simple average of the percentile rankings on its component indicators. Source: World Bank 2010. Pakistan Policy Note—Enhancing the Business Environment Main Sectoral Issues few local variations. But some provincial taxes contribute to differences in businesses’ regu- Business regulations for paying taxes latory burden. Entrepreneurs spend the same amount of time on tax payments (around 560 Several studies—for example, Bruhn (2011)—have hours) in most cities (World Bank 2010). The found that lowering corporate tax rates can increase major difference is in Islamabad: with no social investment, reduce tax evasion by formal firms, pro- security contributions, it is less cumbersome to mote the creation of formal firms, and ultimately pay taxes there (35 payments) than in Balochi- 4 raise sales and GDP. Where lowering tax rates stan, Khyber Pakhtunkhwa, Punjab, and Sindh might not be viable (based on the tax regime’s (47 payments; Figure 3). Islamabad’s total tax objectives), reducing administrative burdens rate is also the lowest, at about 26  percent, and compliance costs can also lead to more for- against nearly 32 percent elsewhere. mal firms and higher sales. Business regulations for enforcing contracts The administrative burden of paying taxes is far higher in Pakistan than in most South Asian economies Pakistani businesses identified courts as one of the top  (although Pakistan’s total tax rate of 35 percent 10 constraints to firms’ investment, and as important is lower than the South Asian average of 40 per- as political instability and access to finance in 2007, cent). This helps explain why Pakistan’s global according to the World Bank’s Enterprise Surveys. ranking on the paying taxes indicator is 162 of Apart from Bhutan and Maldives, South Asian 185 economies—its second lowest for the Doing economies are ranked fairly low on the enforc- Business indicators, after getting ­ electricity— ing contracts indicator. South Asia’s median against a much higher median ranking for rank is 146, its lowest for any of the 10 Doing South Asian economies of 106. Entrepreneurs Business indicators measured. Frequent case have to make about 47 payments, which require backlogs, long processing times, and high costs almost 560 hours annually on filing, preparing, are common in the regulatory environment. and paying taxes. By contrast, the South Asian Pakistan (ranked 155) is ahead of other large average is about 30 payments, requiring about South Asian economies—such as India (184) 311 hours. Just four payments (12 hours) are and Bangladesh (182)—but still has consider- required in the United Arab Emirates, the best able potential for improving, through both its global performer (World Bank 2013). current and future reforms. Historically, most taxes in Pakistan have been Resolving commercial disputes through Pakistan’s imposed by the federal government, leaving very courts is regulated mainly by a single federal law, the Figure Paying taxes, 2010 3 Payments (number) Time (hours) Total tax rate 800 40 Payments (number) and time (hours) 600 30 Percent of pro t 400 20 200 10 0 0 Islamabad Punjab Sindh Balochistan Khyber Capital Territory Pakhtunkhwa Source: World Bank 2010. Figure Enforcing contracts, 2010 4 Procedures (number) Time (days) Cost 2,500 50 Procedures (number) and time (days) 2,000 40 Percent of claim 1,500 30 1,000 20 5 500 10 0 0 Islamabad Faisalabad Gujranwala Lahore Multan Rawalpindi Sheikhupura Sialkot Hyderabad Karachi Sukkur Quetta Peshawar Islamabad Punjab Sindh Balochistan Khyber Capital Territory Pakhtunkhwa Source: World Bank 2010. Civil Procedure Code 1908. It takes 47 procedural Although all 13 cities analyzed require these steps to enforce a contract, irrespective of the six procedures, the costs and time to register court’s location. However, the time taken and property vary widely. Quetta requires the most cost incurred for these procedural steps varies days (52) and has the steepest costs (11 percent widely (Figure  4). In Faisalabad, the process of the property value); Lahore requires the few- takes 730 days; in Peshawar, 2,190—three times est days (30), and Islamabad the lowest costs as long. Costs are lowest in Sukkur, at about (7  percent; Figure  5). Time varies mainly by 21 percent of the cost of claims, and highest in differences in administrative efficiency across Lahore, at close to 43 percent. the revenue offices issuing the proof of owner- ship and transferring the property title. Local Some cities have introduced alternative dispute reso- cost varies typically by different stamp-duty lution mechanisms to expedite contract enforcement. rates, which are set at the provincial level.1 They seem to have worked: according to an impact evaluation study in 2010, the number Property registration is still manual in most cities, but of pending court cases fell after such mecha- Lahore and Sialkot have implemented reforms to com- nisms were introduced for tax appeals (Grop- puterize their land-record and deed-registration systems. per 2010). Doing Business in Pakistan 2010 highlighted two computerization projects, called Land Record Business regulations for registering property Management Information System and Participa- tory Information System, in selected pilot loca- Burdensome and costly regulations for registering tions in Punjab and Balochistan. Lahore, as property can dissuade business owners from obtain- seen above, had the fastest processing time for ing valid property titles. Apart from direct risks property registration and Islamabad the lowest of fraud and eviction are other disadvantages, cost in Doing Business in Pakistan 2010, both far such as the inability to use property as col- better than Karachi, which determines Paki- lateral for financing. In countries with more stan’s global ranking.2 In fact, processing time secure property rights, firms can better allo- in Lahore and registration cost in Islamabad in cate resources, better protect returns on dif- 2010 were better than Doing Business 2013 esti- ferent types of assets, and thus grow faster mates for Karachi three years later. (Claessens and Laeven 2003). In Pakistan, registering property takes six procedures and Business regulations for construction permits 50 days and costs about 8 percent of per capita income, reflecting Pakistan’s rank of 126 of 185 Construction permits are an important indicator of economies. a country’s business environment—for two main Pakistan Policy Note—Enhancing the Business Environment Figure Registering property, 2010 5 Procedures (number) Time (days) Cost 60 12 Procedures (number) and time (days) Percent of property value 40 8 6 20 4 0 0 Islamabad Faisalabad Gujranwala Lahore Multan Rawalpindi Sheikhupura Sialkot Hyderabad Karachi Sukkur Quetta Peshawar Islamabad Punjab Sindh Balochistan Khyber Capital Territory Pakhtunkhwa Source: World Bank 2010. reasons. First, the industry often accounts for governed locally, time, costs, and the number of a sizable share of the economy—in Pakistan procedures vary widely (Figure 6). roughly 2 percent and employing nearly 7 per- cent of the labor force (Government of Pakistan The number of steps to build a warehouse and obtain 2012). Second, construction regulations help utility connections ranges from 11 in Multan, ensure the safety standards for building proj- Lahore, and Faisalabad to 15 in Sialkot. The time ects that protect the public while making the required, however, varies far more: obtaining permitting process efficient, transparent, and all approvals takes 124 days in Peshawar but affordable. Doing Business 2013 ranked Pakistan 223 days in Karachi—almost twice as long. 105 on the dealing with construction permits Similarly, the costs are about 422 percent of per indicator, slightly better than the South Asian capita income in Multan but close to twice as median rank of 109. However, the data measure much in Islamabad (798 percent). regulatory impacts in Karachi, the country’s largest business city but among the weaker city For many cities, Doing Business in Pakistan 2010 performers. As licenses for site development, highlighted provincial and municipal reforms on building permits, and utility connections are construction permits that introduced good practices. Figure Dealing with construction permits, 2010 6 Procedures (number) Time (days) Cost 250 1,000 Procedures (number) and time (days) Percent of income per capita 200 800 150 600 100 400 50 200 0 0 Islamabad Faisalabad Gujranwala Lahore Multan Rawalpindi Sheikhupura Sialkot Hyderabad Karachi Sukkur Quetta Peshawar Islamabad Punjab Sindh Balochistan Khyber Capital Territory Pakhtunkhwa Source: World Bank 2010. Over 2006–09, development authorities and number of newly registered firms and 2–3  percent town municipal administrations in Lahore, increases in employment (Motta, Oviedo, and San- Faisalabad, and Sialkot adopted uniform build- tini 2010). Such reforms can also improve factor ing and zoning regulations, such as those productivity, investment rates, and value added already in Multan, Rawalpindi, and Gujran- per worker (World Bank 2013). If Pakistan is wala. Consequently, the time to obtain a build- to continue improving competitiveness, eas- ing permit fell 22 days in Sialkot and 15 in ing business entry will be important. On the Lahore. Over the same period, a pilot program starting a business indicator, it ranks 98 glob- to computerize deed registration in Sialkot cut ally, close to the South Asian median of 95. 7 registration time from 13 days to 6, and com- And its startup cost of about 10 percent of per puterized land records in Lahore cut the time capita income is far lower than the South Asian to register property from 37 days to 30, making median (about 21 percent). However, its time it the fastest process among the cities covered and number of procedures to register a busi- in Doing Business in Pakistan 2010. ness are among the region’s highest. Multan is another example that demonstrates Pakistan’s business registration system is highly central- Pakistan’s potential to compete globally on many ized, meaning that entrepreneurs have to go through Doing Business indicators. The country’s best the same 10 procedures across the country. Yet there performer, it adopted uniform building and are differences in the time and costs incurred zoning regulations, specifying processes and (Figure 7), due to varying efficiency of local documentation requirements. As a result, it branches and variations in use and availability would have ranked as high as 56 on the 2010 of online or automated “e-services.� Business global rankings, ahead of developed economies startup time varied from 16 days in Islamabad like Australia (62), Norway (65), and Italy (85). to 24 days in Gujranwala, explained mostly by The variation in time, costs, and number of separate postincorporation registrations for procedures across Pakistan’s cities offers huge taxes and social contributions. Costs varied learning opportunities to replicate reforms from about 13 percent of per capita income in and improve regulatory efficiency. Islamabad to more than 26 percent in Sialkot, stemming generally from differences in incor- Business regulations for starting a business poration fees for online and offline submissions. Reforms making it easier to start a formal business At the subnational level, Doing Business in Paki- are associated with 5–11  percent increases in the stan 2010 noted that reforms in the regulatory Figure Starting a business, 2010 7 Procedures (number) Time (days) Cost 30 30 Procedures (number) and time (days) Percent of income per capita 20 20 10 10 0 0 Islamabad Faisalabad Gujranwala Lahore Multan Rawalpindi Sheikhupura Sialkot Hyderabad Karachi Sukkur Quetta Peshawar Islamabad Punjab Sindh Balochistan Khyber Capital Territory Pakhtunkhwa Source: World Bank 2010. Pakistan Policy Note—Enhancing the Business Environment environment had made it easier to do business in higher than the South Asian median, at 133. all major cities for which data were collected previ- The costs to import and export in Pakistan ously for Doing Business in South Asia 2007.3 are only about 41 percent of the South Asian The introduction of e-Services, for example, average. in 2008 reduced the time needed to register a company with the Securities and Exchange Still, the positive impacts of these good practices Commission of Pakistan by one day to two days vary subnationally. Even though reforms at in Faisalabad, Lahore, and Peshawar (Box 1). the ports can help trading businesses across The fees for online business registration were Pakistan, recent data suggest that subnational 8 set at half the in-person registration. Karachi reforms, such as inland clearance facilities reduced the time to import by half over 2006– and improved inland transport, can reduce 09 after an electronic data interchange system trade costs for cities other than Karachi. was introduced. At the provincial level, Punjab Moreover, the cost of trading across borders cut four days from the business startup process shows marked differences, particularly due to by delegating registration with the Employees a poorly mapped trade logistics process and Social Security Institution to local districts. weak inland transport infrastructure. Table 2 illustrates how business regulations affect Entrepreneurs are expected to benefit from the reforms documentation requirements in Pakistan, under way. Coupled with comparatively low as well as the time and cost of importing and startup costs, Pakistan’s regulatory environ- exporting a standard container. While time ment for business registration is heading in the and documentation vary little across cities, right direction. In its next steps, the key reform inland transportation and relative distance to for Pakistan to leapfrog other countries toward and from the port of reference (Karachi Port global best performers like New Zealand is a or Port Qasim) are the determining factors in one-stop shop for entrepreneurs (one that fully widely dispersed costs. integrates all business registration and postin- corporation procedures on a single platform) Policy Recommendations to incorporate their business. To develop such an entity, the Economic Reforms Unit of the General recommendations Ministry of Finance prompted the creation of a working group of officials from the Securities Engage all levels of government in a holistic reform and Exchange Commission of Pakistan, the agenda Federal Board of Revenue, and the Employees’ Old-Age Benefits Institution. The Pakistani government has long recognized the importance of smart regulations. The country Business regulations for trading across borders became one of the top global reformers in Doing Business 2006: Creating Jobs by introduc- Doing Business 2013 marks out Pakistan among ing reforms in starting a business, registering the economies that have global good practices in the property, protecting investors, and trading trading across borders indicator, such as risk-based across borders. It has since introduced major inspections, electronic submission and processing, regulatory reforms to make it easier for firms and an electronic window to government agencies. to start up and operate in at least five areas of On this indicator, Pakistan ranks 85, much doing business. Box Ongoing Regulatory Reforms to Facilitate Business Registration 1 Since the Securities and Exchange Commission of Pakistan introduced e-Services in September 2008, the business registration process has become easier—procedures can be completed online; faster—companies can be incorporated in as little as two days; and cheaper—the fees for online registration are about half that of in-person registration. In February 2012, the commission introduced fast-track registration services, which enables same-day incorporation. Table Trading across borders, 2010 2 Documents Time Cost to export Documents Time Cost to import to export to export ($ per to import to import ($ per Province City (number) (days) container) (number) (days) container) Islamabad Capital Territory Islamabad 9 22 670 8 21 936 Faisalabad 9 22 639 8 20 739 Multan 9 22 624 8 20 936 Sialkot 9 22 639 8 20 860 Punjab Sheikhupura 9 21 639 8 20 1,088 9 Gujranwala 9 23 677 8 20 936 Rawalpindi 9 23 685 8 20 1,012 Lahore 9 23 791 8 20 1,088 Karachi 9 22 611 8 18 680 Sindh Hyderabad 9 20 616 8 20 708 Sukkur 9 21 639 8 18 784 Balochistan Quetta 9 23 619 8 21 693 Khyber Pakhtunkhwa Peshawar 9 22 715 8 20 784 Pakistan average 9 22 659 8 20 865 Source: World Bank 2010. The comparisons among cities within a large some regulations, such as business registration, country—such as Pakistan—are even stronger driv- ­ the onus of reforms falls on the federal govern- ers for reform than global comparisons, and they pro- ment. For others, such as construction permits mote peer-to-peer learning. The combination of an and property registration, reforms are handled intense engagement strategy with subnational by local districts. In paying taxes, trading across clients alongside provincial and national gov- borders, and enforcing contracts, the reform ernments is important for creating ownership process requires coordination among federal, at all levels of government, which is crucial to provincial, and local district governments. In enable space for reform. all cases, however, the local district government is a critical stakeholder for three reasons. It can Learn from subnational peers inform policy making and the design of reforms. It is responsible for their implementation. And Pakistan’s cities can learn from each other and it can monitor and evaluate their subnational adopt good practices that are already working in the impacts. The following recommendations aim country. As noted in Doing Business in Pakistan to cut the time, costs, documents, and number 2010, if a hypothetical city in Pakistan were to of procedures required for each area. adopt all the best practices already existing in the six areas of business regulations covered Paying taxes by the report, it would rank 16 places ahead of the country’s global position in Doing Business The administrative burden and compliance costs 2010. Differences across the country’s cities can of preparing, filing, and paying taxes are particu- guide policy makers in areas where improve- larly heavy for entrepreneurs who run SMEs. Even ments are possible, provide for cities to learn where tax rates are low, the indirect costs of from each other, and foster the adoption of compliance can encourage tax evasion or deter good practices already seen in Pakistan. smaller firms from entering the formal sec- tor. The following proposed measures would Indicator-specific recommendations reduce the administrative burden of tax regu- lations, address the uncertainty of tax rates, Reform recommendations for specific areas of the and facilitate tax payments: regulatory environment build on the pillars of mul- • Simplify the tax system and broaden the tilayered engagement and peer-to-peer learning. For tax base by eliminating exemptions and Pakistan Policy Note—Enhancing the Business Environment preferential treatments that erode fiscal Reforms like computerizing land records in revenues. Lahore and Sialkot can serve as models for • Improve audit capacity through risk-based other districts and cities. Building on existing audit systems. reforms, the following measures are proposed: • Provide incentives for local governments to • Simplify or consolidate procedures, elimi- develop their local tax bases. nating the need for time-consuming nones- • Expand electronic filing and payment sys- sential procedures. tems to reduce the transaction costs of pay- • Improve the efficiency of the revenue office 10 ing taxes. through computerization and greater • Focus on sequencing and communicating accountability.5 reforms—engage stakeholders, reach out to • Reduce the number of taxes and fees. businesses, and bolster public support. • Introduce a flat fee for stamp duty. Enforcing contracts Construction permits Globally, increasing the specialization of judges, The regulatory environment for dealing with con- divisions, or courts in commercial cases has been struction permits is highly decentralized. Indeed, a common feature of reforms to improve court effi- most powers and responsibilities vested in dis- ciency in recent years. Many reforms have also trict and local governments, enabling many been aimed at automating case management of them to lead and introduce several reforms systems and enhancing procedural efficiency. over the years. Over 2006–09, for example, And some countries, including Pakistan, have development authorities and town municipal adopted and promoted an alternative dispute administrations in Lahore, Faisalabad, and resolution system so that the private sector can Sialkot adopted uniform building and zoning avoid lengthy court trials and the expenses regulations, allowing for greater consistency of litigation.4 The following measures are in the regulatory environment. The following proposed: measures are proposed: • Set up specialized courts or commercial • Review the role of the Patwari and intro- divisions in existing courts. duce modern land management practices.6 • Improve case management, collect statistical • Review the internal process f lows for data, and monitor impact of reforms. requesting and obtaining a building permit. • Reduce the case backlog by dismissing • Rationalize inspections. inactive cases and cases with unresponsive • Issue the completion certificate at the time parties. of final inspection and reexamine its cost. • Introduce time limits and procedural • Review current building compliance and deadlines. enforcement regulations to improve their • Strengthen the alternative dispute resolu- effectiveness. tion system to reduce court burdens and cre- • Review the implementation of existing state ate cheaper, quicker options for resolving bylaws with a risk-based system for envi- disputes. ronmental approvals to increase approval efficiency. Registering property Starting a business Doing Business in Pakistan 2010 noted the con- siderable potential for regulatory reforms in property Doing Business 2013 emphasized three good prac- registration. Land records and filing systems are tices in business regulations for starting a business. predominantly paper-based, local officials have They include increased use of online systems, little accountability but high workloads, and no minimum capital requirements, and one- property registration involves many taxes and stop shops. Pakistan’s regulatory environment fees. The process in most cities is thus slower already allows for online procedures and has than the South Asian average benchmark. no minimum capital requirements. Research shows that the creation of a one-stop shop is Notes associated with an increase in new firms enter- This note draws from Kularatne and Lopez- ing the market of roughly 5–6 percent (Motta, Calix (2012). Oviedo, and Santini 2010). Pakistan has many 1. While Quetta charges a stamp duty of 5 per- reforms to reduce or improve business incor- cent of the property value, Peshawar and the poration procedures, but to be effective such cities in Sindh charge 3 percent. Islamabad reforms must be complemented by stream- and the cities in Punjab charge 2 percent. In lining postincorporation procedures, such Islamabad, where it is cheapest to register as registering with labor departments and property, businesses are exempt from pay- 11 tax authorities. The following measures are ing the urban immovable property tax. proposed: 2. The global series of Doing Business reports • Make online incorporation fully functional measures regulatory impacts in the major for approving company names, registra- business city of an economy. tions, and payments. 3. Doing Business in South Asia 2007 covered • Promote use of online incorporation ser- six cities: Faisalabad, Karachi, Lahore, vices for approving company names, regis- Peshawar, Quetta, and Sialkot. Doing Busi- trations, and payments. ness in Pakistan 2010 covered 13 cities: • Eliminate the company seal requirement. Faisalabad, Gujranwala, Hyderabad, Islam- • Create a single access point for tax registra- abad, Karachi, Lahore, Multan, Peshawar, tions and social security requirements. Quetta, Rawalpindi, Sheikhupura, Sialkot, • Eliminate the requirement for registration and Sukkur. with the labor department of the district. 4. For example, a study cited in Love (2011) • Create an integrated registration system, finds cost savings of 50–60  percent and combining business, income, and sales taxes time savings of up to 11 months with alter- as well as a social security contribution. native dispute resolution relative to court • Implement a unique ID concept for busi- litigation in Columbia. nesses that can be referenced by multiple 5. The two procedures that take place at the stakeholders. revenue office—obtaining the land record (fard) and transferring the property Trading across borders title—account for an average of 75 percent of the time required to register property Pakistan has been highlighted in Doing Business in Pakistan. 2013 among the economies that have global good 6. The Patwari is the local official at the rev- practices for trading across borders, such as risk-based enue office in charge of issuing the land inspections, electronic submission and processing, record, or fard, and completing the prop- and an electronic window to government agencies. erty transfer. The following measures aim to build on them: • Map the trade logistics process between References each district and the relevant port to iden- Bruhn, Miriam. 2011. “Reforming Business tify issues constraining the efficient move- Taxes: What Is the Effect on Private Sector ment of cargo, and identify potential areas Development?� Viewpoint Policy Journal of collaboration with the federal govern- Note 330, World Bank, Washington, DC. ment to increase efficiency. Claessens, Stijn, and Luc Laeven. 2003. “Finan- • Reduce and streamline documentation cial Development, Property Rights, and requirements. Growth.� Journal of Finance 58 (6): 2401–36. • Improve the use of prearrival information. The Economist. 2012. “Getting Better: Bad Rules • Strengthen inland clearance facilities. Breed Corruption. Cutting Them Costs • Improve the electronic data interchange Nothing.� Doing Business 2013. October 27. system. Government of Pakistan. 2012. Pakistan Eco- • Improve inland transportation infrastruc- nomic Survey 2011–12. Ministry of Finance, ture capacity. Islamabad. Pakistan Policy Note—Enhancing the Business Environment Gropper, Akvile. 2010. “ADR in Tax Disputes.� Motta, Marialisa, Ana Maria Oviedo, and Mas- Research Note, World Bank, Washington, DC. similiano Santini. 2010. “An Open Door Jamil Afaqi, Muhammad, and Nadia Jahangir for Firms: The Impact of Business Entry Seth. 2009. SME Sector: Genesis, Challenges Reforms.� Viewpoint Policy Journal Note and Prospects. Lahore, Pakistan: Small and 323, World Bank, Washington, DC. Medium Enterprises Development Authority. Pakistan Bureau of Statistics. 2005. “Census of Kularatne, Chandana, and Jose Lopez-Calix. Economic Establishments 2005.� Islamabad. 2012. “Addressing Regulatory ‘Software’ World Bank. 2007. Doing Business in South Asia 12 Barriers to Business Growth.� Policy Paper 2007. Washington, DC. Series on Pakistan PK 07/12. World Bank, ———. 2010. Doing Business in Pakistan 2010. Washington, DC. Washington, DC. Love, Inessa. 2011. “Settling Out of Court: How ———. 2013. Doing Business 2013: Smarter Regu- Effective Is Alternative Dispute Resolution?� lations for Small and Medium-Size Enterprises. Viewpoint Policy Journal Note 329, World Washington, DC. Bank, Washington, DC. © 2013 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street NW Washington, DC 20433 USA All rights reserved This report was prepared by the staff of the South Asia Region. The findings, interpretations, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the World Bank’s Board of Executive Directors or the countries they represent. The report was designed, edited, and typeset by Communications Development Incorporated, Washington, DC.