Doing Business 2016 Indonesia 100748 Economy Profile 2016 Indonesia Doing Business 2016 Indonesia 2 © 2016 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 18 17 16 15 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2016 Indonesia 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 35 Getting electricity ....................................................................................................................... 56 Registering property .................................................................................................................. 68 Getting credit .............................................................................................................................. 84 Protecting minority investors ................................................................................................... 91 Paying taxes ................................................................................................................................ 97 Trading across borders ............................................................................................................ 103 Enforcing contracts .................................................................................................................. 111 Resolving insolvency ................................................................................................................ 119 Labor market regulation ......................................................................................................... 126 Distance to frontier and ease of doing business ranking .................................................... 132 Resources on the Doing Business website ............................................................................ 135 Doing Business 2016 Indonesia 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is (comparator economies) for each indicator. The data in for a local entrepreneur to open and run a small to this report are current as of June 1, 2015 (except for the medium-size business when complying with relevant paying taxes indicators, which cover the period January– regulations. It measures and tracks changes in December 2014). regulations affecting 11 areas in the life cycle of a The Doing Business methodology has limitations. Other business: starting a business, dealing with construction areas important to business—such as an economy’s permits, getting electricity, registering property, getting proximity to large markets, the quality of its credit, protecting minority investors, paying taxes, infrastructure services (other than those related to trading across borders, enforcing contracts, resolving trading across borders and getting electricity), the insolvency and labor market regulation. Doing Business security of property from theft and looting, the 2016 does not present rankings of economies on labor transparency of government procurement, market regulation indicators or include the topic in the macroeconomic conditions or the underlying strength of aggregate distance to frontier score or ranking on the institutions—are not directly studied by Doing Business. ease of doing business. The indicators refer to a specific type of business, In a series of annual reports Doing Business presents generally a local limited liability company operating in quantitative indicators on business regulations and the the largest business city. Because standard assumptions protection of property rights that can be compared are used in the data collection, comparisons and across 189 economies, from Afghanistan to Zimbabwe, benchmarks are valid across economies. The data not over time. The data set covers 47 economies in Sub- only highlight the extent of obstacles to doing business; Saharan Africa, 32 in Latin America and the Caribbean, 25 they also help identify the source of those obstacles, in East Asia and the Pacific, 25 in Eastern Europe and supporting policy makers in designing regulatory reform. Central Asia, 20 in the Middle East and North Africa and More information is available in the full report. Doing 8 in South Asia, as well as 32 OECD high-income Business 2016 presents the indicators, analyzes their economies. The indicators are used to analyze economic relationship with economic outcomes and presents outcomes and identify what reforms have worked, where business regulatory reforms. The data, along with and why. information on ordering Doing Business 2016, are This economy profile presents the Doing Business available on the Doing Business website at indicators for Indonesia. To allow useful comparison, it http://www.doingbusiness.org. also provides data for other selected economies Doing Business 2016 Indonesia 5 CHANGES IN DOING BUSINESS 2016 As part of a two-year update in methodology, Doing The case study underlying the trading across borders Business 2016 expands the focus of five indicator sets indicators has been changed to increase its relevance. (dealing with construction permits, getting electricity, For each economy the export product and partner are registering property, enforcing contracts and labor now determined on the basis of the economy’s market regulation), substantially revises the comparative advantage, the import product is auto parts, methodology for one indicator set (trading across and the import partner is selected on the basis of which borders) and implements small updates to the economy has the highest trade value in that product. The methodology for another (protecting minority investors). indicators continue to measure the time and cost to export and import. The indicators on dealing with construction permits now include an index of the quality of building regulation and Beyond these changes there is one other update in its implementation. The getting electricity indicators now methodology, for the protecting minority investors include a measure of the price of electricity consumption indicators. A few points for the extent of shareholder and an index of the reliability of electricity supply and governance index have been fine-tuned, and the index transparency of tariffs. Starting this year, the registering now also measures aspects of the regulations applicable property indicators include an index of the quality of the to limited companies rather than privately held joint land administration system in each economy in addition stock companies. to the indicators on the number of procedures and the For more details on the changes, see the “What is time and cost to transfer property. And for enforcing changing in Doing Business?” chapter starting on page contracts an index of the quality and efficiency of judicial 27 of the Doing Business 2016 report. For more details processes has been added while the indicator on the on the data and methodology, please see the “Data number of procedures to enforce a contract has been Notes” chapter starting on page 119 of the Doing dropped. Business 2016 report. For more details on the distance to The scope of the labor market regulation indicator set frontier metric, please see the “Distance to frontier and has also been expanded, to include more areas capturing ease of doing business ranking” chapter in this profile. aspects of job quality. The labor market regulation indicators continue to be excluded from the aggregate distance to frontier score and ranking on the ease of doing business. Doing Business 2016 Indonesia 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: East Asia & Pacific based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Lower middle income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. Population: 252,812,245 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 3,650 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2016 rank: 109 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2015 rank: 120* 0 represents the worst performance and 100 the frontier. Change in rank: 11 (See the chapter on the distance to frontier and ease of doing business). DB 2016 DTF: 58.12 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2015 DTF: 56.73 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: 1.39 performance on each Doing Business indicator. When compared across years, the distance to frontier score * DB2015 ranking shown is not last year’s published shows how much the regulatory environment for local ranking but a comparable ranking for DB2015 that entrepreneurs in an economy has changed over time in captures the effects of such factors as data revisions absolute terms, while the ease of doing business ranking and the changes in methodology. See the data notes can show only how much the regulatory environment has starting on page 119 of the Doing Business 2016 changed relative to that in other economies. report for sources and definitions. The 10 topics included in the ranking in Doing Business 2016: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The labor market regulation indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented in this year’s economy profile. Doing Business 2016 Indonesia THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2016 Indonesia THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Indonesia and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2015 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2016 Indonesia 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Indonesia (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Indonesia (Scale: Score 0 center, Score 100 outer edge) Source: Doing Business database. Note: The rankings are benchmarked to June 2015 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Doing Business 2016 Indonesia 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier score. tells only part of the story, so do changes in that ranking. This measure shows how far on average an economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy on of changes in an economy’s regulatory environment for each Doing Business indicator. firms, but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed over time—how far it has moved toward (or away from) in different areas. To aid in assessing such changes, the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Indonesia come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator. Starting a business is comparable to 2010. Getting credit, protecting minority investors, paying taxes and resolving insolvency had methodology changes in 2014 and thus are only comparable to 2013. Dealing with construction permits, registering property, trading across borders, enforcing contracts and getting electricity had methodology changes in 2015 and thus are only comparable to 2014. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 119 of the Doing Business 2016 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2016 Indonesia 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Indonesia Best performer globally Philippines DB2016 Indonesia DB2016 Indonesia DB2015 Surabaya DB2016 Malaysia DB2016 Jakarta DB2016 Indicator China DB2016 India DB2016 DB2016 Starting a Business 173 163 -- -- 136 155 14 165 New Zealand (1) (rank) Starting a Business (DTF 66.04 64.43 66.43 64.63 77.46 73.59 95.34 68.56 New Zealand (99.96) Score) Procedures (number) 13.0 13.0 13.0 13.0 11.0 12.9 3.0 16.0 New Zealand (1.00)* Time (days) 47.8 52.5 46.5 52.5 31.4 29.0 4.0 29.0 New Zealand (0.50) Cost (% of income per 19.9 21.1 19.4 21.8 0.7 13.5 6.7 16.1 Slovenia (0.00) capita) Paid-in min. capital (% 31.0 35.5 31.0 31.0 0.0 0.0 0.0 3.3 105 Economies (0.00)* of income per capita) Dealing with Construction Permits 107 110 -- -- 176 183 15 99 Singapore (1) (rank) Dealing with Construction Permits 66.68 66 66.68 66.71 48.29 32.47 81.1 67.71 Singapore (92.97) (DTF Score) Procedures (number) 17.0 17.0 17.0 17.0 22.0 33.6 15.0 24.0 5 Economies (7.00)* Doing Business 2016 Indonesia 12 Best performer globally Philippines DB2016 Indonesia DB2016 Indonesia DB2015 Surabaya DB2016 Malaysia DB2016 Jakarta DB2016 Indicator China DB2016 India DB2016 DB2016 Time (days) 210.2 210.2 201.0 243.0 244.3 191.5 79.0 98.0 Singapore (26.00) Cost (% of warehouse 3.8 4.3 4.3 1.9 7.2 26.0 1.4 1.1 Qatar (0.00) value) Building quality control 13.0 13.0 13.0 13.0 9.0 11.0 13.0 11.0 New Zealand (15.00) index (0-15) Getting Electricity 46 45 -- -- 92 70 13 19 Korea, Rep. (1) (rank) Getting Electricity (DTF 80.73 80.55 80.73 80.73 68.66 74.56 90.05 86.89 Korea, Rep. (99.88) Score) Procedures (number) 5.0 5.0 5.0 5.0 5.5 5.0 5.0 4.0 14 Economies (3.00)* Time (days) 79.0 81.3 79.0 79.0 143.2 90.1 32.0 42.0 Korea, Rep. (18.00)* Cost (% of income per 383.0 360.0 383.0 383.0 413.3 442.3 30.7 28.7 Japan (0.00) capita) Reliability of supply and transparency of tariff 7.0 7.0 7.0 7.0 6.0 5.5 8.0 6.0 18 Economies (8.00)* index (0-8) Registering Property 131 131 -- -- 43 138 38 112 New Zealand (1) (rank) Registering Property 52.41 52.45 52.7 51.36 75.02 50.29 76.32 57.53 New Zealand (94.46) (DTF Score) Procedures (number) 5.0 5.0 5.0 5.0 4.0 7.0 8.0 9.0 4 Economies (1.00)* Time (days) 27.4 27.4 25.0 36.0 19.5 47.0 13.0 35.0 3 Economies (1.00)* Cost (% of property 10.8 10.8 10.9 10.4 3.4 7.5 3.3 4.3 Saudi Arabia (0.00) value) Quality of the land administration index (0- 8.3 8.3 8.5 7.5 17.0 7.0 27.5 12.5 3 Economies (28.50)* 30) Doing Business 2016 Indonesia 13 Best performer globally Philippines DB2016 Indonesia DB2016 Indonesia DB2015 Surabaya DB2016 Malaysia DB2016 Jakarta DB2016 Indicator China DB2016 India DB2016 DB2016 Getting Credit (rank) 70 71 -- -- 79 42 28 109 New Zealand (1) Getting Credit (DTF 55 50 55 55 50 65 70 40 New Zealand (100) Score) Strength of legal rights 5.0 4.0 5.0 5.0 4.0 6.0 7.0 3.0 3 Economies (12.00)* index (0-12) Depth of credit 6.0 6.0 6.0 6.0 6.0 7.0 7.0 5.0 26 Economies (8.00)* information index (0-8) Credit registry coverage 48.5 46.4 48.5 48.5 89.5 0.0 57.0 0.0 Portugal (100.00) (% of adults) Credit bureau coverage 22 Economies 0.0 0.0 0.0 0.0 0.0 22.0 77.1 14.0 (% of adults) (100.00)* Protecting Minority 88 87 -- -- 134 8 4 155 Singapore (1)* Investors (rank) Protecting Minority 53.33 53.33 53.33 53.33 43.33 73.33 78.33 38.33 Singapore (83.33)* Investors (DTF Score) Strength of minority investor protection 5.3 5.3 5.3 5.3 4.3 7.3 7.8 3.8 3 Economies (8.30)* index (0-10) Extent of conflict of interest regulation 5.7 5.7 5.7 5.7 5.0 6.7 8.7 4.0 Singapore (9.30)* index (0-10) Extent of shareholder governance index (0- 5.0 5.0 5.0 5.0 3.7 8.0 7.0 3.7 4 Economies (8.00)* 10) United Arab Emirates Paying Taxes (rank) 148 160 -- -- 132 157 31 126 (1)* Paying Taxes (DTF United Arab Emirates 60.46 53.66 60.46 60.46 64.46 56.14 84.31 66.23 Score) (99.44)* Payments (number per 54.0 65.0 54.0 54.0 9.0 33.0 13.0 36.0 Hong Kong SAR, Doing Business 2016 Indonesia 14 Best performer globally Philippines DB2016 Indonesia DB2016 Indonesia DB2015 Surabaya DB2016 Malaysia DB2016 Jakarta DB2016 Indicator China DB2016 India DB2016 DB2016 year) China (3.00)* Time (hours per year) 234.0 253.5 234.0 234.0 261.0 243.0 118.0 193.0 Luxembourg (55.00) Total tax rate (% of 29.7 31.4 29.7 29.7 67.8 60.6 40.0 42.9 Ireland (25.90) profit) Trading Across Borders 105 104 -- -- 96 133 49 95 Denmark (1)* (rank) Trading Across Borders 64.75 64.75 65.85 60.86 69.13 56.45 86.74 69.39 Denmark (100)* (DTF Score) Time to export: Border 39 39 36 48 26 109 20 42 15 Economies (0.00)* compliance (hours) Cost to export: Border 254 254 250 267 522 413 321 456 18 Economies (0.00)* compliance (USD) Time to export: Documentary 72 72 72 72 21 41 10 72 Jordan (0.00) compliance (hours) Cost to export: Documentary 170 170 170 170 85 102 45 53 20 Economies (0.00)* compliance (USD) Time to import: Border 99 99 80 168 92 287 24 72 19 Economies (0.00)* compliance (hours) Cost to import: Border 383 383 384 376 777 574 321 580 28 Economies (0.00)* compliance (USD) Time to import: Documentary 144 144 144 144 66 63 10 96 21 Economies (1.00)* compliance (hours) Cost to import: Documentary 160 160 160 160 171 145 60 50 30 Economies (0.00)* compliance (USD) Enforcing Contracts 170 170 -- -- 7 178 44 140 Singapore (1) Doing Business 2016 Indonesia 15 Best performer globally Philippines DB2016 Indonesia DB2016 Indonesia DB2015 Surabaya DB2016 Malaysia DB2016 Jakarta DB2016 Indicator China DB2016 India DB2016 DB2016 (rank) Enforcing Contracts 35.37 35.37 36.08 32.86 77.56 32.41 66.61 49.24 Singapore (84.91) (DTF Score) Time (days) 471.0 471.0 460.0 510.0 452.8 1,420.0 425.0 842.0 Singapore (150.00) Cost (% of claim) 115.7 115.7 118.1 107.3 16.2 39.6 37.3 31.0 Iceland (9.00) Quality of judicial 6.3 6.3 6.5 5.5 14.1 7.5 12.0 7.5 3 Economies (15.50)* processes index (0-18) Resolving Insolvency 77 73 -- -- 55 136 45 53 Finland (1) (rank) Resolving Insolvency 46.48 46.75 45.82 48.83 55.43 32.59 62.49 56.81 Finland (93.81) (DTF Score) Recovery rate (cents on 31.2 31.7 30.0 35.6 36.2 25.7 81.3 21.4 Japan (92.90) the dollar) Time (years) 1.9 1.9 2.0 1.5 1.7 4.3 1.0 2.7 Ireland (0.40) Cost (% of estate) 21.6 21.6 22.0 20.0 22.0 9.0 10.0 32.0 Norway (1.00) Outcome (0 as piecemeal sale and 1 as 0 0 0 0 0 0 1 0 going concern) Strength of insolvency 9.5 9.5 9.5 9.5 11.5 6.0 6.0 14.5 4 Economies (15.00)* framework index (0-16) Source: Doing Business database. Note: DB2015 rankings shown are not last year’s published rankings but comparable rankings for DB2015 that capture the effects of such factors as data revisions and changes to the methodology. The global best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2016 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” mark if regulation exists but is nev er used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Doing Business 2016 Indonesia 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business records all procedures officially required, or commonly done in practice, for an Each procedure starts on a separate day (2 entrepreneur to start up and formally operate an procedures cannot start on the same day). industrial or commercial business, as well as the time Procedures that can be fully completed and cost to complete these procedures and the paid- online are recorded as ½ day. in minimum capital requirement. These procedures Procedure completed once final document is include obtaining all necessary licenses and permits received and completing any required notifications, verifications or inscriptions for the company and No prior contact with officials employees with relevant authorities. The ranking of Cost required to complete each procedure economies on the ease of starting a business is (% of income per capita) determined by sorting their distance to frontier scores for starting a business. These scores are the Official costs only, no bribes simple average of the distance to frontier scores for No professional fees unless services required each of the component indicators. by law or commonly used in practice To make the data comparable across economies, Paid-in minimum capital (% of income several assumptions about the business and the per capita) procedures are used. It is assumed that any required information is readily available and that the Deposited in a bank or with a notary before entrepreneur will pay no bribes. Assumptions about registration (or within 3 months) the business:  Is a limited liability company (or its legal  Has a start-up capital of 10 times income per equivalent), located in the largest business city capita and a turnover of at least 100 times 1 and is 100% domestically owned with five income per capita. owners, none of whom is a legal entity.  Has a company deed 10 pages long.  Has at least 10 and up to 50 employees, all of  Does not qualify for any special benefits. them domestic nationals.  Leases the commercial plant or offices and is not  Performs general commercial or industrial a proprietor of real estate. activities. 1 For 11 economies the data are also collected for the second largest business city. Doing Business 2016 Indonesia 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Indonesia? the largest business city of an economy, except for 11 According to data collected by Doing Business, starting a economies for which the data are a population-weighted business there requires 13.00 procedures, takes 47.80 average of the 2 largest business cities. See the chapter days, costs 19.90% of income per capita and requires on distance to frontier and ease of doing business paid-in minimum capital of 31.00% of income per capita ranking at the end of this profile for more details. (figure 2.1). Most indicator sets refer to a case scenario in Figure 2.1 What it takes to start a business in Indonesia - Jakarta Paid-in minimum capital (% of income per capita): 31.00 Doing Business 2016 Indonesia 18 What it takes to start a business in Indonesia - Surabaya Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2016 Indonesia 19 STARTING A BUSINESS Globally, Indonesia stands at 173 in the ranking of 189 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in Indonesia The rankings for comparator economies and the regional to start a business. Figure 2.2 How Indonesia and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2016 Indonesia 20 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Indonesia (table 2.1)? Table 2.1 How has Indonesia made starting a business easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Indonesia eased business start-up by reducing the cost for company name clearance and reservation and the time DB2011 required to reserve the name and approve the deed of incorporation. Indonesia made starting a business easier by introducing a simplified application process allowing an applicant to DB2012 simultaneously obtain both a general trading license and a business registration certificate. Indonesia made starting a business easier by allowing the Ministry of Law and Human Rights to electronically issue the DB2015 approval letter for the deed of establishment. This reform applies to both Jakarta and Surabaya. Indonesia made starting a business in Jakarta easier by DB2016 reducing the time needed to register with the Ministry of Manpower. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 Indonesia 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Indonesia is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Perseroan Terbatas (PT) firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid-in minimum capital requirement: IDR the study of laws, regulations and publicly available 12,500,000 information on business entry in that economy. City: Jakarta, Surabaya Following is a detailed summary of those procedures, along with the associated time and cost. These Start-up Capital: 10 times GNI per capita procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Indonesia - Jakarta Time to No. Procedure Cost to complete complete Pay fee for obtaining clearance of company name at a bank The process of company name clearance must be done through a computerized processing system, the reservation and clearance is most commonly done in practice by a notary public. The notary must first pay the fee of IDR 200,000 at a bank before obtaining clearance for the IDR 200,000 1 1 day proposed company name. Once the notary pays at a bank, she/he obtains a payment receipt with a code. Agency: Notary Arrange for a notary to obtain the standard form of the company deed and obtain clearance for the Indonesian company's name at the Ministry of Law and Human Rights The notary inserts the code online when reserving the company name as proof of payment. The reserved name will be blocked for 60 days. If the founding shareholders are confident that the same name has not been used by another Indonesian company, this procedure is not included in 2 4 days necessary. procedure 3 Company must not use a name which: a. has been lawfully used by another company or is similar to the name of another company; b. contravenes public order and/or decency; c. is identical or similar to the name of a state agency, government agency, or international agency, except with their approval; Doing Business 2016 Indonesia 22 Time to No. Procedure Cost to complete complete d. does not conform to the purposes and objectives and business activities of the company, or only designates the purposes and objectives of the company without having its own name; e. consists of numbers or a set of figures, a letter or a set of letters that do not form any words; or f. means a Company, a legal entity, or a civil enterprise (persekutuan perdata). The Ministry of Law and Human Rights may reject a name application reservation if the requested name is, among others, the same or resembles similarities to name of other companies. According to Article 4 of MoLHR Reg. No. 4/2014, an electronic application must be submitted for the use of the company's name to the Ministry of Law and Human Rights ("Minister of MOLHR") through Legal Entity Administration System / Sistem Administrasi Badan Hukum ("SABH"). Such application shall be performed by filing the Company's Name Application Form which at least contains of the following information: a. payment number of the approval of the use of the company's name from bank; and b. booked name of the company. The approval of the company's name by the Minister of MOLHR shall be given electronically, as regulated under Article 7 of MoLHR Reg. No.4/2014, which at least contains of the following information: a. booking number of the name of the company; b. name of the company which may be used; c. date of booking; d. expiry date; and e. payment code. Agency: Notary * Notarize company documents Government Regulation No. 43 of 2011 on Use of Names of Limited Liability Companies also provides that an application to use a name that is the same or similar to a well-known trademark shall be rejected unless approval is obtained from the holder of the trademark. Law No. 1 30 of 2004 concerning Notaries (Article 36 paragraph 3) stipulates that day,(simultaneous See procedure 3 the maximum notary fee for objects of deed with an economical value with previous details of above IDR 100,000,000 up to IDR 1,000,000,000 is 1.5% of the total procedure) value of the object of the deed. Agency: Notary Doing Business 2016 Indonesia 23 Time to No. Procedure Cost to complete complete Apply to the Ministry of Law and Human Rights for approval of the deed of establishment Based on Article 9, 10, 29 and 30 Indonesian Company Law No. 40 year 2007, the application for approval of Ministry of Law and Human Right (the ""Ministry of Law"") on establishment of company should be able to file electronically by attaching with the certificate of bank account, copy of the relevant bank transmittal advice. The process will be taken as follows: •The application should be filled at the latest 60 days since the date of establishment deed; • Since the application has already fulfilled, the Ministry of Law directly electronically stated no objection on said application. However, if the application is not fulfilled, the Ministry of Law will directly electronically state his objection on said application; • in 30 days since the date of no objection by Ministry of Law, the applicant should submit the original application and supporting documents; • 14 days after fulfillment of above requirements, Ministry of Law will Less than one day included in 4 issue the legalization on the establishment of the company; (online procedure) procedure 1 • Data of company which its establishment has been approved by Ministry of Law i.e. name, domicile, object and purpose, period, Capital Company will be inserted into Company Registry. • The Ministry of Law will announce the establishment of company in Supplement State Gazette (TBNRI) within 14 days of the Ministry's Approval Letter. As of March 2014, the Ministry of Law and Human Rights issues the approval of the deed of establishment electronically. The cost of this procedure is based on the Schedule to the Government Regulation Number 38 of 2009 concerning Types and Tariffs on Non- Tax State Revenues Applied for in the Department of Law and Human Rights which comes into effect on 28 May 2009. Agency: Ministry of Law and Human Rights Obtain the Building Management Domicile Certificate For companies that locate in an office building, business founders need to get the Building Management Domicile Certificate from the Building Management Office before applying for the Certificate of Company 1 day no charge 5 Domicile. Agency: Building Management Office Doing Business 2016 Indonesia 24 Time to No. Procedure Cost to complete complete Apply for the Certificate of Company Domicile All Indonesian limited liability companies must have a certificate of company domicile. This certificate is issued by the head of the village (the Lurah) where the company is located or by the building management if office space is leased. There is no official fee for this 2 days no charge 6 certificate. This certificate is required for several documents (SIUP, TDP, etc.) Agency: municipal Pay the non-tax state revenue (PNBP) fees for legal services at a bank The requirement to pay the non-tax state revenue (PNBP) fee for legal services in relation to the establishment of a PT is obtained from the information stated in the website of the Legal Entity Administration System known as SABH (Sistem Administrasi Badan Hukum) (www.sisminbakum.go.id). The obligation for the company to pay the Non Tax State Revenue/ Penerimaan Negara Bukan Pajak ("PNBP") for the legal services in relation to the establishment of the company is also stated in Article 5 of the MOLHR Reg. No.4/2014. The cost for the PNBP is further regulated under the Government Regulation of the Republic of Indonesia No.45 of 2014 concerning See procedure 7 1 day Types and Rates of Non Tax State Revenues Prevailing in the Ministry of details Law and Human Rights ("GR No. 45/2014") which comes into effect on 3 June 2014. Cost breakdown: 1,000,000 IDR for validation of company as legal entity 30,000 IDR for publication in State Gazette 550,000 for publication in the Supplement State Gazette Agency: Notary Apply at the Ministry of Trade for the permanent business trading license (Surat Izin Usaha Perdagangan, SIUP) 8 The Surat Izin Usaha Perdagangan (SIUP) constitutes the business 15 days no charge license for a non-facility company engaging in trading business. The SIUP contains details about the company activities and the person in charge of the company (normally the President Director). The Ministry Doing Business 2016 Indonesia 25 Time to No. Procedure Cost to complete complete of Trade, which issues the SIUP for a non-facility company, may require a letter of good conduct from the Indonesian police in support of the person in charge of the company. Normally, the following copy of documents should be attached for the application for a SIUP: • The articles of association (copy). • An attestation of location and address of the company’s offices (building management domicile certificate and certificate of company domicile). • Identity card of the company President Director. • Letter of approval from the Ministry of Law and Human Rights After reviewing the application, the Municipality passes it to the technical agency at the regional office for cooperatives for further review• it takes 2 days to get the signature of the head of that office as the authority is not delegated. Once the application is back, the SUIP is provided. The Trade Minister Regulation No. 36/M-DAG/PER/9/2007 as amended by the Trade Minister Regulation No. 46/M-DAG/PER/12/2011. There are no changes to Article 3 under this new regulation. classified the SIUP based on the enterprises’ net assets as follows: Article 3 (1) Small Scale SIUP must be held by businesses engaging in trade having a net asset of more than Rp. 50.000.000,- (fifty million Rupiah) up to no more than Rp. 500.000.000,- (five hundred million Rupiah) not including land and building on which the business operates; (2) Medium Scale SIUP must be held by businesses engaging in trade having a net asset of more than Rp. 500.000.000,- (five hundred million Rupiah) up to no more than Rp. 10.000.000.000,- (ten billion Rupiah) not including land and building on which the business operates; (3) Large Scale SIUP must be held by businesses engaging in trade having a net asset of more than Rp. 10.000.000.000,- (ten billion Rupiah) not including land and building on which the business operates. Agency: Ministry of Trade Obtain company registration certificate (Tanda Daftar Perusahaan/TDP) from the Local Government Office The SIUP must be obtained before the TDP can be issued. The same documents submitted for the SIUP must also be submitted for the TDP, 14 days no charge 9 in addition to the SIUP itself. Agency: Local Government Office (Trade Sub-division) Doing Business 2016 Indonesia 26 Time to No. Procedure Cost to complete complete Register with the Ministry of Manpower Pursuant to Article 6 of the Law No.7 of 1981 concerning Mandatory Labor Affairs Report ("Law No.7/1981"), the company shall be obliged to submit a manpower report in the company to the Ministry of Manpower and Transmigration ("Minister of Manpower") or the appointed officer within a period of no more than 30 days as of the establishment of the company. Such report shall contain the following information: a. company identification; b. manpower relation; c. manpower protection; and d. employment opportunity. The provision regarding the manpower report in the company is further governed under the Regulation of the Ministry of Manpower and Transmigration of the Republic of Indonesia No.PER.14/2006 concerning the Guidelines for the Manpower Report in the Company ("MoMTR No.14/2006"). Pursuant to Article 2 of the MoMTR No.14/2006, the manpower report must be submitted in the form of electronic data compiled in the Company's Manpower Database in the Information System on Company's Manpower Mandatory Reports / Sistem Informasi Wajib Lapor Ketenagakerjaan di Perusahaan ("SINLAPNAKER"). The company which make a use of the Sinlapnaker shall be given an Identity Card from the Directorate General of 1 day no charge 10 Development of Labor Supervision. In the event that the region of the company has not yet installed SINLAPNAKER, the report must be submitted in writing and delivered by hand or by registered mail to the government institution having tasks and responsibility in the field of manpower in the Municipality/City where the company is located in accordance with the procedure as stated in Article 5 of the MoMTR No.14/2006. Further, in order to increase the service of the implementation of mandatory labor affairs report, the Minister of Manpower issues the Circular Letter of the Ministry of Manpower and Transmigration of the Republic of Indonesia No.SE.3/MEN/III/2014 concerning the Implementation of Mandatory Labor Affairs Report in the Company ("MoMTCL No.3/2014"). Time: ratification of the registration of mandatory labor affairs report in the company shall be performed within a period of 1 working day as of the receipt of complete application (signed which has been filled in complete and signed with the company stamp (MoMTCL No. 3/2014). Cost: the registration of the mandatory labor affairs report shall not be subject to any fee(s) (MoMTCL No.3/2014). Agency: Ministry of Manpower Doing Business 2016 Indonesia 27 Time to No. Procedure Cost to complete complete * Apply for the Workers Social Security Program (BPJS Ketenagakerjaan) The Presidential Regulation No. 109 of 2013 on Membership Phasing of Social Security Program regulates that BPJS Ketenagakerjaan covers occupational accident security, old age security, pension security, as well as death security. Under this regulation, every employers have the obligation to register their workers to BPJS Ketenagakerjaan based on their business scale starting from 1 July 2015, which are as follows: 1. Big and medium business scale to participate on programs including occupational accident security, old age security, pension security, and death security program; 2. Small business scale to participate on programs including occupational accident security, old age security, and death security program; and 3. Micro business scale to participate on programs including occupational accident security and death security. 7 days The company shall obtain application forms (form 1 for data and form (simultaneous with 11 1A for employees’ data) at the nearest BPJS Ketenagakerjaan office (list no charge previous of BPJS Ketenagakerjaan in DKI Jakarta: procedure) http://www.bpjsketenagakerjaan.go.id/kanwil/903/KANWIL-DKI- JAKARTA.html). The application forms shall be submitted to the BPJS Ketenagakerjaan at the latest 30 (thirty) days after obtaining application forms with following attachments: receipt of first contribution payment, SIUP, company’s NPWP, Deed of Establishment, and employees’ National Identity Card, Photograph, and Family Registration Card. After 7 (seven) days of the submission, BPJS Ketenagakerjaan will issue the membership card and certificate of registration. If there is any changes on the company’s address, business activity, and the amount of employees, as well as employee’s wages, at the latest 7(seven) days following to such changes, the employer is obliged to convey it to BPJS Ketenagakerjaan. Agency: Social Security Administrative Bodies (BPJS Ketenagakerjaan) * Apply for healthcare insurance with BPJS (Badan Penyelenggara Jaminan Sosial) Kesehatan Manual registration is performed by completing the registration form and providing the data of future participants to BPJS Health or through 7 days appointed third parties, and then completing the form and submitting (simultaneous with 12 no charge the personal data of the participant candidates. previous procedure) During application, the employer must provide at least the following personal data of the candidate participants: - Name; Doing Business 2016 Indonesia 28 Time to No. Procedure Cost to complete complete - Date of birth; - Name of the health service provider selected by the employee; and - Other personal information, including: • Employee and his/her family member(s), who will be covered by the health insurance program; • Employee’s salary information; • Information on participation status Agency: Social Security Administrative Bodies (BPJS Kesehatan) * Obtain a taxpayer registration number (NPWP) and a VAT collector number (NPPKP) Regulation of Directorate General of Taxation No. Per- 38/PJ/2013 concerning Procedures of Application of Taxpayer Registration and/or Taxable Entrepreneur Number, Amendment of Data and Transfer of Taxpayer and/or Taxable Entrepreneur aimed to enhance the service to the taxpayer. The regulation states that within 1 year as of the issuance of NPWP, the relevant Tax Office will conduct field confirmation regarding the correct data/identity of the taxpayer. The person/entity can apply for NPWP in the relevant tax office where the company is located or can apply it online through http://www.pajak.go.id, choose e-registration to make account as a 1 day taxpayer and then follow the procedures therein, by filling the form and (simultaneous with 13 attaching copies of the following no charge previous procedure) - Deed of establishment - Identity card/KTP of one of active Director - Statement letter regarding confirmation on place of business from one of the active Director (form is provided), - POA and identity card/KTP of the authorized. The NPWP card and Registered Statement Letter is obtained within 1 calendar day upon the completeness of the required document without and fee, charge and/or retribution. Agency: Tax Office * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for starting a business in Indonesia - Surabaya Time to No. Procedure Cost to complete complete Doing Business 2016 Indonesia 29 Time to No. Procedure Cost to complete complete Pay fee for obtaining clearance of company name at a bank The process of company name clearance must be done through a computerized processing system, the reservation and clearance is most commonly done in practice by a notary public. The notary must first pay the fee of IDR 200,000 at a bank before obtaining clearance for the 1 proposed company name. Once the notary pays at a bank, she/he 1 day IDR 200,000 obtains a payment receipt with a code. Agency: Notary Arrange for a notary to obtain the standard form of the company deed and obtain clearance for the Indonesian company's name at the Ministry of Law and Human Rights The notary inserts the code online when reserving the company name as proof of payment. The reserved name will be blocked for 60 days. If the founding shareholders are confident that the same name has not been used by another Indonesian company, this procedure is not necessary. Government Regulation No. 43 of 2011 on the same matter (“GR 43/2011”) Limited Liability Companies, company must not use a name which: a. has been lawfully used by another company or is similar to the name of another company; included in 2 b. contravenes public order and/or decency; 4 days procedure 3 c. is identical or similar to the name of a state agency, government agency, or international agency, except with their approval; d. does not conform to the purposes and objectives and business activities of the company, or only designates the purposes and objectives of the company without having its own name; e. consists of numbers or a set of figures, a letter or a set of letters that do not form any words; or f. means a Company, a legal entity, or a civil enterprise (persekutuan perdata). The Ministry of Law and Human Rights may reject a name application reservation if the requested name is, among others, the same or resembles similarities to name of other companies. Agency: Notary * Notarize company documents 1 day Once the notary gets the company name approval from the Ministry of (simultaneous with see procedure 3 Law and Human Rights, the founders can sign the deed of details previous establishment. Standard articles of association are available at the procedure) notary office. Doing Business 2016 Indonesia 30 Time to No. Procedure Cost to complete complete The notary fees associated with this procedure cover the following services: - Name check - Deed drafting and approval Commonly, local notary associations set the scale of notary fees. In practice, the fee depends on the agreement between notary and client. The average notary fee for Surabaya is IDR 7,000,000. Agency: Notary Pay the non-tax state revenue (PNBP) fees for legal services at a bank The requirement to pay the non-tax state revenue (PNBP) fee for legal services in relation to the establishment of a PT is obtained from the information stated in the website of the Legal Entity Administration System known as SABH (Sistem Administrasi Badan Hukum) (www.sisminbakum.go.id). The obligation for the company to pay the Non Tax State Revenue/ Penerimaan Negara Bukan Pajak (""PNBP"") for the legal services in relation to the establishment of the company is also stated in Article 5 of the MOLHR Reg. No.4/2014. The cost for the PNBP is further regulated under the Government see procedure Regulation of the Republic of Indonesia No.45 of 2014 concerning 1 day details 4 Types and Rates of Non Tax State Revenues Prevailing in the Ministry of Law and Human Rights (""GR No. 45/2014"") which comes into effect on 3 June 2014. Cost breakdown: 1,000,000 IDR for validation of company as legal entity 30,000 IDR for publication in State Gazette 550,000 for publication in the Supplement State Gazette Agency: Notary Obtain the Building Management Domicile Certificate For companies that locate in an office building, business founders need to get the Building Management Domicile Certificate from the Building Management Office before applying for the Certificate of Company 1 day no charge 5 Domicile. Agency: Building Management Office Doing Business 2016 Indonesia 31 Time to No. Procedure Cost to complete complete Apply for the Certificate of Company Domicile All Indonesian limited liability companies must have a certificate of company domicile. This certificate is issued by the head of the village (the Lurah) where the company is located or by the building management if office space is leased. There is no official fee for this 2 days no charge 6 certificate. This certificate is required for several documents (Ministry of Law and Human Rights approval, SIUP, TDP, etc.) Agency: Head of the village (Lurah) Apply to the Ministry of Law and Human Rights for approval of the deed of establishment Based on Article 9, 10, 29 and 30 Indonesian Company Law No. 40 year 2007, the application for approval of Ministry of Law and Human Right (the ""Ministry of Law"") on establishment of company should be able to file electronically by attaching with the certificate of bank account, and copy of the relevant bank transmittal advice. The process will be taken as follows: •The application should be filled at the latest 60 days since the date of establishment deed; • Since the application has already fulfilled, the Ministry of Law directly electronically stated no objection on said application. However, if the application is not fulfilled, the Ministry of Law will directly electronically state his objection on said application; • in 30 days since the date of no objection by Ministry of Law, the applicant should submit the original application and supporting documents; Less than one day included in 7 • 14 days after fulfillment of above requirements, Ministry of Law will (online procedure) procedure 1 issue the legalization on the establishment of the company; • Data of company which its establishment has been approved by Ministry of Law i.e. name, domicile, object and purpose, period, Capital Company will be inserted into Company Registry. • The Ministry of Law will announce the establishment of company in Supplement State Gazette (TBNRI) within 14 days of the Ministry's Approval Letter. As of March 2014, the Ministry of Law and Human Rights issues the approval of the deed of establishment electronically. The cost of this procedure is based on the Schedule to the Government Regulation Number 45 of 2014 concerning Types and Tariffs on Non- Tax State Revenues Applied for in the Department of Law and Human Rights which comes into effect on 30 May 2014. Agency: Ministry of Law and Human Rights Doing Business 2016 Indonesia 32 Time to No. Procedure Cost to complete complete Obtain a taxpayer registration number (NPWP) and a Value Added Tax (VAT) collector number (NPPKP) from the local Tax Office Maximum one month from the start of business operations, the company must register with the Tax Office. The company must also obtain a VAT collector number (NPPKP) if it anticipates annual revenue of more than IDR 600 million from the sales of goods and services. The company domicile certificate, articles of association, and identity cards of the directors must be submitted to obtain the tax numbers. NPWP and NPPKP can be arranged simultaneously in one package. The applicant submits the required documents to the Tax Office and gets the receipt of application. The Tax Officer will inform the applicant when the NPWP and NPPKP cards are ready for pick up. 1 day no charge 8 The NPWP application can also be arranged on-line but the applicant still needs to provide hard copies of documents and visit the Tax Office to pick up the NPWP Card. Most applicants visit the Tax Office in person. In practice, unofficial fees may apply and range from IDR 50,000 to IDR 300,000 specifically for the technical surveyor. Agency: Tax Office Apply for the permanent business trading license (Surat Izin Usaha Perdagangan, SIUP) at the One Stop Shop (UPTSA) The Surat Izin Usaha Perdagangan (SIUP) constitutes the business license for a non-facility company engaging in trading business. The SIUP contains details about the company activities and the person in charge of the company. The following documents should be attached (based on local regulation No. 1 of 2010, enacted in April 2010): a. Copy of ID Card; b. An attestation from the applicant (stamp duty IDR 6,000) regarding 14 days no charge 9 the business area; c. Copy of the deed of company establishment; d. Passport photo size 3 x 4 cm (2 pieces); e. Copy of NPWP. Only the SIUP can be obtained at the one-stop shop. Agency: One Stop Shop Register with the Company Register (Department of Trade) and obtain a registration certificate (Tanda Daftar Perusahaan, TDP) at the City Agency of Trade and Industry Affairs 10 14 days no charge TDP cannot be applied for at the same time as SIUP because SIUP is a pre-requisite for TDP. Doing Business 2016 Indonesia 33 Time to No. Procedure Cost to complete complete The following documents should be attached: a. Copy of deed of establishment; b. Copy of ID Card; c. Copy of technical permit related the business; d. Copy of NPWP; e. Copy of SIUP. Based on Mayor Regulation No. 35 of 2010 concerning the business services industry and the trade sector, it is mandatory to register the company no later than 3 months after the business operations started. Agency: City Agency of Trade and Industry Affairs Register with the Ministry of Manpower at the local Manpower Office According to Law No. 7/1981, companies with more than 10 workers or a monthly payroll of IDR 1 million must register with the Ministry of Manpower. This procedure can be completed concurrently with other post-registration procedures by filing the manpower compulsory report 14 days no charge 11 and company regulations with the Ministry of Manpower. Although there is no official fee, there may an unofficial administrative fee that depends on negotiation and usually starts at IDR 100,000. Agency: Ministry of Manpower * Apply for the Workers Social Security Program (BPJS Ketenagakerjaan) According to legal provisions on workers’ social security (Law No. 3/1992), it is mandatory for every company or individual employing 10 workers or more or generating a monthly payroll of at least IDR 1 million a month to apply for the Workers Social Security Program (BPJS Ketenagakerjaan), operated by the executing agency. This social security program covers occupational accident security, death security and old age security. 7 days (simultaneous with 12 no charge A company or an individual is not obligated to enroll its employees in previous the social security program if it offers an independent employee social procedure) security program with benefits comparable or better than those offered by the Package of Basic Health Maintenance Security (according to Government Regulation No. 14/1993, as amended by Government Regulation No. 28 /2002). Agency: Social Security Administrative Bodies (BPJS Ketenagakerjaan) Doing Business 2016 Indonesia 34 Time to No. Procedure Cost to complete complete * Apply for healthcare insurance with BPJS (Badan Penyelenggara Jaminan Sosial) Kesehatan Under the enactment President Decree No. 12/2013, as amended by President Decree No. 111/2013 regarding Health Insurance, PT Jamsostek (Persero) will no longer operate the health maintenance 7 days security program. As of January 1, 2014 BPJS-Kesehatan has taken on (simultaneous with 13 that role. And Jamsostek has changed its name to BPJS no charge previous Ketenagakerjaan. BPJS health maintenance membership is compulsory procedure) starting from 1 July 2015. Agency: Social Security Administrative Bodies (BPJS Kesehatan) * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2016 Indonesia 35 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records all procedures required for a Obtaining utility connections for water and business in the construction industry to build a sewerage warehouse along with the time and cost to complete Registering and selling the warehouse after its each procedure. In addition, this year Doing Business completion introduces a new measure, the building quality Time required to complete each procedure control index, evaluating the quality of building (calendar days) regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and Does not include time spent gathering professional certification requirements. information The ranking of economies on the ease of dealing with Each procedure starts on a separate day. Procedures that can be fully completed online construction permits is determined by sorting their are recorded as ½ day distance to frontier scores for dealing with construction permits. These scores are the simple Procedure considered completed once final average of the distance to frontier scores for each of document is received the component indicators. No prior contact with officials To make the data comparable across economies, Cost required to complete each procedure (% several assumptions about the construction of warehouse value) company, the warehouse project and the utility Official costs only, no bribes connections are used. Building quality control index (0-15) Assumptions about the construction company Sum of the scores of six component indices: The construction company (BuildCo): Quality of building regulations (0-2)  Is a limited liability company (or its legal equivalent). Quality control before construction (0-1)  Operates in the economy’s largest business Quality control during construction (0-3) city. For 11 economies the data are also Quality control after construction (0-3) collected for the second largest business Liability and insurance regimes (0-2) city. Professional certifications (0-4)  Is 100% domestically and privately owned.  Has five owners, none of whom is a legal entity.  Is fully licensed and insured to carry out construction projects, such as building warehouses. Doing Business 2016 Indonesia 36 The construction company (BuildCo) (continued):  Will be a new construction (there was no previous construction on the land), with no  Has 60 builders and other employees, all of trees, natural water sources, natural reserves them nationals with the technical expertise or historical monuments of any kind on the and professional experience necessary to plot. obtain construction permits and approvals.  Will have complete architectural and  Has at least one employee who is a technical plans prepared by a licensed licensed architect or engineer and architect. If preparation of the plans requires registered with the local association of such steps as obtaining further architects or engineers. BuildCo is not documentation or getting prior approvals assumed to have any other employees who from external agencies, these are counted as are technical or licensed experts, such as procedures. geological or topographical experts.  Will include all technical equipment required  Has paid all taxes and taken out all to be fully operational. necessary insurance applicable to its general business activity (for example,  Will take 30 weeks to construct (excluding all accidental insurance for construction delays due to administrative and regulatory workers and third-person liability). requirements).  Owns the land on which the warehouse will be built and will sell the warehouse upon Assumptions about the utility connections its completion. The water and sewerage connections:  Is valued at 50 times income per capita.  Will be 150 meters (492 feet) from the Assumptions about the warehouse existing water source and sewer tap. If there The warehouse: is no water delivery infrastructure in the economy, a borehole will be dug. If there is  Will be used for general storage activities, no sewerage infrastructure, a septic tank in such as storage of books or stationery. The the smallest size available will be installed or warehouse will not be used for any goods built. requiring special conditions, such as food, chemicals or pharmaceuticals.  Will not require water for fire protection reasons; a fire extinguishing system (dry  Will have two stories, both above ground, system) will be used instead. If a wet fire with a total constructed area of protection system is required by law, it is approximately 1,300.6 square meters assumed that the water demand specified (14,000 square feet). Each floor will be 3 below also covers the water needed for fire meters (9 feet, 10 inches) high. protection.  Will have road access and be located in the  Will have an average water use of 662 liters periurban area of the economy’s largest (175 gallons) a day and an average business city (that is, on the fringes of the wastewater flow of 568 liters (150 gallons) a city but still within its official limits). For 11 day. Will have a peak water use of 1,325 liters economies the data are also collected for (350 gallons) a day and a peak wastewater the second largest business city. flow of 1,136 liters (300 gallons) a day.  Will not be located in a special economic  Will have a constant level of water demand or industrial zone. Will be located on a land and wastewater flow throughout the year. plot of approximately 929 square meters (10,000 square feet) that is 100% owned by  Will be 1 inch in diameter for the water BuildCo and is accurately registered in the connection and 4 inches in diameter for the cadastre and land registry. sewerage connection. Doing Business 2016 Indonesia 37 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build business city of an economy, except for 11 economies for a warehouse in Indonesia? According to data collected which the data are a population-weighted average of the by Doing Business, dealing with construction permits 2 largest business cities. See the chapter on distance to there requires 17.00 procedures, takes 210.20 days and frontier and ease of doing business ranking at the end of costs 3.80% of the warehouse value (figure 3.1). Most this profile for more details. indicator sets refer to a case scenario in the largest Figure 3.1 What it takes to comply with formalities to build a warehouse in Indonesia - Jakarta Doing Business 2016 Indonesia 38 What it takes to comply with formalities to build a warehouse in Indonesia - Surabaya Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. . Doing Business 2016 Indonesia 39 DEALING WITH CONSTRUCTION PERMITS Globally, Indonesia stands at 107 in the ranking of 189 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Indonesia to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Indonesia and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2016 Indonesia 40 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Indonesia are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated value of information collected from experts in construction IDR 2,017,666,027 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Jakarta, Surabaya service providers and public officials who deal with building regulations. These procedures are those that apply to a company and structure matching the The procedures, along with the associated time and cost, standard assumptions used by Doing Business in are summarized below. collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Indonesia - Jakarta Time to No. Procedure Cost to complete complete Request and obtain notarized copy of land ownership certificate BuildCo must notarize a copy of the land ownership certificate 1 before applying for the building permit. 1 day IDR 25,000 Agency: Notary Request city planning permit (KRK) and building site plan (RTLB) from City Planning Office BuildCo must submit a completed application form, along with the following documentation to the City Planning Office at the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) in order to obtain the city planning permit (KRK): 1. A copy of land ownership certificate (which has been notarized); 2. A copy of the latest payment receipt for land and building tax; 3. A copy of the identity card (KTP/Driving License) of the 2 authorized representative of the applicant; 1 day IDR 1,482,000 4. A copy of the deed of establishment of BuildCo and its amendment (if any); 5. A power of attorney (as necessary). The city planning official at the BPTSP will examine the application and will conduct a land situation measurement (the procedural details of which are elaborated in the next section below).] The KRK is a statement that contains planning information about the plot of land that BuildCo intends to build the warehouse on. The KRK also includes a city planning map scale (1:1000) signed by the Head of Jakarta City Planning Office. The city planning Doing Business 2016 Indonesia 41 Time to No. Procedure Cost to complete complete map covers information on: a. Building setback (GSB) - the borders within which BuildCo is allowed to construct the building b. Road border lines (GSJ) - the borders of the front yard or block borders or road control borders c. Land use plan - explanation about the benefits of the land d. Type of building e. Height of building in terms of floors/storey f. Floor area ratio (FAR/KLB) - the multiplication figure used to calculate the total area of building that is permitted g. Building coverage (KDB) h. Blocking - the arrangement of city spaces on certain lanes governing the length and width of the piece of land for which the city planning permit is being applied for BuildCo must also request a building site plan (RTLB) from the City Planning Office. The RTLB is a plan that outlines the exact position of the building on the city planning map and contains the following information (some of which is already contained on the city planning map previously): a. Building setback (GSB) - the borders within which BuildCo is allowed to construct the building b. Road border lines (GSJ) - the borders of the front yard or block borders or road control borders c. Building trace form and location d. Building usage e. Height of building, including KDB (building coverage) and KLB (floor area) f. Building cuts g. Parking lot h. Kelzar circulation/entry of vehicles Once the documents are submitted, BuildCo receives an invoice with the amount of fees that must be paid (SKRD). BuildCo must pay the fees at a local branch of Bank DKI and submit the receipt to the City Planning Office. The total cost to obtain these documents is IDR 1,482,000.00 according to Article 123 of the Regional Regulation No. 1 Year 2006. The following is the detailed calculation: • Land measurement (based on the land certificate, namely 500 - - 1,000 sq. m.) a retribution of IDR 750,000.00 • Print out of the map (scale of 1:1000), a retribution of IDR 1,000.00 per copy x 12 copies or a total of IDR 12,000.00 • KRK for plans to use the land for warehouse construction (Karya pergudangan/Kpg) for a land area of up to 1,000 sq. m. is subject to a fee of IDR 40,000.00 • RTLB for plans to build warehouse construction is subject to a fee of IDR 40,000.00/100 sq. m. of floor surface, so the total fee for the RTLB: IDR 40,000.00 x 13 (based on a 1,300.6 sq. m. floor surface) = IDR 520,000.00 • Land marking for city planning implementation purposes (pematokan penerapan rencana kota) is subject to a fee of IDR 80,000.00 x 2 (because the building exceeds 1,000 sq. m.), or a total of IDR 160,000.00 Doing Business 2016 Indonesia 42 Time to No. Procedure Cost to complete complete Agency: Local Administrative Building Office - City Planning Office within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Receive inspection from City Planning Office The City Planning Office inspects the site to plant the marks on the borders of the building. 3 1 day no charge Agency: Local Administrative Building Office - City Planning Office within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Obtain KRK and RTLB from City Planning Office After the inspection, the application its forwarded to different offices within the City Planning Office for approval. The location officer, the roads officer and the architectural officer approve the application and will prepare the land measurement letter. When the internal procedure is completed, the builder is notified (by 4 phone, mail or electronically) and can pick up the SKRK. The 20 days no charge recommendation letter includes the documents listed previously. Agency: Local Administrative Building Office - City Planning Office within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Request and obtain the preparation of the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL) BuildCo hires an external consultant that will prepare the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL). When they are ready, BuildCo will submit 5 the documents to the relevant mayor or regent, governor of the 30 days IDR 15,000,000 DKI Jakarta province, or the Minister of Environment, depending on the location of the activities, to obtain a UKL-UPL recommendation. Agency: External Consultant Request and obtain the approval of the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL) 6 The legal basis for this procedure is: 10 days no charge • Law No. 32 of 2009 regarding the Environment • Decision of the Minister of the Environment No 86 of 2002 on Doing Business 2016 Indonesia 43 Time to No. Procedure Cost to complete complete Implementation of UKL and UPL Agency: Regional Environmental Control Agency (BPLHD) Request and obtain building construction permit (IMB) When BuildCo has the complete set of documents (see below) and the application is submitted, the Supervision and Control Office will conduct an inspection. Given that the plot where the warehouse will be built is empty, no representative from BuildCo needs to be present. Officials will only verify that the plot is vacant. The legal basis for this procedure is: • Regulation of the Head of the Local Building Supervision and Control (P2B) Office No. 21 Year 2009, Annex I point I.b • The legal basis for the time to complete this step is 15 days working days pursuant to Regulation 129 of 2012. The supporting documents required are: • Photocopy of the ID Card • Photocopy of the Land Certificate (notarized) • Land use permit (SIPPT) • KRK and RTLB (description and map of the city, including the complete plan of the building) obtained from the City Planning Office • Architectural, structural, mechnical and electrical as-built drawings (4 sets) 7 • Results of soil investigation (4 sets) 42 days IDR 68,281,500 • Photocopy of the license to operate as a Building Planner • Photocopy of the license of the supervising director • Photocopy of the license of the architect, the structural engineer, the mechanical engineer and the electrical engineer who prepare th drawings • Statement of uncontested ownership of the land for which IMB is applied • Company’s Deed of Establishment • Company’s tax ID (NPWP) • Completed Application Form • Receipt of UKL-UPL or UKL-UPL •Recommendation from the BPLHD • Copy of evidence of tax payment for the most current year • Budget plan (if required) The Building Supervision and Control Office has 4 different teams that review the architectural, structural, mechanical and electrical drawings. The application is first reviewed by TPAK (the team that reviews the architectural drawings). This can take 3-4 weeks. The application is then forwarded to TPKB (team that reviews the structural drawings) and in parallel to TPIB (team that reviews the mechanical, electrical and plumbing drawings). This also takes about 3-4 weeks on average. Doing Business 2016 Indonesia 44 Time to No. Procedure Cost to complete complete According to Bylaw No. 3 on Building Tariff Rates of October 2012, the permit fee is calculated as follows: RPP = L x It x HSbg = 1,300.6 x 2.1 x 25,000 • L = area of the building (1,300.6 sq. m) • It = index that is calculated as follows: Ikg x If x Ik x Iw x Ipt where Ikg = 1 (for a new building); If = 3 (for commercial buildings); Ik = 0.7; Iw = 1 (for permanent buildings); Ipt = 1 (if the building does not have a basement). Therefore, It = 1 x 3 x 0.7 x 1 x 1 = 2.1 • HSbg = IDR 25,000 / sq. m. Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Receive inspection upon completion of foundation According to the building regulations, the Supervision and Control Office must inspect during the various phases of construction. 8 1 day no charge Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Receive inspection upon completion of the structure According to the building regulations, the Supervision and Control Office must inspect during the various phases of construction. 9 1 day no charge Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Receive inspection upon completion of roofing According to the building regulations, the Supervision and Control Office must inspect during the various phases of construction. 10 1 day no charge Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Doing Business 2016 Indonesia 45 Time to No. Procedure Cost to complete complete Submit building completion report to Supervision and Control Office The construction completion and compliance report is a prerequisite for obtaining the certificate of proper functioning (SLF) and the usage permit. The party issuing the official report on the completion of the construction and compliance with the building permit is the Supervising Director, who can be an individual, a group of experts, or an entity appointed by the 11 project owner to supervise the construction work. For the Doing 1 day no charge Business case study, the supervising director would most likely be in-house. Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Receive final inspection from the Fire Department The Fire Department must conduct a final inspection once the building is completed. They will then issue a certificate of fire safety recommendations stating the building was built according 12 to the proper safety standards. This fire safety certificate is 1 day no charge needed in order to obtain the SLF. Agency: Fire Department * Receive final inspection from the Supervision and Control Office Once the Supervising Director has submitted the completion report, the Supervision Office will conduct a final inspection to ensure that the building was built according to the conditions stipulated in the building permit. This can take about 3 - 7 working days. Once the inspection is completed, the Supervision 1 day no charge 13 Office will issue an SLF (certificate of proper functioning) within 35 - 38 working days. Agency: Local Administrative Building Office – Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Obtain SLF (certificate of proper functioning) from the Supervision Office The SLF is required under Law No. 25/PRT/M/2007 and Law No. 7/2010 on Buildings. The certificate is a declaration that the 49 days no charge 14 building has been built according to the conditions stipulated in the building permit and can be used in accordance with its intended function. BuildCo must submit the following documents in order to obtain the SLF: Doing Business 2016 Indonesia 46 Time to No. Procedure Cost to complete complete - Construction completion report from the supervising directors/consultant appointed by BuildCo - Application form - Copy of applicant’s ID card - Copy of notarized proof of land ownership - Copy of the building permit (IMB) - Architectural, structural and mechnical as-built drawings - Map and city plans (which are appended to the IMB) - Photo of the completed building (showing at least 3 sides of the building) - Notarized copy of the license of the supervising engineer, the architect, the structural engineer and mechanical engineer - Insurance of supervising engineer Agency: Local Administrative Building Office – Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Register the warehouse with the Regional Tax Services Unit After the warehouse is built BuildCo must update its records at the Regional Tax Services Unit. While in theory this update can be done automatically, many builders do it in person to avoid delays. This is critical when a builder wants to sell the property or use it as collateral to obtain a loan. According to the Governor of DKI Jakarta Regulation No. 202 of 2012 on the Registration and Report Procedure as well as the Data Collection of Land and Building Tax for Rural and Urban Area ("Regulation 202/2012"), Regional Regulation of DKI Jakarta No. 16 of 2011 on Land and Building Tax for Rural and Urban Area ("Regulation 16/2011"), the following documents must be submitted by the BuildCo in order to register the warehouse: 15 11 days no charge 1. The completed application form; 2. A copy of identity card of the BuildCo's director who signed the application form or a power of attorney from the director of the BuildCo (if required); 3. A copy of the BuildCo's deed of establishment and its amendments (if any); 4. A copy of the land and/or building certificate of the BuildCo; 5. A copy of building permit (IMB) of the BuildCo; 6. A photo of the building. Agency: Regional Tax Services Unit (Unit Pelayanan Pajak Daerah or UPPD) in the relevant Regional Government Office Doing Business 2016 Indonesia 47 Time to No. Procedure Cost to complete complete Obtain water and sewerage connection The application to obtain water and sewerage connection shall be submitted to PAM Jaya through its designated providers, which are PT AETRA Air Jakarta for warehouses located in the North and East regions of Jakarta, and PT PAM Lyonnaise Jaya (PALYJA) for warehouses located in the South, Central, and West regions of Jakarta. The application should be submitted along with the following 16 documents: 30 days IDR 2,000,000 1. A copy of land and building tax documents; 2. A copy of the KTP (the identity card) of BuildCo's director or the applicant; 3. A copy of business license of BuildCo; 4. The prediction on water needs. Agency: PAM Jaya * Register the warehouse with the Regional Office of the Ministry of Trade In order to register the warehouse with the Ministry of Trade and obtain a warehouse registration certificate (Tanda Daftar Gudang or "TDG"), BuildCo must submit the following documents: 1. A copy of the identity card (KTP) of the owner of or person responsible for BuildCo; 2. A copy of the deed of establishment of BuildCo and its amendments (if any): 3. A copy of building permit (IMB) of the warehouse; and 4. Two photos of the owner of or person responsible for BuildCo 17 with the size 4x6cm. 9 days IDR 100,000 During the submission of the above documents, the applicant must show the original documents to the officer. The holder of warehouse registration certificate is obliged to re-register the certificate every 5 years. Warehouses in a privately owned port, warehouses in a bonded zone, and warehouses adjacent to the plant are exempted from the registration requirement. Agency: Ministry of Trade (Regional Office) * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for dealing with construction permits in Indonesia - Surabaya Time to No. Procedure Cost to complete complete Doing Business 2016 Indonesia 48 Time to No. Procedure Cost to complete complete Request and obtain notarized copy of land ownership certificate BuildCo must notarize a copy of the land ownership certificate before applying for the city planning permit and building permit. 1 day IDR 25,000 1 Agency: Notary Request city planning permit (SKRK) from Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) In order to obtain the city planning permit (SKRK), BuildCo must submit the following documents: a. Application form (available at Surabaya one-stop shop); b. Copy of identity card of the applicants; c. Copy of property tax invoice and receipt; d. Legalized copy of land ownership certificate. e. BuildCo’s deed of establishment f. License of supervising engineer BuildCo can see the map of Surabaya online and click on the location where they intend to build the project. Majority of applicants apply for the city planning permit in person, although it is possible to submit the documents online. Once it submits the documents, BuildCo is interviewed about the project details. After that, the Surabaya one-stop shop checks adherence of the location with master plan and calculates the retribution charges. BuildCo pays the fees at the Surabaya one-stop shop and the file is transferred to the City Planning Agency (Dinas Cipta 1 day IDR 2,822,000 2 Karya dan Tata Ruang). City Planning Agency representatives inspect the future building site, measure the location, prepare drawings, and position the future building's plot in technical master plan. They also prepare location drawings (with border, base coefficient, size coefficient, and technical requirements). When all is complete, the City Planning Agency evaluates, registers, and approves the application. Once the application has been approved, the City Planning Agency transfers the file back to the Surabaya one-stop shop which then notifies BuildCo that the statement is ready for pick up. Regulations establish a statutory time of 7 days for the city planning statement to be issued, but it usually takes longer. This procedure is governed by the following regulations: a. Local Regulation No. 7 of 2010 on Buildings b. Local Regulation No. 5 of 2012 On City Maps c. Major Regulation No. 39 of 2012 on Guidelines and Technical Standards of Land Use Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) Doing Business 2016 Indonesia 49 Time to No. Procedure Cost to complete complete Receive inspection from City Planning Agency (Dinas Cipta Karya dan Tata Ruang) A technical team of the City Planning Agency inspects the future building site and measures the location in the presence of BuildCo 1 day no charge 3 representatives. Agency: City Planning Agency (Dinas Cipta Karya dan Tata Ruang) Obtain city planning permit (SKRK) from Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) 4 21 days no charge Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) Request and obtain the preparation of the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL) BuildCo hires an external consultant that will prepare the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL). 5 When this is ready BuildCo will submit the documents to the Local 45 days IDR 15,000,000 Environmental Management Agency (BPLHD) in Surabaya for approval. Agency: External Consultant Request and obtain the approval (HO – ijin gangguan) for the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL) The legal basis for this procedure is: a. Bylaw No. 4 of 2011 on the HO b. Mayor Regulation No. 74 of 2011 on Implementation of Regional Regulation No. 4 of 2011 The local environmental agency (BPLHD) will review the UKL and UPL and conduct the envirnomental impact assessment. But the letter of 14 days IDR 3,901,800 6 approval (HO – ijin gangguan) is issued by the one-stop shop. The one-stop shop charges a fee for the approval letter. According to the fee schedule, buildings over 900 sq. m. are charged at a fee of IDR 500 / sq. m. x 1300.6 sq. m. x 2 (location index) x 3 (environmental index) = IDR 3,901,800. Agency: Local Environmental Control Agency (BPLHD) / Surabaya One- Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) Doing Business 2016 Indonesia 50 Time to No. Procedure Cost to complete complete Request and obtain building construction permit (IMB) The supporting documents required to apply for a building permit (IMB) are: a. Application form and statement letter of construction requirement adherence; b. Copy of ID card of BuildCo's director; c. Copy of property tax receipt; d. Copy of land ownership certificate; e. City planning permit (SKRK); f. Construction accountability statement, prepared by BuildCo's architect; g. Picture of the site and building plans, prepared by BuildCo's architect. h. Design drawings (3 copies): - Landscaping (scale 1:1000/1:5000), - Lay out (scale 1:100), - Foundation base, roof, sanitation (1:100); 45 days IDR 14,225,800 7 i. Structural drawings. j. Copy of UKL / UPL It is possible to submit the required documents online. According to Regulation No. 53 of 2011 and No. 37 of 2012, the legal time limit to issue the IMB is 20 days. But in practice, it takes much longer. Architects and engineers will review all the drawings. There is usually a lot of back and forth interactions between the one-stop shop and the applicant. Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) Receive inspection upon completion of foundation According to the building regulations, the Local Administrative Building Office must inspect during the various phases of construction, although 8 this rarely happens in practice. 1 day no charge Agency: Local Administrative Building Office Receive inspection upon completion of the structure According to the building regulations, the Local Administrative Building Office must inspect during the various phases of construction, although 9 this rarely happens in practice. 1 day no charge Agency: Local Administrative Building Office Doing Business 2016 Indonesia 51 Time to No. Procedure Cost to complete complete Receive inspection upon completion of roofing According to the building regulations, the Local Administrative Building Office must inspect during the various phases of construction, although 10 this rarely happens in practice. 1 day no charge Agency: Local Administrative Building Office Submit building completion report to the one-stop shop The construction completion and compliance report is a prerequisite for obtaining the certificate of proper functioning (SLF) and the usage permit. The party issuing the official report on the completion of the construction and compliance with the building permit is the Supervising Director, who can be an individual, a group of experts, or 1 day no charge 11 an entity appointed by the project owner to supervise the construction work. Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) Receive final inspection from the Fire Department The Fire Department must conduct a final inspection once the building is completed. They will then issue a certificate of fire safety recommendations stating the building was built according to the 12 proper safety standards. This fire safety certificate is needed in order to 1 day no charge obtain the SLF. Agency: Fire Department * Receive final inspection from the Local Administrative Building Office Once the Fire Department has conducted the final inspection and the Supervising Director has submitted the completion report, the Local Administrative Building Office will conduct a final inspection to ensure that the building was built according to the conditions stipulated in the 13 building permit. Once the inspection is completed, the Local 1 day no charge Administrative Building Office will issue an SLF (certificate of proper functioning). However, the final inspection does not always occur in practice, although it is legally required. Agency: Local Administrative Building Office Obtain SLF (certificate of proper functioning) from the Local Administrative Building Office 14 The SLF is a declaration that the building has been built according to 49 days no charge the conditions stipulated in the building permit and can be used in accordance with its intended function. Doing Business 2016 Indonesia 52 Time to No. Procedure Cost to complete complete Agency: Local Administrative Building Office Register warehouse with the Land and Building Tax Office (PBB) After the warehouse is built BuildCo needs to update its records at the Land and Building Tax Office. The process can take 1-2 months because 15 the office must appraise the value of the building. 30 days no charge Agency: Land and Building Tax Office Obtain water and sewerage connection The company notifies the industrial manager that the warehouse is ready for utility hook-ups. 30 days IDR 1,500,000 16 Agency: PDAM Surya * Register the warehouse with Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap) In order to register the warehouse with the one-stop shop, BuildCo must submit the following documents: a. Copy of ID Card; b. Copy of building permit (IMB); c. Copy of certificate of land ownership; d. Copy of business trading license (SIUP) and company registration (TDP); e. BuildCo's director's pictures (2 copies - size 4x6 cm) 17 1 day no charge The legal basis for this procedure is: a. Local Regulation No. 1/2010, regarding warehouse registration charges b. Mayor Regulation No. 35/2010, regarding warehouse registration procedures. Both regulations have been implemented since 2010. Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. . Doing Business 2016 Indonesia 53 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index The building quality control index is the sum of the The index ranges from 0 to 15, with higher values scores on the quality of building regulations, quality indicating better quality control and safety mechanisms in control before construction, quality control during the construction permitting system. construction, quality control after construction, The indicator is based on the same case study liability and insurance regimes, and professional assumptions as the measures of efficiency. certifications indices. Source: Doing Business database. Table 3.3 Summary of time quality control and safety mechanisms in Indonesia Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Building quality control index (0-15) 13.00 13.00 Quality of building regulations index (0-2) 1.00 1.00 In what way are the building regulations (including the Available 1.0 Available building code) or any regulations dealing with online. 1.0 online. construction permits made available? (0-1) List of 0.0 List of Which requirements for obtaining a building permit are required required clearly specified by the building regulations or by any documents; documents; 0.0 accessible website, brochure or pamphlet? (0-1) Fees to be Fees to be paid. paid. Quality control before construction index (0-1) 1.00 1.00 Licensed 1.0 Licensed Who is part of the committee or team that reviews and architect; architect; approves building permit applications in the relevant 1.0 Licensed Licensed permit-issuing agency? (0-1) engineer. engineer. Quality control during construction index (0-3) 2.00 2.00 Inspections 1.0 Inspections by by in-house in-house What types of inspections (if any) are required by law to engineer; engineer; 1.0 be carried out during construction? (0-2) Inspections Inspections at at various various phases. phases. Mandatory 1.0 Mandatory inspections inspections Do legally mandated inspections occur in practice during are always are always 1.0 construction? (0-1) done in done in practice. practice. Quality control after construction index (0-3) 3.00 3.00 Is there a final inspection required by law to verify that Yes, final 2.0 Yes, final 2.0 Doing Business 2016 Indonesia 54 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) the building was built in accordance with the approved inspection inspection is plans and regulations? (0-2) is done by done by government government agency; Yes, agency; Yes, in-house in-house engineer engineer submits submits report for report for final final inspection. inspection. Final 1.0 Final inspection Do legally mandated final inspections occur in practice? inspection always 1.0 (0-1) always occurs occurs in in practice. practice. Liability and insurance regimes index (0-2) 2.00 2.00 Architect or 1.0 Architect or engineer; engineer; Professional Professional Which parties (if any) are held liable by law for structural in charge of in charge of 1.0 flaws or problems in the building once it is in use? (0-1) the the supervision; supervision; Constructio Construction n company. company. Insurance is 1.0 Insurance is Which parties (if any) are required by law to obtain an commonly commonly insurance policy to cover possible structural flaws or 1.0 taken in taken in problems in the building once it is in use? (0-1) practice. practice. Professional certifications index (0-4) 4.00 4.00 Minimum 2.0 Minimum number of number of years of years of experience; experience; University University What are the qualification requirements for the degree in degree in professional responsible for verifying that the architecture architecture 2.0 architectural plans or drawings are in compliance with or or existing building regulations? (0-2) engineering engineering; ; Being a Being a registered registered architect or architect or engineer. engineer. Minimum 2.0 Minimum What are the qualification requirements for the number of number of professional who supervises the construction on the years of years of 2.0 ground? (0-2) experience; experience; University University Doing Business 2016 Indonesia 55 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) degree in degree in engineering engineering, , construction constructio or n or construction constructio management; n Being a manageme registered nt; Being a architect or registered engineer. architect or engineer. Source: Doing Business database. Doing Business 2016 Indonesia 56 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity connection a customer is always to gain access by obtaining a (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. In obtaining final supply addition, this year Doing Business adds two new measures: the reliability of supply and transparency Time required to complete each procedure of tariffs index (included in the aggregate distance to (calendar days) frontier score and ranking on the ease of doing Is at least 1 calendar day business) and the price of electricity (omitted from these aggregate measures). The ranking of Each procedure starts on a separate day economies on the ease of getting electricity is Does not include time spent gathering determined by sorting their distance to frontier information scores for getting electricity. These scores are the Reflects the time spent in practice, with little simple average of the distance to frontier scores for follow-up and no prior contact with officials each of the component indicators. To make the data comparable across economies, several assumptions Cost required to complete each procedure (% are used. of income per capita) Assumptions about the warehouse Official costs only, no bribes The warehouse: Excludes value added tax  Is owned by a local entrepreneur. The reliability of supply and transparency of tariffs index  Is located in the economy’s largest business city. For 11 economies the data Sum of the scores of six component indices: are also collected for the second largest Duration and frequency of outages business city. Tools to monitor power outages  Is located in an area where similar warehouses are typically located. In this Tools to restore power supply area a new electricity connection is not Regulatory monitoring of utilities’ performance eligible for a special investment promotion Financial deterrents aimed at limiting outages regime (offering special subsidization or faster service, for example). Transparency and accessibility of tariffs  Is located in an area with no physical Price of electricity (cents per kilowatt-hour)* constraints. For example, the property is Price based on monthly bill for commercial not near a railway. warehouse in case study  Is a new construction and is being *Price of electricity is not included in the calculation of connected to electricity for the first time. distance to frontier nor ease of doing business ranking Doing Business 2016 Indonesia 57 The warehouse (continued): Assumptions about the monthly consumption  Has two stories, both above ground, with a  It is assumed that the warehouse operates 8 total surface area of approximately 1,300.6 hours a day for 30 days a month, with square meters (14,000 square feet). The equipment utilized at 80% of capacity on plot of land on which it is built is 929 average, and that there are no electricity cuts square meters (10,000 square feet). (assumed for simplicity). The subscribed capacity of the warehouse is 140 kVA, with a  Is used for storage of goods. power factor of 1 (1 kVA = 1 kW). The monthly energy consumption is therefore Assumptions about the electricity connection 26,880 kWh, and the hourly consumption 112 kWh (26,880 kWh/30 days/8 hours). The electricity connection:  If multiple electricity suppliers exist, the  Is a permanent one. warehouse is served by the cheapest supplier.  Is a three-phase, four-wire Y, 140-kilovolt-  Tariffs effective in March of the current year ampere (kVA) (subscribed capacity) are used for calculation of the price of connection (where the voltage is 120/208 electricity for the warehouse. V, the current would be 400 amperes; where it is 230/400 B, the current would be nearly 200 amperes).  Is 150 meters long. The connection is to either the low-voltage or the medium- voltage distribution network and either overhead or underground, whichever is more common in the area where the warehouse is located.  Requires works that involve the crossing of a 10-meter road (such as by excavation or overhead lines) but are all carried out on public land. There is no crossing of other owners’ private property because the warehouse has access to a road.  Includes only a negligible length in the customer’s private domain.  Will supply monthly electricity consumption of 26,880 kilowatt-hours (kWh).  Does not involve work to install the internal electrical wiring. This has already been completed, up to and including the customer’s service panel or switchboard and installation of the meter base. Doing Business 2016 Indonesia 58 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection business city of an economy, except for 11 economies for in Indonesia? According to data collected by Doing which the data are a population-weighted average of the Business, getting electricity there requires 5.00 2 largest business cities. See the chapter on distance to procedures, takes 79.00 days and costs 383.00% of frontier and ease of doing business ranking at the end of income per capita (figure 4.1). this profile for more details. Most indicator sets refer to a case scenario in the largest Figure 4.1 What it takes to obtain an electricity connection in Indonesia - Jakarta What it takes to obtain an electricity connection in Indonesia - Surabaya Doing Business 2016 Indonesia 59 Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2016 Indonesia 60 GETTING ELECTRICITY Globally, Indonesia stands at 46 in the ranking of 189 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Indonesia to The rankings for comparator economies and the regional connect a warehouse to electricity. Figure 4.2 How Indonesia and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2016 Indonesia 61 GETTING ELECTRICITY Obtaining an electricity connection is essential to enable ensure safety in the connection process while keeping a business to conduct its most basic operations. In many connection costs reasonable, governments around the economies the connection process is complicated by the world have worked to consolidate requirements for multiple laws and regulations involved—covering service obtaining an electricity connection. What reforms in quality, general safety, technical standards, procurement getting electricity has Doing Business recorded in practices and internal wiring installations. In an effort to Indonesia (table 4.1)? Table 4.1 How has Indonesia made getting electricity easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Indonesia made getting electricity more difficult by increasing DB2012 connection fees. Indonesia made getting electricity easier by eliminating the requirement for new customers applying for an electricity DB2013 connection to show a neighbor’s electricity bill as a way to help determine their address. In Indonesia the electricity company in Jakarta made getting electricity easier by eliminating the need for electrical contractors to obtain multiple certificates guaranteeing the DB2015 safety of internal installations—though. The utility in Jakarta and Surabaya also increased the cost by introducing a security deposit for new connections. Source: Doing Business database. Doing Business 2016 Indonesia 62 GETTING ELECTRICITY What are the details? The indicators reported here for Indonesia are based on OBTAINING AN ELECTRICITY CONNECTION* a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Name of utility - identified by Doing Business. Data are collected from the Jakarta: PT PLN distribution utility, then completed and verified by electricity regulatory agencies and independent Name of utility - PT Perusahaan Listrik professionals such as electrical engineers, electrical Surabaya: Negara (PLN) contractors and construction companies. The electricity distribution utility surveyed is the one serving the area Price of electricity (or areas) in which warehouses are located. If there is a (US cents per kWh) - 14 choice of distribution utilities, the one serving the largest Jakarta: number of customers is selected. Price of electricity The procedures are those that apply to a warehouse and (US cents per kWh) - 14 electricity connection matching the standard Surabaya: assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the City: Jakarta, Surabaya associated time and cost, are summarized below. *Price is calculated as a monthly consumption of 26,880 kWh for business customers, based on a standardized case study adopted by the Getting Electricity methodology. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. Table 4.2 Summary of time, cost and procedures for getting electricity in Indonesia Time to No. Procedure Cost to complete complete Obtain inspection and compliance certificate for internal wiring installation The client needs to obtain a certificate that guarantees the proper operation of the internal installation from the National Committee for Electrical Installation, Komite Nasional Keselamatan Untuk Instalasi Listrik (KONSUIL) or Perkumpulan Perlindungan Instalasi Listrik Nasional (PPILN) 7 calendar days IDR 2,572,500 1 KONSUIL (www.konsuil.or.id) and PPILN (www.ppiln.or.id) act as independent bodies in charge of inspecting and verifying the conformity of LV Installation to the norms in place. This is in accordance with articles 21 paragraph (7) and 22 paragraph (2) of the Government Regulation number 3 Year 2005, amending Government Regulation number 10 Year 1989 on the Supply and Electricity Connections. The following documents need to be submitted: • Installation drawings Doing Business 2016 Indonesia 63 Time to No. Procedure Cost to complete complete • List of materials used: brand, size / specs Agency: National Committee for Electrical Installation (KONSUIL) or Society for the Protection of National Electrical Installation (PPILN) Submit connection application to PLN and await approval and estimate The client needs to submit the following documents along with the application: -Copy of Identity Card 2 -Layout of the location, and 9 calendar days IDR 0 -Certificate of Operation Worthiness (SLO) from KONSUIL Agency: PT Perusahaan Listrik Negara (PLN) * Receive external inspection by PLN An inspection of the site is needed to carry out a technical study of the connection works. 1 calendar day IDR 0 3 Agency: PT Perusahaan Listrik Negara (PLN) Obtain external works from PLN's contractor Works consist of expanding the distribution network by installing an overhead transformer and connecting to the warehouse and to the MV network. 4 PLN’s provides the main materials needed (transformer, cables). 60 calendar days IDR 0 Agency: PT Perusahaan Listrik Negara (PLN)'s contractor Obtain final connection from PLN Client must pay security deposit and the installation needs to checked by the medium voltage inspection body of PLN. Electricity supply is then turned on. 5 3 calendar days IDR 151,980,860.29 Since May 31rd, 2013 PLN Board Directors' issued an Official memo (PLN board of Director decree no.424.K/DIR/2013) to All PLN branches enforcing again the security deposit Agency: PT Perusahaan Listrik Negara (PLN) Doing Business 2016 Indonesia 64 Time to No. Procedure Cost to complete complete * Takes place simultaneously with another procedure. Source: Doing Business database. Summary of time, cost and procedures for getting electricity in Indonesia - Surabaya Time to No. Procedure Cost to complete complete Obtain inspection and compliance certificate for internal wiring installation The client needs to obtain a certificate that guarantees the proper operation of the internal installation from the National Committee for Electrical Installation, Komite Nasional Keselamatan Untuk Instalasi Listrik (KONSUIL) or Perkumpulan Perlindungan Instalasi Listrik Nasional (PPILN) KONSUIL (www.konsuil.or.id) and PPILN (www.ppiln.or.id) act as independent bodies in charge of inspecting and verifying the conformity of LV Installation to the norms in place. This is in accordance with articles 7 calendar days IDR 2,572,500 1 21 paragraph (7) and 22 paragraph (2) of the Government Regulation number 3 Year 2005, amending Government Regulation number 10 Year 1989 on the Supply and Electricity Connections. The following documents need to be submitted: • Installation drawings • List of materials used: brand, size / specs Agency: National Committee for Electrical Installation (KONSUIL) or Society for the Protection of National Electrical Installation (PPILN) Submit connection application to PLN and await approval and estimate The client needs to submit the following documents along with the application: -Copy of Identity Card -Layout of the location 9 calendar days IDR 0 2 -Guaranteed Electrical Installation Certificate (JIL), and -Certificate of Operation Worthiness (SLO) from KONSUIL Agency: PT Perusahaan Listrik Negara (PLN) Doing Business 2016 Indonesia 65 Time to No. Procedure Cost to complete complete * Receive external inspection by PLN An inspection of the site is needed to carry out a technical study of the connection works. 1 calendar day IDR 0 3 Agency: PT Perusahaan Listrik Negara (PLN) Obtain external works from PLN's contractor Works consist of expanding the distribution network by installing an overhead transformer and connecting to the warehouse and to the MV network. 60 calendar days IDR 0 4 PLN’s provides the main materials needed (transformer, cables). Agency: PT Perusahaan Listrik Negara (PLN) 's contractor Obtain final connection from PLN Client must pay security deposit and the installation needs to checked by the medium voltage inspection body of PLN. Electricity supply is then turned on. 5 Since May 31rd, 2013 PLN Board Directors' issued an Official memo (PLN 3 calendar days IDR 151,980,860.29 board of Director decree no.424.K/DIR/2013) to All PLN branches enforcing again the security deposit Agency: PT Perusahaan Listrik Negara (PLN) * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2016 Indonesia 66 GETTING ELECTRICITY Reliability of supply and transparency of tariffs index The reliability of supply and transparency of tariffs Doing Business uses the system average interruption index encompasses quantitative data on the duration duration index (SAIDI) and the system average and frequency of power outages as well as interruption frequency index (SAIFI) to measure the qualitative information on the mechanisms put in duration and frequency of power outages in the largest place by the utility for monitoring power outages business city of each economy (for 11 economies the data and restoring power supply, the reporting are also collected for the second largest business city). relationship between the utility and the regulator for SAIDI is the average total duration of outages over the power outages, the transparency and accessibility of course of a year for each customer served, while SAIFI is tariffs and whether the utility faces a financial the average number of service interruptions experienced deterrent aimed at limiting outages (such as a by a customer in a year. Annual data (covering the requirement to compensate customers or pay fines calendar year) are collected from distribution utility when outages exceed a certain cap). companies and national regulators on SAIDI and SAIFI. Both SAIDI and SAIFI estimates include load shedding. The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Table 4.3 Reliability of Supply and Transparency of Tariff Index in Indonesia Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Reliability of supply and transparency of tariff index 7.00 7.00 (0-8) Total duration and frequency of outages per customer 2.00 2.00 a year (0-3) System average interruption duration index (SAIDI) 3.9 2.4 System average interruption frequency index (SAIFI) 2.5 2.4 Mechanisms for monitoring outages (0-1) 1.0 1.0 Does the distribution utility use automated tools to Yes Yes monitor outages? Mechanisms for restoring service (0-1) 1.0 1.0 Does the distribution utility use automated tools to Yes Yes restore service? Regulatory monitoring (0-1) 1.00 1.00 Does a regulator—that is, an entity separate from the utility—monitor the utility’s performance on reliability Yes Yes of supply? Doing Business 2016 Indonesia 67 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Financial deterrents aimed at limiting outages (0-1) 1.00 1.00 Does the utility either pay compensation to customers or face fines by the regulator (or both) if outages Yes Yes exceed a certain cap? Communication of tariffs and tariff changes (0-1) 1.00 1.00 Are effective tariffs available online? Yes Yes http://www.pl www.pln.co n.co.id/dataw .id/blog/tar Link to the website, if available online eb/ttl2014/pe if-tenaga- rmen_esdm_t listrik tl_2014.pdf Are customers notified of a change in tariff ahead of Yes Yes the billing cycle? Source: Doing Business database. Note: If data on power outages is not collected or if the SAIFI index or SAIDI index are above the threshold of 100, the economy is not eligible to obtain a score in the Reliability of Supply and Transparency of Tariff Index. If SAIDI and SAIFI are 12 (equivalent to an outage of one hour each month) or below, a score of 1 is assigned. If SAIDI and SAIFI are 4 (equivalent to an outage of one hour each quarter) or below, 1 additional point is assigned. Finally, if SAIDI and SAIFI are 1 (equivalent to an outage of one hour per year) or below, 1 more point is assigned. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. The price of electricity is measured in cents per kilowatt-hour. On the basis of the assumptions about monthly consumption, a monthly bill for a commercial warehouse in the largest business city of the economy is computed for the month of March (for 11 economies the data are also collected for the second largest business city). As noted, the warehouse uses electricity 30 days a month, from 9:00 a.m. to 5:00 p.m., so different tariff schedules may apply if a time-of- use tariff is available. Doing Business 2016 Indonesia 68 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. In (calendar days) addition, this year Doing Business adds a new Does not include time spent gathering measure to the set of registering property information indicators, an index of the quality of the land administration system in each economy. The Each procedure starts on a separate day. ranking of economies on the ease of registering Procedures that can be fully completed online are recorded as ½ day. property is determined by sorting their distance to frontier scores for registering property. These scores Procedure considered completed once final are the simple average of the distance to frontier document is received scores for each of the component indicators. To No prior contact with officials make the data comparable across economies, several assumptions about the parties to the Cost required to complete each procedure transaction, the property and the procedures are (% of property value) used. Official costs only, no bribes The parties (buyer and seller): No value added or capital gains taxes included  Are limited liability companies, 100% Quality of land administration index (0-30) domestically and privately owned and  Is located in a periurban commercial zone, and perform general commercial activities and no rezoning is required. are located in the economy’s largest business city .  Has no mortgages attached, has been under 2 the same ownership for the past 10 years.  Have 50 employees each, all of whom are nationals.  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value and entire condition and complies with all safety property will be transferred. standards, building codes and legal  Is registered in the land registry or cada- requirements. There is no heating system. stre, or both, and is free of title disputes. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2016 Indonesia 69 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Indonesia? According to data collected by Doing business city of an economy, except for 11 economies for Business, registering property there requires 5.00 which the data are a population-weighted average of the procedures, takes 27.40 days and costs 10.80% of the 2 largest business cities. See the chapter on distance to property value (figure 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in Indonesia - Jakarta What it takes to register property in Indonesia - Surabaya Doing Business 2016 Indonesia 70 Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2016 Indonesia 71 REGISTERING PROPERTY Globally, Indonesia stands at 131 in the ranking of 189 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Indonesia to transfer property. Figure 5.2 How Indonesia and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2016 Indonesia 72 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: IDR 2,017,666,027 notaries and property registries. These procedures are those that apply to a transaction matching the City: Jakarta, Surabaya standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Indonesia Jakarta Time to No. Procedure Cost to complete complete Land certificate examination at the Land Office A land certificate examination is carried out by a Land Deed Official. If the land book concerned is available at the Land Office, it usually takes a few hours to 1 day. However, sometimes the land book is unavailable, misplaced or being used by another division of the Land Office, so then the examination process will be pending and it usually takes a few days to obtain the information from the Land Office. The land title search would also involve a check at the local city planning office located at the local government office to determine the intended use of the said plot of 3 days Rp. 50,000 1 land, whether for residences, industry or green belt. No written statement is given, but a note made on the certificate saying 'Has been examined and pursuant to Government Regulation No. 13 of 2010 regarding Types and Tariffs of State Non Tax Income Applicable in National Land Offices. Dated January 22, 2010, the current cost is Rp. 50,000. Agency: Land Office Payment of the transfer and acquisition taxes 5% of the property The seller must pay the Transfer Tax prior to the execution of the transfer price (Transfer Tax) deed. The tax on Transfer of Land and Building (Transfer Tax) in the + 5% of the amount of 5% which is calculated on the sale or transfer value. In case property price the sale value is higher than the Sales Value of the Tax Object ("NJOP"), 1 day minus Rp. 2 then the sale value will be used. But the sale value is higher than the 80,000,000 which NJOP, then the sale value will be used. is tax-free (Tax on The Transfer Tax is paid to a Bank Persepsi - bank appointed by the Acquisition of Ministry of Finance to accept tax payments. Tax to the local government Land and Building) is paid at the Local Government Bank (Bank Badan Usaha Milik Daerah) Doing Business 2016 Indonesia 73 Time to No. Procedure Cost to complete complete and/or other private commercial bank (Article 4.2 of Law No. 7/1983, amended by Law No. 10/1994 and Law 17/2000 concerning Income Tax) and Parts 2.1 and 5.1 of the Director General of Taxation Circular No. SE- 04/P.J.33/1996 dated August 26, 1996. The buyer pays the Tax on Acquisition of Land and Building (BPHTB) in the amount of 5% of the sale value or transfer value. The BPHTB Formula: The buyer pays the BPHTB in the amount of 5% x Sale value or Transfer value or Nilai Perolehan Obyek Pajak or NPOP – Non-Taxable Sale Value or Nilai Perolehan Obyek Pajak Tidak Kena Pajak or NPOPTKP, which is determined regionally. (According to Article 7 of Law No. 20/2000 concerning the amendment of law No. 21/1997 concerning the Tax on Acquisition of Land and Building). In Jakarta, the NPOPTKP is Rp. 80,000,000 (according to Article 5 paragraph 7 of the Regional Decree of Special Province of Jakarta No. 18/2010 concerning the Tax on Acquisition of Land and Building (BPHTB). This tax is paid at a Bank Persepsi, appointed by the State Treasury to accept tax payments, or at a post office where the land is located. Agency: Bank Execution of sale and purchase of Land Deed by a PPAT official The execution of the sale and purchase of Land Deed is made before Land Officials (who are often public notaries as well) appointed by the Head of the National Land Office (PPAT) or a local Head of a District (Camat PPAT), after the taxes in Procedures 3 and 4 have been paid. For convenience, those payments are usually made by the notary three days before the execution of the sale-purchase deed. The documentation shall include: (i) Original land certificate (ii) Evidence of the latest payment of Tax on Land and Building (PBB). Every year, the local PBB Tax Office issues a tax assessment to land 1% of the property 3 owners. By custom, the buyer usually wants to obtain the original of the 5 days value payment of PBB for the past three years and utility bills for the last three months--though in practice the office will check the last 10 years. The Land Deed Officer drawing up the sale and purchase deed will only need to see the most recent PBB while the Land Office will need a copy of the most recent PBB for registering the land into the name of the new owner. (iii) Evidence of payment of Tax on Transfer of Land and Building (Transfer Tax) (iv) Evidence of payment of the Tax on Acquisition of Land and Building (BPHTB) (v) Evidence of deed of Company Establishment which was already authorized by the Ministry of Justice (vi)Company Tax-Registration Numbers (NPWP) of the seller and the Doing Business 2016 Indonesia 74 Time to No. Procedure Cost to complete complete purchaser (vii) Deed of Establishment and its amendments of both the seller and purchaser; (viii) Corporate approvals of the seller to dispose of the land and the purchaser to acquire the land as required in the Articles of Association of both the seller and purchaser (ix) Advise Planning from the City Administration Institution (x) Permit for Building Establishment Agency: Land Deed/PPAT Official Registration of the Land Deed at the local Land Office under the name of the buyer Registration of the Land Deed at the local Land Office to have the purchaser’s name registered and recorded in the land certificate. At the 1/1000 of the latest of 7 (seven) days as of the signing date of the sale and purchase of property value + Land Deed, the notary submits such deed including its supporting Rp. 50,000 documents to the Land Office, but in practice the wait is much longer (administrative 4 because of the backlog. (Article 40 sub 1 of Government Regulation No. 15 days fee) + Stamp duty 24/1997 concerning the Land Registration). In theory, the registration of Rp. 6,000 per process should be completed within the 5 days statutory time limit. The document (2 Land Office crosses out the name of the previous owner and inserts the name of the buyer, stamps and signs it. required) Agency: Land Office Registration of the Land Deed at the Jakarta Regional Government Revenue Office under the name of a buyer In connection to the registration of the Land Deed at the Tax on Land and Building Office, the change of ownership must be registered with the Tax Office. The taxpayer should report manually to the Tax Office 1 day no cost 5 with regard to the transfer of land title. Agency: Jakarta Regional Government Revenue Office ("Regional Tax Office") * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for registering property in Indonesia Surabaya Time to No. Procedure Cost to complete complete Doing Business 2016 Indonesia 75 Time to No. Procedure Cost to complete complete Land certificate examination at the local Land Office (BPN) A land certificate examination is carried out by a Land Deed Official. If the land book concerned is available at the Land Office, it usually takes 1 day. However, sometimes the land book is unavailable, misplaced or being used by another division of the Land Office, so then the examination process will be pending and it usually takes a few days to obtain the information from the Land Office. The Regulation of the National Land Agency Number 1 of 2010 stipulates that the requirements to examine the land certificate include the following: a. Land Ownership Certificate; b. Copy of the applicant’s identification or its proxy; 3 days c. Letter of request from the Land Deed Official (PPAT) for the transfer of (simultaneous IDR 50,000 1 rights by virtue of the Deed of the Land Deed Officer. with procedure 2) The land title search would also involve a check at the local City Planning Office, located at the local government office, to determine the intended use of the said plot of land, whether for residences, industry or green belt. No written statement is given, but a note made on the certificate saying 'Has been examined and according to the Land Registry/ Land Book at the Land Office, dated_______, time ________' and initialed by the officer at the Land Office. Agency: Land Office * Payment of the transfer and acquisition tax The seller pays the Tax on Transfer of Land and Building (Transfer Tax) in the amount of 5% which is calculated on the transfer value. Taxes to the central government can be paid at any commercial bank. The buyer pays the Tax on Acquisition of Land and Building (BPHTB) in the amount of 5% x [(transfer value or sale value or Nilai Perolehan Obyek Pajak (NPOP)) – (non-taxable sale value or Nilai Perolehan Obyek Seller pays 5% of Pajak Tidak Kena Pajak (NPOPTKP))]. According to the law on Local Tax property value and (Law No. 28/2009), the BPHTB belongs to the local government. Taxes to 1 day buyer pays 5% of 2 the local government are paid at a Local Government Bank (as per Article (simultaneous property minus 4.2 of Law No. 7/1983, amended by Law No. 10/1994 and Law 17/2000 with procedure 1) IDR 75 million, concerning Income Tax and Parts 2.1 and 5.1 of the Director General of which is tax free Taxation Circular No. SE-04/P.J.33/1996 dated August 26, 1996). Article 87 point 4 of the Law sets a minimum value for the NPOPTKP at IDR 60,000,000. For Surabaya, the local regulation (Perda No. 11/2010) stipulates a NPOPTKP of IDR 75,000,000. Agency: Commercial Bank Doing Business 2016 Indonesia 76 Time to No. Procedure Cost to complete complete Execution of sale and purchase agreement of Land Deed by a Land Deed Official (PPAT) appointed by the Head of the National Land Office or a local Head of a Sub-District The execution of the sale and purchase of the Land Deed is made before Land Officials, namely a Land Deed Official (PPAT) appointed by the Head of the National Land Office after the taxes in procedures 3 and 4 have been paid.The documentation shall include: a. Original land certificate; b. Evidence of the latest payment of Tax on Land and Building (PBB). Every year, the local PBB Tax Office issues a tax assessment to land owners. By custom, the buyer usually wants to obtain the original of the payment of PBB for the past three years and utility bills for the last three months--though in practice the office will check the last 10 years. The Land Deed Officer drawing up the sale and purchase deed will only need to see the most recent PBB while the Land Office will need a copy of the most recent PBB for registering the land into the name of the new owner; c. Evidence of payment of the Tax on Transfer of Land and Building 0.5% of property 3 (Transfer Tax) (obtained in Procedure 2); 1-3 days value d. Evidence of payment of the Tax on Acquisition of Land and Building (BPHTB) (obtained in Procedure 3); e. Evidence of deed of Company Establishment which was already authorized by the Ministry of Law and Human Rights; f. Company Tax-Registration Numbers (NPWP) of the seller and the purchaser g. Deed of Establishment and its amendments of both the seller and purchaser; h. Corporate approvals of the seller to dispose of the land and the purchaser to acquire the land as required in the Articles of Association of both the seller and purchaser; i. Advise Planning from the City Administration Institution; j. Permit for Building Establishment. (h) Copy of buyer and seller’s identification cards Agency: Land deed official Registration of the Land Deed at the local Land Office (BPN) under IDR 50000 + 0.1% the name of the buyer of property value 4 30 days + IDR 6,000 stamp After the buyer submits the registration of the Land Deed, she/he leaves it there and has to return some days later to pick up the Land Deed that duty per has been registered under the buyer's name. In between submission of document (2 Doing Business 2016 Indonesia 77 Time to No. Procedure Cost to complete complete the deed and pick-up, the buyer has to phone the Officer at the Land required) Office to ask about the progress. The Land Office crosses out the name of the previous owner and inserts the name of the buyer, stamps and signs it. Agency: Land Office Registration of the Land Deed at the Surabaya Regional Government Revenue Office under the name of a buyer In connection to the registration of the Land Deed, the change of ownership must be registered with the Land and Building Tax Office (PBB).Surabaya Regional Government Revenue Office. The taxpayer 1 day no cost 5 reports the transfer of land title. He must present a copy of his identification card and the new land deed. Agency: Regional Government Revenue Office * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2016 Indonesia 78 REGISTERING PROPERTY Quality of land administration The quality of land administration index is the sum of If private sector entities were unable to register property the scores on the reliability of infrastructure, transfers in an economy between June 2014 and June transparency of information, geographic coverage 2015, the economy receives a “no practice” mark on the and land dispute resolution indices. procedures, time and cost indicators. A “no practice” economy receives a score of 0 on the quality of land The index ranges from 0 to 30, with higher values administration index even if its legal framework includes indicating better quality of the land administration provisions related to land administration. system. Table 5.3 Summary of quality of land administration in Indonesia Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Quality of the land administration index (0-30) 8.50 7.50 Reliability of infrastructure index (0-8) 0.00 0.00 Badan Badan What is the institution in charge of immovable Pertanahan Pertanahan property registration? Nasional Nasional In what format are the majority of title or deed records kept in the largest business city—in a paper format or in Paper 0.0 Paper 0.0 a computerized format (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, mortgages, restrictions and the No 0.0 No 0.0 like)? Land Office Land Office Institution in charge of the plans showing legal (Kantor (Kantor boundaries in the largest business city: Pertanahan Pertanahan) ) In what format are the majority of maps of land plots kept in the largest business city—in a paper format or in Paper 0.0 Paper 0.0 a computerized format (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral No 0.0 No 0.0 information (geographic information system)? Is the information recorded by the immovable property registration agency and the cadastral or mapping Separate Separate 0.0 0.0 agency kept in a single database, in different but linked databases databases databases or in separate databases? Doing Business 2016 Indonesia 79 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Do the immovable property registration agency and cadastral or mapping agency use the same No 0.0 No 0.0 identification number for properties? Transparency of information index (0–6) 3.50 3.50 Anyone Who is able to obtain information on land ownership at Anyone who who pays the agency in charge of immovable property pays the 1.0 1.0 the official registration in the largest business city? official fee fee Is the list of documents that are required to complete any type of property transaction made publicly Yes, online 0.5 Yes, online 0.5 available–and if so, how? http://site.b pn.go.id/o/ http://site.bp Beranda/La n.go.id/o/Ber yanan- anda/Layana Pertanahan n- /PELAYANA Pertanahan/P N- ELAYANAN- PEMELIHAR PEMELIHARA AAN- AN-DATA- DATA- PENDAFTARA PENDAFTA Link for online access: N- RAN- TANAH/PERA TANAH/PE LIHAN-HAK- RALIHAN- ATAS- HAK-ATAS- TANAH- TANAH- DAN- DAN- SATUAN- SATUAN- RUMAH- RUMAH- SUSUN/JUAL- SUSUN/JU BELI.aspx AL- BELI.aspx Is the applicable fee schedule for any property transaction at the agency in charge of immovable Yes, online 0.5 Yes, online 0.5 property registration in the largest business city made publicly available–and if so, how? http://www.b http://www. pn.go.id/Laya bpn.go.id/L Link for online access: nan- ayanan- Publik/Standa Publik/Stan rd-Layanan dard- Doing Business 2016 Indonesia 80 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Layanan Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property ownership within a Yes, online 0.5 Yes, online 0.5 specific time frame–and if so, how does it communicate the service standard? http://www. http://www.b bpn.go.id/P pn.go.id/Publ ublikasi/Ino ikasi/Inovasi/ vasi/Layana Layanan- n-Cepat- Cepat-Quick- Quick- Service and Service and Link for online access: http://www.b http://www. pn.go.id/Publ bpn.go.id/P ikasi/Inovasi/ ublikasi/Ino Layanan-1- vasi/Layana Hari-Selesai- n-1-Hari- One-Day- Selesai- Service One-Day- Service Is there a specific and separate mechanism for filing complaints about a problem that occurred at the No 0.0 No 0.0 agency in charge of immovable property registration? Contact information: Are there publicly available official statistics tracking the number of transactions at the immovable property No 0.0 No 0.0 registration agency? Number of property transfers in the largest business city in 2014: Only Only intermediarie intermediar Who is able to consult maps of land plots in the largest s and 0.0 ies and 0.0 business city? interested interested parties parties Is the applicable fee schedule for accessing maps of Yes, online 0.5 Yes, online 0.5 land plots made publicly available—and if so, how? http://site.bp http://site.b Link for online access: n.go.id/o/Ber pn.go.id/o/ anda/Layana Beranda/La n- yanan- Doing Business 2016 Indonesia 81 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Pertanahan/P Pertanahan ELAYANAN- /PELAYANA PENCATATAN N- -DAN- PENCATAT INFORMASI- AN-DAN- PERTANAHA INFORMASI N/INFORMAS - I- PERTANAH PERTANAHA AN/INFOR N/INFORMAS MASI- I-PETA.aspx PERTANAH AN/INFOR MASI- PETA.aspx Does the cadastral or mapping agency commit to delivering an updated map within a specific time Yes, online 0.5 Yes, online 0.5 frame—and if so, how does it communicate the service standard? http://site.b pn.go.id/o/ http://site.bp Beranda/La n.go.id/o/Ber yanan- anda/Layana Pertanahan n- /PELAYANA Pertanahan/P N- ELAYANAN- PEMELIHAR PEMELIHARA AAN- AN-DATA- DATA- PENDAFTARA PENDAFTA Link for online access: N- RAN- TANAH/PERA TANAH/PE LIHAN-HAK- RALIHAN- ATAS- HAK-ATAS- TANAH- TANAH- DAN- DAN- SATUAN- SATUAN- RUMAH- RUMAH- SUSUN/JUAL- SUSUN/JU BELI.aspx AL- BELI.aspx Is there a specific and separate mechanism for filing complaints about a problem that occurred at the No 0.0 No 0.0 cadastral or mapping agency? Doing Business 2016 Indonesia 82 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Contact information: Geographic coverage index (0–8) 0.00 0.00 Are all privately held land plots in the economy No 0.0 No 0.0 formally registered at the immovable property registry? Are all privately held land plots in the largest business city formally registered at the immovable property No 0.0 No 0.0 registry? Are all privately held land plots in the economy No 0.0 No 0.0 mapped? Are all privately held land plots in the largest business No 0.0 No 0.0 city mapped? Land dispute resolution index (0–8) 5.00 4.00 Does the law require that all property sale transactions be registered at the immovable property registry to Yes 1.5 Yes 1.5 make them opposable to third parties? Is the system of immovable property registration Yes 0.5 Yes 0.5 subject to a state or private guarantee? Is there a specific compensation mechanism to cover for losses incurred by parties who engaged in good faith in a property transaction based on erroneous No 0.0 No 0.0 information certified by the immovable property registry? Does the legal system require a control of legality of the documents necessary for a property transaction Yes 0.5 Yes 0.5 (e.g., checking the compliance of contracts with requirements of the law)? Registrar; If yes, who is responsible for checking the legality of Registrar; Notary; the documents? Notary. Interested parties. Does the legal system require verification of the Yes 0.5 Yes 0.5 identity of the parties to a property transaction? Registrar; Registrar; If yes, who is responsible for verifying the identity of Notary; Notary; the parties? Interested Interested parties. parties. Is there a national database to verify the accuracy of Yes 1.0 Yes 1.0 Doing Business 2016 Indonesia 83 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) identity documents? For a standard land dispute between two local District District Court businesses over tenure rights of a property worth 50 Court and and State times gross national income (GNI) per capita and State Administrativ located in the largest business city, what court would be Administrat e Court in charge of the case in the first instance? ive Court How long does it take on average to obtain a decision Between 2 More than from the first-instance court for such a case (without 1.0 0.0 and 3 years 3 years appeal)? Are there any statistics on the number of land disputes No 0.0 No 0.0 in the first instance? Number of land disputes in the largest business city in 2014: Source: Doing Business database. Doing Business 2016 Indonesia 84 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s financial Strength of legal rights index (0–12) history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially movable property, as security to generate capital— Depth of credit information index (0–8) while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2016 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2016 Indonesia 85 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Indonesia stands at 70 in the ranking of 189 and bankruptcy laws in Indonesia facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 6.00 on the depth of rankings for comparator economies provide useful credit information index and a score of 5.00 on the information for assessing how well regulations and strength of legal rights index (see the summary of institutions in Indonesia support lending and borrowing. scoring at the end of this chapter for details). Higher scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Indonesia and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2016 Indonesia 86 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Indonesia and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Source: Doing Business database. Source: Doing Business database. Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2016 Indonesia 87 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Indonesia (table 6.1)? Table 6.1 How has Indonesia made getting credit easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Indonesia improved its credit information system through a DB2014 new regulation setting up a legal framework for establishing credit bureaus. Indonesia improved access to credit by enabling searches of the DB2016 collateral registry by the debtor’s name. This reform applies to both Jakarta and Surabaya. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 Indonesia 88 GETTING CREDIT What are the details? The getting credit indicators reported here for Indonesia The data on the legal rights of borrowers and lenders are are based on detailed information collected in that gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as well collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Jakarta Surabaya Strength of legal rights index (0–12) Index score: 5.00 Index score: 5.00 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional No No equivalents to security interests in movable assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of movable assets, without requiring a specific description Yes Yes of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without requiring a specific description of No No collateral? May a security right extend to future or after-acquired assets, and may it extend automatically to the products, proceeds or replacements of the Yes Yes original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between Yes Yes parties; and can the collateral agreement include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non- incorporated entities, that is unified geographically and by asset type, with Yes Yes an electronic database indexed by debtor's name? Does a notice-based collateral registry exist in which all functional No No equivalents can be registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and searches can be performed online by any No No interested third party? Are secured creditors paid first (i.e. before tax claims and employee No No claims) when a debtor defaults outside an insolvency procedure? Doing Business 2016 Indonesia 89 Jakarta Surabaya Strength of legal rights index (0–12) Index score: 5.00 Index score: 5.00 Are secured creditors paid first (i.e. before tax claims and employee No No claims) when a business is liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law Yes Yes protect secured creditors’ rights by providing clear grounds for relief from the stay and/or sets a time limit for it? Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor No No to sell the collateral through public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 6.00 Are data on both firms and individuals distributed? No Yes 1 Are both positive and negative credit data distributed? No Yes 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - No No 0 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years of negative data or erase data on No Yes 1 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per No Yes 1 capita distributed? By law, do borrowers have the right to access their No Yes 1 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an No Yes 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions No No 0 assess the creditworthiness of borrowers? Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2016 Indonesia 90 Coverage Credit bureau Credit registry Number of firms 0 559,453 Number of individuals 0 80,676,652 Total 0 81,236,105 Total percentage of adult population 0.00 48.50 Source: Doing Business database. Doing Business 2016 Indonesia 91 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions; Disclosure requirements for related- What do the indicators cover? party transactions Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold indicators and shareholders’ rights in corporate interested directors liable for prejudicial related- governance through another. The ranking of economies party transactions; Available legal remedies on the strength of minority investor protections is (damages, disgorgement of profits, fines, determined by sorting their distance to frontier scores imprisonment, rescission of the transaction) for protecting minority investors. These scores are the Ease of shareholder suits index (0–10) simple average of the distance to frontier scores for the extent of conflict of interest regulation index and the Access to internal corporate documents; Evidence extent of shareholder governance index. To make the obtainable during trial and allocation of legal data comparable across economies, a case study uses expenses several assumptions about the business and the Extent of conflict of interest regulation index transaction. (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of shareholder indices  Is a publicly traded corporation listed on the economy’s most important stock exchange Extent of shareholder rights index (0-10) (or at least a large private company with Shareholders’ rights and role in major corporate multiple shareholders). decisions  Has a board of directors and a chief executive Extent of ownership and control index (0-10) officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Governance safeguards protecting shareholders from undue board control and entrenchment specifically required by law. Extent of corporate transparency index (0-10) The transaction involves the following details: Corporate transparency on ownership stakes,  Mr. James, a director and the majority compensation, audits and financial prospects shareholder of the company, proposes that the company purchase used trucks from Extent of shareholder governance index another company he owns. (0–10)  The price is higher than the going price for Simple average of the extent of shareholders rights, used trucks, but the transaction goes forward. extent of ownership and control and extent of corporate transparency indices  All required approvals are obtained, and all required disclosures made, though the Strength of investor protection index (0–10) transaction is prejudicial to Buyer. Simple average of the extent of conflict of interest regulation and extent of shareholder governance  Shareholders sue the interested parties and indices the members of the board of directors. Doing Business 2016 Indonesia 92 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Indonesia? The economy has a score of not measure all aspects related to the protection of 5.30 on the strength of minority investor protection minority investors, a higher ranking does indicate that an index, with a higher score indicating stronger economy’s regulations offer stronger minority investor protections. protections against self-dealing in the areas measured. Globally, Indonesia stands at 88 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Indonesia and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2016 Indonesia 93 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the A summary of scoring for the protecting minority investors protecting minority investors indicators into context indicators at the end of this chapter provides details on is to see where the economy stands in the how the indices were calculated. distribution of scores across comparator economies. Figure 7.2 highlights the scores on the various minority investor protection indices for Indonesia. Figure 7.2 Summary of the various minority investor protection indices for Indonesia and comparator economies. Source: Doing Business database. Doing Business 2016 Indonesia 94 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Indonesia are based on detailed information shareholder rights, ownership and control and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2016 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Indonesia. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Indonesia Answer Score Answer (Jakarta) Score (Jakarta) (Surabaya) (Surabaya) Strength of minority investor protection index (0-10) 5.30 5.30 Extent of conflict of interest regulation index (0-10) 5.70 5.70 Extent of disclosure index (0-10) 10.00 10.00 Shareholders Shareholders Which corporate body can provide legally sufficient approval excluding excluding 3.0 3.0 for the Buyer-Seller transaction? (0-3) interested interested parties parties Full disclosure Is disclosure by the interested director to the board of Full disclosure of 2.0 of all material 2.0 directors required? (0-2) all material facts facts Disclosure on Disclosure on the the transaction Is disclosure of the transaction in published periodic filings transaction and 2.0 and on the 2.0 (annual reports) required? (0-2) on the conflict of conflict of interest interest Disclosure on Disclosure on the the transaction Is immediate disclosure of the transaction to the public transaction and 2.0 and on the 2.0 and/or shareholders required? (0-2) on the conflict of conflict of interest interest Must an external body review the terms of the transaction Yes 1.0 Yes 1.0 before it takes place? (0-1) Extent of director liability index (0-10) 5.00 5.00 Can shareholders sue directly or derivatively for the damage Yes 1.0 Yes 1.0 caused by the Buyer-Seller transaction to the company? (0-1) Can shareholders hold the interested director liable for the Liable if Liable if negligent 1.0 1.0 damage caused by the transaction to the company? (0-2) negligent Can shareholders hold members of the approving body liable for the damage cause by the transaction to the Not liable 0.0 Not liable 0.0 company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1.0 Yes 1.0 shareholder plaintiff? (0-1) Must the interested director repay profits made from the No 0.0 No 0.0 transaction upon a successful claim by a shareholder Doing Business 2016 Indonesia 95 plaintiff? (0-1) Is the interested director fined and imprisoned or disqualified upon a successful claim by the shareholder No 0.0 No 0.0 plaintiff? (0-1) Voidable if Can a court void the transaction upon a successful claim by a Voidable if unfair 2.0 unfair or 2.0 shareholder plaintiff? (0-2) or prejducial prejducial Ease of shareholder suits index (0-10) 2.00 2.00 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? Yes 1.0 Yes 1.0 (0-1) Can the plaintiff obtain any documents from the defendant No 0.0 No 0.0 and witnesses during trial? (0-3) Can the plaintiff request categories of documents from the No 0.0 No 0.0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and No 1.0 No 1.0 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of No 0.0 No 0.0 criminal cases? (0-1) At the Can shareholder plaintiffs recover their legal expenses from At the discretion 0.0 discretion of 0.0 the company? (0-2) of the court the court Extent of shareholder governance index (0-10) 5.00 5.00 Extent of shareholder rights index (0-10) 7.00 7.00 Does the sale of 51% of Buyer’s assets require shareholder Yes 1.0 Yes 1.0 approval? Can shareholders representing 10% of Buyer’s share capital Yes 1.0 Yes 1.0 call for an extraordinary meeting of shareholders? Must Buyer obtain its shareholders’ approval every time it Yes 1.0 Yes 1.0 issues new shares? Do shareholders automatically receive preemption rights No 0.0 No 0.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the No 0.0 No 0.0 external auditor? Must changes to the voting rights of a class of shares be No 0.0 No 0.0 approved only by the holders of the affected shares? Assuming that Buyer is a limited company, does the sale of Yes 1.0 Yes 1.0 51% of Buyer’s assets requires shareholder approval? Assuming that Buyer is a limited company, can shareholders representing 10% of Buyer’s share capital call for an Yes 1.0 Yes 1.0 extraordinary meeting of shareholders? Assuming that Buyer is a limited company, must Buyer obtain its shareholders’ approval every time it issues new Yes 1.0 Yes 1.0 shares? Assuming that Buyer is a limited company, do shareholders automatically receive preemption rights every time Buyer Yes 1.0 Yes 1.0 issues new shares? Extent of ownership and control index (0-10) 4.00 4.00 Is the CEO prohibited from also being chair of the board of No 0.0 No 0.0 directors? Must the board of directors include independent and No 0.0 No 0.0 nonexecutive board members? Doing Business 2016 Indonesia 96 Can shareholders remove members of Buyer’s board of Yes 1.0 Yes 1.0 directors without cause before the end of their term? Must Buyer’s board of directors include a separate audit No 0.0 No 0.0 committee? Must a potential acquirer make a tender offer to all No 0.0 No 0.0 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by Yes 1.0 Yes 1.0 law after the declaration date? Is a subsidiary prohibited from acquiring shares issued by its Yes 1.0 Yes 1.0 parent company? Assuming that Buyer is a limited company, can shareholders remove members of Buyer’s board of directors without cause Yes 1.0 Yes 1.0 before the end of their term? Assuming that Buyer is a limited company, must a potential acquirer make a tender offer to all shareholders upon No 0.0 No 0.0 acquiring 50% of Buyer? Assuming that Buyer is a limited company, must Buyer pay dividends within a maximum period set by law after the No 0.0 No 0.0 declaration date? Extent of corporate transparency index (0-10) 4.00 4.00 Must Buyer disclose direct and indirect beneficial ownership No 0.0 No 0.0 stakes representing 5%? Must Buyer disclose information about board members’ other directorships as well as basic information on their Yes 1.0 Yes 1.0 primary employment? Must Buyer disclose the compensation of individual Yes 1.0 Yes 1.0 managers? Must a detailed notice of general meeting be sent 30 days No 0.0 No 0.0 before the meeting? Can shareholders representing 5% of Buyer’s share capital No 0.0 No 0.0 put items on the agenda for the general meeting? Must Buyer's annual financial statements be audited by an Yes 1.0 Yes 1.0 external auditor? Must Buyer disclose its audit reports to the public. Yes 1.0 Yes 1.0 Assuming that Buyer is a limited company, must a detailed notice of general meeting be sent 30 days before the No 0.0 No 0.0 meeting? Assuming that Buyer is a limited company, can shareholders representing 5% of Buyer’s share capital put items on the No 0.0 No 0.0 agenda for the general meeting? Assuming that Buyer is a limited company, must Buyer's annual financial statements be audited by an external No 0.0 No 0.0 auditor? Source: Doing Business database. Doing Business 2016 Indonesia 97 PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2014 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, Using a case scenario, Doing Business records the sales tax or goods and service tax) taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as Time required to comply with 3 major taxes measures of the administrative burden of paying (hours per year) taxes and contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax transactions made over the year. Information is also payable compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if the simple average of the distance to frontier scores required for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to one of the component indicators, the total tax rate . 3 Profit or corporate income tax All financial statement variables are proportional to Social contributions and labor taxes paid by 2012 income per capita. To make the data the employer comparable across economies, several assumptions Property and property transfer taxes are used. Dividend, capital gains and financial  TaxpayerCo is a medium-size business that transactions taxes started operations on January 1, 2013. Waste collection, vehicle, road and other taxes  The business starts from the same financial  Taxes and mandatory contributions include position in each economy. All the taxes corporate income tax, turnover tax and all and mandatory contributions paid during labor taxes and contributions paid by the the second year of operation are recorded. company.  Taxes and mandatory contributions are  A range of standard deductions and measured at all levels of government. exemptions are also recorded. The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. 3 The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax rate below this threshold receive the same score as the economy at the threshold. Doing Business 2016 Indonesia 98 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with 2 largest business cities. See the chapter on distance to taxes in Indonesia—and how much do firms pay in taxes? frontier and ease of doing business ranking at the end of On average, firms make 54.00 tax payments a year, this profile for more details. spend 234.00 hours a year filing, preparing and paying Globally, Indonesia stands at 148 in the ranking of 189 taxes and pay total taxes amounting to 29.70% of profit economies on the ease of paying taxes (figure 8.1). The (see the summary at the end of this chapter for details). rankings for comparator economies and the regional Most indicator sets refer to a case scenario in the largest average ranking provide other useful information for business city of an economy, except for 11 economies for assessing the tax compliance burden for businesses in which the data are a population-weighted average of the Indonesia. Figure 8.1 How Indonesia and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2016 Indonesia 99 PAYING TAXES Economies around the world have made paying taxes and exemptions. Many have lowered tax rates. Changes faster, easier and less costly for businesses—such as by have brought concrete results. Some economies consolidating payments and filings of taxes, offering simplifying tax payment and reducing rates have seen electronic systems for filing and payment, establishing tax revenue rise. What tax reforms has Doing Business taxpayer service centers or allowing for more deductions recorded in Indonesia (table 8.1)? Table 8.1 How has Indonesia made paying taxes easier —or not? By Doing Business report year from DB2011 to DB2016 DB year Reform DB2011 Indonesia reduced its corporate income tax rate. Indonesia made paying taxes less costly for companies by DB2015 reducing employers’ health insurance contribution rate. This reform applies to both Jakarta and Surabaya. Indonesia made paying taxes easier and less costly for companies by introducing an online system for paying social DB2016 security contributions and by reducing both the rate paid by employers and the ceiling for the contributions. This reform applies to both Jakarta and Surabaya. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 Indonesia 100 PAYING TAXES What are the details? The indicators reported here for Indonesia are based LOCATION OF STANDARDIZED COMPANY on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Jakarta, Surabaya chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of The taxes and contributions paid are listed in the assumptions and transactions that the company summary below, along with the associated number of completed during its 2nd year of operation. payments, time and tax rate. Respondents are asked how much taxes and mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on Jakarta: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate 12.5% - taxable Corporate income tax 13 75 17.16 25% * income Employer paid - Social gross 1 Online 69 0.0424 4.78 security contributions salary Employer paid - Health gross 12 0.04 4.38 insurance contributions salary Capital gains tax 1 0.05 proceed 3.03 value of the land and building Property tax 1 0.002 0.29 determine d by the governme nt sales price Vehicle registration tax 1 0.01 and 0.08 weight Stamp duty 1 Rp 6,000 fixed fee 0 Doing Business 2016 Indonesia 101 Total tax Notes on Jakarta: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Employee paid - Social gross 0 Jointly 0.02 0 withheld security contributions salary Employee paid - Payroll tax gross 12 5% - 30% 0 withheld on employee salary Employee paid - Health Care gross 0 Jointly 0.005 0 withheld contributions salary transactio not Value added tax (VAT) 12 90 0.1 0 n value included Totals 54.00 234.00 29.70 Total tax Notes on Surabaya: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate 12.5% - taxable Corporate income tax 13 75 17.16 25% * income Employer paid - Social gross 1 online 69 0.0424 4.78 security contributions salary Employer paid - Health gross 12 0.04 4.38 insurance contributions salary Capital gains tax 1 0.05 proceed 3.03 value of the land and building Property tax 1 0.002 0.29 determine d by the governme nt sales price Vehicle registration tax 1 0.01 and 0.08 weight Stamp duty 1 Rp 6,000 fixed fee 0 Employee paid - Social gross 0 Joint 0.02 0 withheld security contributions salary Employee paid - Payroll tax gross 12 5% - 30% 0 withheld on employee salary Employee paid - Health Care gross 0 Joint 0.005 0 withheld contributions salary Doing Business 2016 Indonesia 102 Total tax Notes on Surabaya: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate transactio not Value added tax (VAT) 12 90 0.1 0 n value included Totals 54.00 234.00 29.70 Source: Doing Business database. Doing Business 2016 Indonesia 103 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE FOR IMPORT & EXPORT business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead Documentary compliance – cost (USD) & time to extra costs and delays for exporters and (hours) importers, stifling trade potential. Obtain, prepare and submit documents: What do the indicators cover? -During transport, clearance, inspections and port or border handling in origin economy Doing Business records the time and cost associated with the logistical process of exporting -Required by origin, destination and transit and importing goods. Under the new methodology economies introduced this year, Doing Business measures the Covers all documents by law and in practice time and cost (excluding tariffs) associated with Border compliance – cost (USD) & time (hours) three sets of procedures—documentary compliance, border compliance and domestic Customs clearance and inspections transport—within the overall process of exporting Inspections by other agencies or importing a shipment of goods. The ranking of Port or border handling economies on the ease of trading across borders is determined by sorting their distance to frontier Obtaining, preparing and submitting documents scores for trading across borders. These scores are during clearance, inspections and port or border the simple average of the distance to frontier handling scores for the time and cost for documentary Domestic transport* compliance and border compliance to export and Loading and unloading of shipment import. Transport between warehouse and terminal/port To make the data comparable across economies, a Transport between terminal/port and border few assumptions are made about the traded goods Obtaining, preparing and submitting documents and the transactions: during domestic transport Time Traffic delays and road police checks while shipment is en route  Time is measured in hours, and 1 day is 24 hours (for example, 22 days are recorded as * Although Doing Business collects and publishes data on the 22 × 24 = 528 hours). If customs clearance time and cost for domestic transport, it does not use these takes 7.5 hours, the data are recorded as is. data in calculating the distance to frontier score for trading Alternatively, suppose that documents are across borders or the ranking on the ease of trading across submitted to a customs agency at 8:00 a.m., borders. are processed overnight and can be picked up Cost at 8:00 a.m. the next day. In this case the time  Insurance cost and informal payments for which no for customs clearance would be recorded as receipt is issued are excluded from the costs 24 hours because the actual procedure took recorded. Costs are reported in U.S. dollars. 24 hours. Contributors are asked to convert local currency into U.S. dollars based on the exchange rate prevailing on the day they answer the questionnaire. Doing Business 2016 Indonesia 104 Assumptions of the case study  Shipping cost based on weight is assumed to be  For each of the 189 economies covered by greater than shipping cost based on volume. Doing Business, it is assumed that a shipment travels from a warehouse in the largest business city of the exporting economy to a  If government fees are determined by the value of warehouse in the largest business city of the the shipment, the value is assumed to be $50,000. importing economy. For 11 economies the data are also collected, under the same case  The product is new, not secondhand or used study assumptions, for the second largest merchandise. business city.  The exporting firm is responsible for hiring and  The import and export case studies assume paying for a freight forwarder or customs broker (or different traded products. It is assumed that both) and pays for all costs related to international each economy imports a standardized shipping, domestic transport, clearance and shipment of 15 metric tons of containerized mandatory inspections by customs and other auto parts (HS 8708) from its natural import government agencies, port or border handling, partner—the economy from which it imports documentary compliance fees and the like for the largest value (price times quantity) of auto exports. The importing firm is responsible for the parts. It is assumed that each economy above costs for imports. exports the product of its comparative advantage (defined by the largest export  The mode of transport is the one most widely used value) to its natural export partner—the for the chosen export or import product and the economy that is the largest purchaser of this trading partner, as is the seaport, airport or land product. Precious metal and gems, live border crossing. animals and pharmaceuticals are excluded from the list of possible export products,  All electronic submissions of information requested however, and the second largest product by any government agency in connection with the category is considered as needed. shipment are considered to be documents obtained, prepared and submitted during the export or import  To identify the trading partners and export process. product for each economy, Doing Business collected data on trade flows for the most  A port or border is defined as a place (seaport, recent four-year period from international airport or land border crossing) where merchandise databases such as the United Nations can enter or leave an economy. Commodity Trade Statistics Database (UN Comtrade). For economies for which trade  Government agencies considered relevant are flow data were not available, data from agencies such as customs, port authorities, road ancillary government sources (various police, border guards, standardization agencies, ministries and departments) and World Bank ministries or departments of agriculture or industry, Group country offices were used to identify national security agencies and any other government the export product and natural trading authorities. partners.  A shipment is a unit of trade. Export shipments do not necessarily need to be containerized, while import shipments of auto parts are assumed to be containerized. Doing Business 2016 Indonesia 105 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Border indicator refers to a case Globally, Indonesia stands at 105 in the ranking of 189 study scenario of a warehouse in the largest business city economies on the ease of trading across borders (figure of an economy (except for 11 economies for which the 9.1). For more information on distance to frontier and data are a population-weighted average of the 2 largest ease of doing business ranking, please see the Distance business cities) trading with the main import and export to frontier and ease of doing business ranking chapter. partner through the economy’s main border crossing. Figure 9.1 How Indonesia and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2016 Indonesia 106 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing Business tools to facilitate trade—including single windows, risk- recorded in Indonesia (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Indonesia made trading across borders easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Indonesia reduced the time to export by launching a single- DB2011 window service. In Indonesia trading across borders became more difficult DB2015 because of insufficient infrastructure at the Tanjung Priok Port Jakarta. This change applies to both Jakarta and Surabaya. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 Indonesia 107 TRADING ACROSS BORDERS What are the details? The indicators reported here for Indonesia are based LOCATION OF STANDARDIZED COMPANY on a set of specific predefined procedures for trading a shipment of goods by the most widely used mode of transport (whether sea, land, air or some City: Jakarta, Surabaya combination of these). The information on the time and cost to complete export and import is collected The details on the predefined set of procedures, and the from local freight forwarders, customs brokers and associated time and cost, for exporting and importing a traders. shipment of goods are listed in the summary bellow, along with the required documents. Table 9.2 Summary of export and import time and cost for trading across borders in Indonesia Jakarta Surabaya East Asia & Pacific Time to export: Border compliance 36 48 51 (hours) Cost to export: Border compliance 250 267 396 (USD) Time to export: Documentary 72 72 75 compliance (hours) Cost to export: Documentary 170 170 167 compliance (USD) Time to import: Border compliance 80 168 59 (hours) Cost to import: Border compliance 384 376 421 (USD) Time to import: Documentary 144 144 70 compliance (hours) Cost to import: Documentary 160 160 148 compliance (USD) Source: Doing Business database. Doing Business 2016 Indonesia 108 Table 9.3 Summary of trading details, transport time and documents for trading across borders in Indonesia Jakarta Surabaya Export Import Export Import HS 15 : Animal or HS 15 : Animal or vegetable fats and vegetable fats and oils and their HS 8708: Parts and oils and their HS 8708: Parts and Product cleavage products; accessories of cleavage products; accessories of prepared edible motor vehicles prepared edible motor vehicles fats; animal or fats; animal or vegetable waxes vegetable waxes Trade partner India Japan India Japan Domestic transport time (hours) 7 7 5 5 Domestic transport cost (USD) 198 198 138 138 Border Jakarta port Jakarta port Surabaya port Surabaya port Distance (km) 21 21 15 15 Domestic transport speed 3.1 3.1 3.3 3.3 (km/hour) Domestic transport cost per 9.4 9.4 9.2 9.2 distance (USD/km) Source: Doing Business database. Documents to export Bill of lading Commercial invoice Customs Export Declaration Packing list Documents to import Bill of lading Cargo release order (SPPB) Commercial invoice Customs import declaration (PIB) Insurance documentation Packing list Proof of payments of Customs Excise and Taxation (SSPCP) Terminal handling receipts Doing Business 2016 Indonesia Source: Doing Business database. Note: Doing Business continues to collect data on the number of documents needed to trade internationally. Unlike in previous years, however, these data are excluded from the calculation of the distance to frontier score and ranking. The time and cost for documentary compliance serve as better measures of the overall cost and complexity of compliance with documentary requirements than does the number of documents required. Doing Business 2016 Indonesia 110 Figure 9.2 Summary of Indonesia on the ease of trading across borders Export (Jakarta) Import (Jakarta) Export (Surabaya) Import (Surabaya) Source: Doing Business database. Doing Business 2016 Indonesia 111 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because Time required to enforce a contract through businesses know they can rely on the courts if a new the courts (calendar days) customer fails to pay. Speedy trials are essential for Time to file and serve the case small enterprises, which may lack the resources to Time for trial and to obtain the judgment stay in business while awaiting the outcome of a long court dispute. Time to enforce the judgment What do the indicators cover? Cost required to enforce a contract through the courts (% of claim) Doing Business measures the time and cost for resolving a standardized commercial dispute through Attorney fees a local first-instance court. In addition, this year it Court fees introduces a new measure, the quality of judicial Enforcement fees processes index, evaluating whether each economy has adopted a series of good practices that promote Quality of judicial processes index (0-18) quality and efficiency in the court system. This new Court structure and proceedings (0-5) index replaces the indicator on procedures, which was eliminated this year. The ranking of economies Case management (0-6) on the ease of enforcing contracts is determined by Court automation (0-4) sorting their distance to frontier scores. These scores Alternative dispute resolution (0-3) are the simple average of the distance to frontier scores for each of the component indicators. The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The  The value of the dispute is 200% of the case study assumes that the court hears an expert on income per capita or the equivalent in local the quality of the goods in dispute. This distinguishes currency of USD 5,000, whichever is greater. the case from simple debt enforcement. To make the  The seller sues the buyer before the court data comparable across economies, Doing Business with jurisdiction over commercial cases worth uses several assumptions about the case: 200% of income per capita or $5,000.  The dispute concerns a lawful transaction  The seller requests a pretrial attachment to between two businesses (Seller and Buyer), secure the claim. both located in the economy’s largest  The dispute on the quality of the goods business city. For 11 economies the data requires an expert opinion. are also collected for the second largest business city.  The judge decides in favor of the seller; there is no appeal.  The buyer orders custom-made goods, then fails to pay.  The seller enforces the judgment through a public sale of the buyer’s movable assets. Doing Business 2016 Indonesia 112 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial frontier and ease of doing business ranking at the end of dispute through the courts in Indonesia? According to this profile for more details. data collected by Doing Business, contract enforcement Globally, Indonesia stands at 170 in the ranking of 189 takes 471.00 days and costs 115.70% of the value of the economies on the ease of enforcing contracts (figure claim. Most indicator sets refer to the largest business 10.1). The rankings for comparator economies and the city of an economy, except for 11 economies for which regional average ranking provide other useful the data are a population-weighted average of the 2 benchmarks for assessing the efficiency of contract largest business cities. See the chapter on distance to enforcement in Indonesia. Figure 10.1 How Indonesia and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2016 Indonesia 113 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for ECONOMY DETAILS Indonesia are built by following the step-by-step evolution of a commercial sale dispute within the Court name - court, under the assumptions about the case Jakarta District Court Jakarta: described above (figure 10.2). The time and cost of resolving the standardized dispute are identified Court name - through study of the codes of civil procedure and Surabaya District Court Surabaya: other court regulations, as well as through questionnaires completed by local litigation lawyers City: Jakarta, Surabaya (and, in a quarter of the economies covered by Doing Business, by judges as well). Figure 10.2 Time and cost of contract enforcement in Indonesia and comparator economies Source: Doing Business database. Doing Business 2016 Indonesia 114 Table 10.2 Details on time and cost for enforcing contracts in Indonesia East Asia & Indicator Jakarta Surabaya Pacific average Time (days) 460.00 510.00 554 Filing and service 60.0 60.0 Trial and judgment 220.0 180.0 Enforcement of judgment 180.0 270.0 Cost (% of claim) 118.10 107.30 48.8 Attorney fees (% of claim) 90.0 75.0 Court fees (% of claim) 3.1 2.3 Enforcement fees (% of claim) 25.0 30.0 Source: Doing Business database. Doing Business 2016 Indonesia 115 ENFORCING CONTRACTS Quality of judicial processes index The quality of judicial processes index measures The scores reported here show which of these good whether each economy has adopted a series of good practices are available in Indonesia. practices in its court system in four areas: court This methodology was initially developed by Djankov and structure and proceedings, case management, court others (2003) and is adopted here with several changes. automation and alternative dispute resolution. The The quality of judicial processes index was introduced in score on the quality of judicial processes index is the Doing Business 2016. The good practices tested in this sum of the scores on these 4 sub-components. The index were developed on the basis of internationally index ranges from 0 to 18, with higher values recognized good practices promoting judicial efficiency. indicating better, more efficient judicial processes. Figure 10.3 Quality of judicial processes index in Indonesia and comparator economies Source: Doing Business database. Doing Business 2016 Indonesia 116 Table 10.3 Details of the quality of judicial processes index in «dsGetData.Economy_Name» Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Quality of judicial processes index (0-18) 6.50 5.50 Court structure and proceedings (0-5) 1.5 1.5 1. Is there a court or division of a court dedicated No 0.0 No 0.0 solely to hearing commercial cases? 2. Small claims court 0.0 0.0 2.a. Is there a small claims court or a fast-track No No procedure for small claims? 2.b. If yes, is self-representation allowed? n.a. n.a. 3. Is pretrial attachment available? Yes 1.0 Yes 1.0 4. Are new cases assigned randomly to judges? Yes 0.5 Yes 0.5 Case management (0-6) 1.0 1.0 Case management (0-6) 2.0 2.0 1. Time standards 1.0 1.0 1.a. Are there laws setting overall time standards for Yes Yes key court events in a civil case? 1.b. If yes, are the time standards set for at least Yes Yes three court events? 1.c. Are these time standards respected in more than Yes Yes 50% of cases? 2. Adjournments 0.0 0.0 2.a. Does the law regulate the maximum number of No No adjournments that can be granted? 2.b. Are adjournments limited to unforeseen and No No exceptional circumstances? 2.c. If rules on adjournments exist, are they respected n.a. n.a. in more than 50% of cases? 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) clearance rate report; (iii) age of Yes 1.0 No 0.0 pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques used before the competent No 0.0 No 0.0 court? Doing Business 2016 Indonesia 117 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) 5. Are there any electronic case management tools in No 0.0 No 0.0 place within the competent court for use by judges? 6. Are there any electronic case management tools in No 0.0 No 0.0 place within the competent court for use by lawyers? Court automation (0-4) 0.5 0.5 1. Can the initial complaint be filed electronically through a dedicated platform within the competent No 0.0 No 0.0 court? 2. Is it possible to carry out service of process electronically for claims filed before the competent No 0.0 No 0.0 court? 3. Can court fees be paid electronically within the No 0.0 No 0.0 competent court? 4. Publication of judgments 0.5 0.5 4.a Are judgments rendered in commercial cases at all levels made available to the general public No No through publication in official gazettes, in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made available to the general public through publication in official Yes Yes gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 2.5 2.5 1. Arbitration 1.5 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or section Yes Yes of the applicable code of civil procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy— No No that cannot be submitted to arbitration? 1.c. Are valid arbitration clauses or agreements Yes Yes usually enforced by the courts? 2. Mediation/Conciliation 1.0 1.0 2.a. Is voluntary mediation or conciliation available? Yes Yes 2.b. Are mediation, conciliation or both governed by Yes Yes a consolidated law or consolidated chapter or section Doing Business 2016 Indonesia 118 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) of the applicable code of civil procedure encompassing substantially all their aspects? 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or No No conciliation is successful, a refund of court filing fees, income tax credits or the like)? Source: Doing Business database. Doing Business 2016 Indonesia 119 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By clarifying the expectations of creditors and debtors about the outcome of insolvency Appeals and requests for extension are proceedings, well-functioning insolvency systems can included facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and sustainably grow the economy. estate) What do the indicators cover? Measured as percentage of estate value Doing Business studies the time, cost and outcome of Court fees insolvency proceedings involving domestic legal Fees of insolvency administrators entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Lawyers’ fees dollar recovered by secured creditors through Assessors’ and auctioneers’ fees reorganization, liquidation or debt enforcement Other related fees (foreclosure or receivership) proceedings. To determine the present value of the amount Outcome recovered by creditors, Doing Business uses the Whether business continues operating as a lending rates from the International Monetary Fund, going concern or business assets are sold supplemented with data from central banks and the piecemeal Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) framework index. The index tests whether economies determines the maximum value that can be adopted internationally accepted good practices in recovered four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of economies on the ease of resolving account insolvency is determined by sorting their distance to Present value of debt recovered frontier scores for resolving insolvency. These scores are the simple average of the distance to frontier Strength of insolvency framework index (0- scores for the recovery rate and the strength of 16) insolvency framework index. The Resolving Sum of the scores of four component indices: Insolvency indicator does not measure insolvency Commencement of proceedings index (0-3) proceedings of individuals and financial institutions. The data are derived from questionnaire responses Management of debtor’s assets index (0-6) by local insolvency practitioners and verified through Reorganization proceedings index (0-3) a study of laws and regulations as well as public information on bankruptcy systems. Creditor participation index (0-4) Doing Business 2016 Indonesia 120 RESOLVING INSOLVENCY Where does the economy stand today? According to data collected by Doing Business, resolving 11.1). The resolving insolvency indicators are based on insolvency takes 1.90 years on average and costs 21.60% detailed information collected through questionnaires of the debtor’s estate. The average recovery rate is 31.20 completed by insolvency experts, including lawyers, cents on the dollar. Most indicator sets refer to a case practitioners (administrators, trustees), accountants and scenario in the largest business city of an economy, judges. Data on the time, cost and outcome refer to the except for 11 economies for which the data are a most likely in-court insolvency procedure applicable population-weighted average of the 2 largest business under specific case study assumptions. Data on cities. provisions applicable to judicial liquidation and reorganization is based on the current law governing Globally, Indonesia stands at 77 in the ranking of 189 insolvency proceedings in each economy. economies on the ease of resolving insolvency (figure Figure 11.1 How Indonesia and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2016 Indonesia 121 Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in Indonesia and comparator economies. Source: Doing Business database. Note: The recovery rate is calculated based on the time, cost and outcome of insolvency proceedings involving domestic legal entities and is recorded as cents on the dollar recovered by secured creditors. The calculation takes into account the outcome: whether the business emerges from the proceedings as a going concern or the assets are sold piecemeal. Then the costs of the proceedings are deducted. Finally, the value lost as a result of the time the money remains tied up in insolvency proceedings is taken into account. The recovery rate is the present value of the remaining proceeds, based on end-2014 lending rates. Doing Business 2016 Indonesia 122 Table 11.1 Summary of data for the strength of insolvency framework index Indonesia Answer Explanation After a maximum of 90 days since the declaration of bankruptcy is made or when the insolvency condition (rejection of the composition plan) starts, Mirage is entitled to initiate the enforcement of a deed of Jakarta, Proceeding foreclosure mortgage which is carried out through an Indonesian district court by Surabaya a motion to foreclose and a court-supervised public auction conducted by the SAO (State Auction Office). After the suspension of payment period, BizBank would gain Jakarta, Outcome piecemeal sale possession of Mirage's assets and sell them piecemeal in a public Surabaya auction. The total foreclosure procedure, which will be suspended temporarily by the initiation of the bankruptcy proceedings, would take approximate 2 years in total. BizBank would initiate foreclosure after Mirage's default on payment. According to Part Six of Law No.37 of 2004 regarding Bankruptcy and Suspension of Obligation for Debt Payment, Mirage would petition to the Commercial Court for a suspension of payments. The foreclosure procedure then gets converted to reorganization. Bankruptcy cases are heard before the Commercial Court. It takes about 2 months from when the case is filed Time (in Jakarta, until the first hearing. The Commercial Court must then grant a 2.0 years) Surabaya provisional moratorium, and appoint a supervisory judge and an administrator or receiver to assist the debtor in managing its estate. Provisional moratorium is 90 days, but permanent moratorium, which can be granted as an extension of time is 270 days. During this time, Mirage must propose a composition plan and creditors will decide whether to accept the plan, reject it or proceed to a permanent moratorium. BizBank is likely to vote against the composition plan, which will lead to Mirage being declared bankrupt. At that time, moratorium ends, and BizBank can proceed with foreclosure proceedings. The costs associated with the case would amount to approximately 22% of the value of the debtor's estate. Cost incurred during the entire Cost (% of Jakarta, insolvency process mainly include court or government agency fees 22.0 estate) Surabaya (1%), attorneys’ fees (up to 10%), insolvency representative’s fees (up to 10%), fees of accountants, assessors, inspectors and auctioneer (up to 3%). Recovery rate, Jakarta: 30.0 cents on the dollar Recovery rate, Surabaya: 35.6 cents on the dollar Source: Doing Business database. Doing Business 2016 Indonesia 123 RESOLVING INSOLVENCY Strength of resolving insolvency index The strength of insolvency framework index is the with higher values indicating insolvency legislation that is sum of the scores on the commencement of better designed for rehabilitating viable firms and proceedings index, management of debtor’s assets liquidating nonviable ones. Indonesia scores 9.50 out of index, reorganization proceedings index and creditor 16 on the strength of resolving insolvency index. participation index. The index ranges from 0 to 16, Figure 11.3 Strength of insolvency framework index (0-16) in Indonesia and comparator economies Source: Doing Business database. Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice”. Doing Business 2016 Indonesia 124 Table 11.3 Summary of data for the strength of insolvency framework index Indonesia Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Strength of insolvency framework index (0-16) 9.50 9.50 Commencement of proceedings index (0-3) 3.00 3.00 (a) Debtor (a) Debtor may file for may file for both both What procedures are available to a DEBTOR when liquidation 1.0 liquidation 1.0 commencing insolvency proceedings? and and reorganizatio reorganizati n on (a) Yes, a (a) Yes, a creditor creditor may may file for file for both Does the insolvency framework allow a CREDITOR to both liquidation 1.0 1.0 file for insolvency of the debtor? liquidation and and reorganizatio reorganizati n on (a) Debtor (a) Debtor is is generally What basis for commencement of the insolvency generally unable to proceedings is allowed under the insolvency unable to pay 1.0 pay its 1.0 framework? its debts as debts as they mature they mature Management of debtor's assets index (0-6) 5.00 5.00 Does the insolvency framework allow the continuation of contracts supplying essential goods and services to Yes 1.0 Yes 1.0 the debtor? Does the insolvency framework allow the rejection by Yes 1.0 Yes 1.0 the debtor of overly burdensome contracts? Does the insolvency framework allow avoidance of Yes 1.0 Yes 1.0 preferential transactions? Does the insolvency framework allow avoidance of Yes 1.0 Yes 1.0 undervalued transactions? Does the insolvency framework provide for the possibility of the debtor obtaining credit after Yes 1.0 Yes 1.0 commencement of insolvency proceedings? Doing Business 2016 Indonesia 125 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) (c) No (c) No priority priority is is assigned to assigned to Does the insolvency framework assign priority to post- post- 0.0 post- 0.0 commencement credit? commencem commence ent creditors ment creditors Reorganization proceedings index (0-3) 0.50 0.50 Which creditors vote on the proposed reorganization (a) All (a) All 0.5 0.5 plan? creditors creditors Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as No 0.0 No 0.0 what they would obtain in a liquidation? Are the creditors divided into classes for the purposes of voting on the reorganization plan, does each class No 0.0 No 0.0 vote separately and are creditors in the same class treated equally? Creditor participation index (0-4) 1.00 1.00 Does the insolvency framework require approval by the creditors for selection or appointment of the insolvency No 0.0 No 0.0 representative? Does the insolvency framework require approval by the No 0.0 No 0.0 creditors for sale of substantial assets of the debtor? Does the insolvency framework provide that a creditor has the right to request information from the insolvency No 0.0 No 0.0 representative? Does the insolvency framework provide that a creditor has the right to object to decisions accepting or Yes 1.0 Yes 1.0 rejecting creditors' claims? Source: Doing Business database. Doing Business 2016 Indonesia 126 LABOR MARKET REGULATION Doing Business has historically studied the flexibility of regulations as well as secondary sources are reviewed to regulation of employment, specifically as it relates to the ensure accuracy. areas of hiring, working hours and redundancy. This year Doing Business has expanded the scope of the labor To make the data comparable across economies, several market regulation indicators by adding 16 new assumptions about the worker and the business are questions, most of which focus on measuring job quality. used. Over the period from 2007 to 2011 improvements were The worker: made to align the methodology for the labor market  Is a cashier in a supermarket or grocery store, regulation indicators (formerly the employing workers age 19, with one year of work experience. indicators) with the letter and spirit of the International  Is a full-time employee. Labour Organization (ILO) conventions. Ten of the 189  Is not a member of the labor union, unless ILO conventions cover areas now measured by Doing membership is mandatory. Business (up from four previously): employee The business: termination, weekend work, holiday with pay, night work,  Is a limited liability company (or the equivalent protection against unemployment, sickness benefits, in the economy). maternity protection, working hours, equal remuneration  Operates a supermarket or grocery store in the and labor inspections. economy’s largest business city. For 11 economies the data are also collected for the Between 2009 and 2011 the World Bank Group worked second largest business city. with a consultative group—including labor lawyers,  Has 60 employees. employer and employee representatives, and experts  Is subject to collective bargaining agreements if from the ILO, the Organisation for Economic Co- such agreements cover more than 50% of the operation and Development (OECD), civil society and the food retail sector and they apply even to firms private sector—to review the methodology for the labor that are not party to them. market regulation indicators and explore future areas of  Abides by every law and regulation but does not research. grant workers more benefits than those mandated by law, regulation or (if applicable) A full report with the conclusions of the consultative collective bargaining agreements. group, along with the methodology it proposed, is available on the Doing Business website at: http://www.doingbusiness.org/methodology/labor- market-regulation. Doing Business 2016 presents the data for the labor market regulation indicators in an annex. The report does not present rankings of economies on these indicators or include the topic in the aggregate distance to frontier score or ranking on the ease of doing business. Detailed data collected on labor market regulation are available on the Doing Business website (http://www.doingbusiness.org). The data on labor market regulation are based on a detailed questionnaire on employment regulations that is completed by local lawyers and public officials. Employment laws and Doing Business 2016 Indonesia 127 LABOR MARKET REGULATION What are the details? The data reported here for Indonesia are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Hiring Data on hiring cover five areas: (i) whether fixed-term wage to the average value added per worker (the ratio of contracts are prohibited for permanent tasks; (ii) the an economy’s GNI per capita to the working-age maximum cumulative duration of fixed-term contracts; population as a percentage of the total population), and (iii) the minimum wage for a cashier, age 19, with one (v) the availability of incentives for employers to hire year of work experience; (iv) the ratio of the minimum employees under the age of 25*. Jakarta Surabaya Hiring Data Data Fixed-term contracts prohibited for permanent tasks? Yes Yes 24 Months 24 Months extendable for extendable for Maximum length of a single fixed-term contract (months) another 12 months another 12 months (Art. 59 (4)) (Art. 59 (4)) Maximum length of fixed-term contracts, including renewals (months) 36.0 36.0 Minimum wage applicable to the worker assumed in the case study 266.9 245.1 (US$/month) Ratio of minimum wage to value added per worker 0.6 0.5 Incentives for employing workers under age 25? No No Source: Doing Business database. *A new question introduced in the Doing Business 2016 report for the first time. Doing Business 2016 Indonesia 128 LABOR MARKET REGULATION Working hours Data on working hours cover nine areas: i) the maximum and nonnursing women can work the same night hours number of working days allowed per week; (ii) the as men*; (vii) whether there are restrictions on weekly premium for night work (as a percentage of hourly pay); holiday work; (viii) whether there are restrictions on (iii) the premium for work on a weekly rest day (as a overtime work*; and (ix) the average paid annual leave percentage of hourly pay); (iv) the premium for overtime for workers with 1 year of tenure, 5 years of tenure, and work (as a percentage of hourly pay)*; (v) whether there 10 years of tenure. are restrictions on night work; (vi) whether nonpregnant Jakarta Surabaya Working Hours Data Data Maximum number of working days per week 6.0 6.0 Premium for night work (% of hourly pay) 0.0 0.0 Premium for work on weekly rest day (% of hourly pay) 0.0 0.0 Premium for overtime work (% of hourly pay) 75.0 75.0 Restrictions on night work? 0.0 0.0 Whether nonpregnant and nonnursing women can work the same Yes Yes night hours as men Restrictions on weekly holiday? 0.0 0.0 Restrictions on overtime work? No No Paid annual leave for a worker with 1 year of tenure (working days) 12.0 12.0 Paid annual leave for a worker with 5 years of tenure (working days) 12.0 12.0 Paid annual leave for a worker with 10 years of tenure (working days) 12.0 12.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, 12.0 12.0 in working days) Source: Doing Business database. *A new question introduced in the Doing Business 2016 report for the first time. Doing Business 2016 Indonesia 129 LABOR MARKET REGULATION Redundancy rules Data on redundancy cover nine areas: (i) the length of whether the employer needs approval from a third party the maximum probationary period (in months) for to terminate one redundant worker; (vi) whether the permanent employees; (ii) whether redundancy is employer needs approval from a third party to terminate allowed as a basis for terminating workers; (iii) whether a group of nine redundant workers; (vii) whether the law the employer needs to notify a third party (such as a requires the employer to reassign or retrain a worker government agency) to terminate one redundant worker; before making the worker redundant; (viii) whether (iv) whether the employer needs to notify a third party to priority rules apply for redundancies; and (ix) whether terminate a group of nine redundant workers; (v) priority rules apply for reemployment. Jakarta Surabaya Difficulty of redundancy index Data Data Maximum length of probationary period (months) 3.0 3.0 Dismissal due to redundancy allowed by law? Yes Yes Third-party notification if one worker is dismissed? Yes Yes Third-party approval if one worker is dismissed? Yes Yes Third-party notification if nine workers are dismissed? Yes Yes Third-party approval if nine workers are dismissed? Yes Yes Retraining or reassignment obligation before redundancy? Yes Yes Priority rules for redundancies? No No Priority rules for reemployment? No No Source: Doing Business database. Doing Business 2016 Indonesia 130 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice severance payments applicable to a worker with 1 year requirements and severance payments due when of tenure, a worker with 5 years and a worker with 10 terminating a redundant worker, expressed in weeks of years is considered. One month is recorded as 4 and salary. The average value of notice requirements and 1/3 weeks. Jakarta Surabaya Redundancy cost indicator (in salary weeks) Data Data Notice period for redundancy dismissal for a worker with 1 year of 0.0 0.0 tenure Notice period for redundancy dismissal for a worker with 5 years of 0.0 0.0 tenure Notice period for redundancy dismissal for a worker with 10 years of 0.0 0.0 tenure Notice period for redundancy dismissal (average for workers with 1, 5 0.0 0.0 and 10 years of tenure) Severance pay for redundancy dismissal for a worker with 1 year of 17.3 17.3 tenure Severance pay for redundancy dismissal for a worker with 5 years of 60.7 60.7 tenure Severance pay for redundancy dismissal for a worker with 10 years of 95.3 95.3 tenure Severance pay for redundancy dismissal (average for workers with 1, 5 57.8 57.8 and 10 years of tenure) Source: Doing Business database. Doing Business 2016 Indonesia 131 LABOR MARKET REGULATION Job quality Doing Business 2016 report presents, for the first time, on-the-job training at no cost to the employee; (viii) data on 12 job quality areas: (i) whether the law whether a worker is eligible for an unemployment mandates equal remuneration for work of equal value; protection scheme after one year of service; (ix) the (ii) whether the law mandates nondiscrimination based minimum duration of the contribution period (in months) on gender in hiring, (iii) whether the law mandates paid required for unemployment protection; (x) whether an or unpaid maternity leave; (iv) the minimum length of employee can create or join a union; (xi) the availability maternity leave in calendar days (minimum number of of administrative or judicial relief in case of infringement days that legally have to be paid by the government, the of employees’ rights; and (xii) the availability of a labor employer or both); (v) whether employees on maternity inspection system. If no maternity leave is mandated by leave receive 100 % of wages; (vi) the availability of five law, parental leave is measured if applicable. fully paid days of sick leave a year; (vii) the availability of Jakarta Surabaya Job Quality Data Data Equal remuneration for work of equal value? No No Gender nondiscrimination in hiring? No No Paid or unpaid maternity leave mandated by law? Yes Yes Minimum length of maternity leave (calendar days)? 90.0 90.0 Receive 100% of wages on maternity leave? Yes Yes Five fully paid days of sick leave a year? Yes Yes On-the-job training? Yes Yes Unemployment protection after one year of employment? No No Minimum contribution period for unemployment protection (months)? n.a. n.a. Can employee create or join union? Yes Yes Administrative or judicial relief for infringement of employees' rights? Yes Yes Labor inspection system? Yes Yes Source: Doing Business database. Doing Business 2016 Indonesia 132 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING Doing Business presents results for two aggregate even though it is no longer at the frontier in a measures: the distance to frontier score and the ease of subsequent year. doing business ranking, which is based on the distance For scores such as those on the strength of legal rights to frontier score. The ease of doing business ranking index or the quality of land administration index, the compares economies with one another; the distance to frontier is set at the highest possible value. For the total frontier score benchmarks economies with respect to tax rate, consistent with the use of a threshold in regulatory best practice, showing the absolute distance calculating the rankings on this indicator, the frontier is to the best performance on each Doing Business defined as the total tax rate at the 15th percentile of the indicator. When compared across years, the distance to overall distribution for all years included in the analysis frontier score shows how much the regulatory up to and including Doing Business 2015. For the time to environment for local entrepreneurs in an economy has pay taxes the frontier is defined as the lowest time changed over time in absolute terms, while the ease of recorded among all economies that levy the three major doing business ranking can show only how much the taxes: profit tax, labor taxes and mandatory regulatory environment has changed relative to that in contributions, and value added tax (VAT) or sales tax. For other economies. the different times to trade across borders, the frontier is Distance to Frontier defined as 1 hour even though in many economies the time is less than that. The distance to frontier score captures the gap between an economy’s performance and a measure of best In the same formulation, to mitigate the effects of practice across the entire sample of 36 indicators for 10 extreme outliers in the distributions of the rescaled data Doing Business topics (the labor market regulation for most component indicators (very few economies indicators are excluded). For starting a business, for need 700 days to complete the procedures to start a example, the former Yugoslav Republic of Macedonia business, but many need 9 days), the worst performance and New Zealand have the smallest number of is calculated after the removal of outliers. The definition procedures required (1), and New Zealand the shortest of outliers is based on the distribution for each time to fulfill them (0.5 days). Slovenia has the lowest component indicator. To simplify the process two rules cost (0.0), and Australia, Colombia and 103 other were defined: the 95th percentile is used for the economies have no paid-in minimum capital indicators with the most dispersed distributions requirement (table 14.1 in the Doing Business 2016 (including minimum capital, number of payments to pay report). taxes, and the time and cost indicators), and the 99th percentile is used for number of procedures. No outlier is Calculation of the distance to frontier score removed for component indicators bound by definition Calculating the distance to frontier score for each or construction, including legal index scores (such as the economy involves two main steps. In the first step depth of credit information index, extent of conflict of individual component indicators are normalized to a interest regulation index and strength of insolvency common unit where each of the 36 component framework index) and the recovery rate. indicators y (except for the total tax rate) is rescaled In the second step for calculating the distance to frontier using the linear transformation (worst − y)/(worst − score, the scores obtained for individual indicators for frontier). In this formulation the frontier represents the each economy are aggregated through simple averaging best performance on the indicator across all economies into one distance to frontier score, first for each topic since 2005 or the third year in which data for the and then across all 10 topics: starting a business, dealing indicator were collected. Both the best performance and with construction permits, getting electricity, registering the worst performance are established every five years property, getting credit, protecting minority investors, based on the Doing Business data for the year in which paying taxes, trading across borders, enforcing contracts they are established, and remain at that level for the five and resolving insolvency. More complex aggregation years regardless of any changes in data in interim years. methods—such as principal components and Thus an economy may set the frontier for an indicator unobserved components—yield a ranking nearly Doing Business 2016 Indonesia 133 identical to the simple average used by Doing Business . The nonlinear transformation is not based on any 4 Thus Doing Business uses the simplest method: economic theory of an “optimal tax rate” that minimizes weighting all topics equally and, within each topic, giving distortions or maximizes efficiency in an economy’s equal weight to each of the topic components . overall tax system. Instead, it is mainly empirical in 5 nature. The nonlinear transformation along with the An economy’s distance to frontier score is indicated on a threshold reduces the bias in the indicator toward scale from 0 to 100, where 0 represents the worst economies that do not need to levy significant taxes on performance and 100 the frontier. All distance to frontier companies like the Doing Business standardized case calculations are based on a maximum of five decimals. study company because they raise public revenue in However, indicator ranking calculations and the ease of other ways—for example, through taxes on foreign doing business ranking calculations are based on two companies, through taxes on sectors other than decimals. manufacturing or from natural resources (all of which are The difference between an economy’s distance to outside the scope of the methodology). In addition, it frontier score in any previous year and its score in 2015 acknowledges the need of economies to collect taxes illustrates the extent to which the economy has closed from firms. the gap to the regulatory frontier over time. And in any Calculation of scores for economies with 2 cities given year the score measures how far an economy is covered from the best performance at that time. For each of the 11 economies in which Doing Business Treatment of the total tax rate collects data for the second largest business city as well The total tax rate component of the paying taxes as the largest one, the distance to frontier score is indicator set enters the distance to frontier calculation in calculated as the population-weighted average of the a different way than any other indicator. The distance to distance to frontier scores for these two cities (table frontier score obtained for the total tax rate is 13.1). This is done for the aggregate score, the scores for transformed in a nonlinear fashion before it enters the each topic and the scores for all the component distance to frontier score for paying taxes. As a result of indicators for each topic. the nonlinear transformation, an increase in the total tax rate has a smaller impact on the distance to frontier score for the total tax rate—and therefore on the distance to frontier score for paying taxes—for economies with a below-average total tax rate than it would have had before this approach was adopted in Doing Business 2015 (line B is smaller than line A in figure 14.2 in the Doing Business 2016 report). And for economies with an extreme total tax rate (a rate that is very high relative to the average), an increase has a greater impact on both these distance to frontier scores than it would have had before (line D is bigger than line C in figure 14.2 in the Doing Business 2016 report). 4 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less importance in the context of a specific economy. 5 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned to the strength of legal rights index and 40% to the depth of credit information index. Indicators for all other topics are assigned equal weights Doing Business 2016 Indonesia 134 Table 13.1 Weights used in calculating the distance to implemented regulatory reforms making it easier to do frontier scores for economies with 2 cities covered business in 3 or more of the 10 topics included in this year’s aggregate distance to frontier score. Changes Economy City Weight (%) making it more difficult to do business are subtracted Dhaka 78 Bangladesh from the total number of those making it easier to do Chittagong 22 São Paulo 61 business. Twenty-four economies meet this criterion: Brazil Armenia; Azerbaijan; Benin; Costa Rica; Côte d’Ivoire; Rio de Janeiro 39 Shanghai 55 Cyprus; Hong Kong SAR, China; Indonesia; Jamaica; China Beijing 45 Kazakhstan; Kenya; Lithuania; Madagascar; Mauritania; Mumbai 47 Morocco; Romania; the Russian Federation; Rwanda; India Delhi 53 Senegal; Togo; Uganda; the United Arab Emirates; Jakarta 78 Uzbekistan; and Vietnam. Second, Doing Business sorts Indonesia Surabaya 22 these economies on the increase in their distance to Tokyo 65 Japan frontier score from the previous year using comparable Osaka 35 data. Mexico City 83 Mexico Monterrey 17 Selecting the economies that implemented regulatory Lagos 77 reforms in at least three topics and had the biggest Nigeria Kano 23 improvements in their distance to frontier scores is Karachi 65 intended to highlight economies with ongoing, broad- Pakistan Lahore 35 based reform programs. The improvement in the Moscow 70 Russian Federation distance to frontier score is used to identify the top St. Petersburg 30 New York 60 improvers because this allows a focus on the absolute United States improvement—in contrast with the relative improvement Los Angeles 40 Source: United Nations, Department of Economic and Social shown by a change in rankings—that economies have Affairs, Population Division, World Urbanization Prospects, made in their regulatory environment for business. 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Ease of Doing Business ranking Economies that improved the most across 3 or more Doing Business topics in 2014/15 The ease of doing business ranking ranges from 1 to 189. The ranking of economies is determined by sorting the Doing Business 2016 uses a simple method to calculate aggregate distance to frontier scores, rounded to 2 which economies improved the ease of doing business decimals. the most. First, it selects the economies that in 2014/15 Doing Business 2016 Indonesia 135 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 11,400 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 136 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, case studies and repreneurship customized economy and regional profiles http://www.doingbusiness.org/reports Distance to frontier Data benchmarking 189 economies to the frontier Methodology in regulatory practice and a distance to frontier The methodologies and research papers underlying calculator Doing Business http://www.doingbusiness.org/data/distance-to- http://www.doingbusiness.org/methodology frontier Research Information on good practices Abstracts of papers on Doing Business topics and Showing where the many good practices identified related policy issues by Doing Business have been adopted http://www.doingbusiness.org/research http://www.doingbusiness.org/data/good-practice Doing Business reforms Short summaries of DB2016 business regulation reforms and lists of reforms since DB2008 http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2016 Indonesia 136