65442 Economy Profile: Papua New Guinea © 2012 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 All rights reserved. 1 2 3 4 08 07 06 05 A copublication of The World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. 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ISBN: 978-0-8213-8833-4 E-ISBN: 978-0-8213-8834-1 DOI: 10.1596/978-0-8213-8833-4 ISSN: 1729-2638 Printed in the United States Doing Business 2012 Papua New Guinea 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 24 Getting electricity ....................................................................................................................... 34 Registering property .................................................................................................................. 40 Getting credit .............................................................................................................................. 49 Protecting investors ................................................................................................................... 56 Paying taxes ................................................................................................................................ 66 Trading across borders .............................................................................................................. 74 Enforcing contracts .................................................................................................................... 83 Resolving insolvency .................................................................................................................. 90 Data notes ................................................................................................................................... 96 Resources on the Doing Business website ............................................................................ 101 Doing Business 2012 Papua New Guinea 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is (except for the paying taxes indicators, which cover the for a local entrepreneur to open and run a small to period January–December 2010). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 10 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts and transparency of government procurement, resolving insolvency. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 183 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 32 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 18 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2012 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and indicators for Papua New Guinea. To allow useful recommends regulatory reforms. The data, along with comparison, it also provides data for other selected information on ordering Doing Business 2012, are economies (comparator economies) for each indicator. available on the Doing Business website at The data in this report are current as of June 1, 2011 http://www.doingbusiness.org. Doing Business 2012 Papua New Guinea 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start 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 Region: East Asia & Pacific business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Lower middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 183 by the ease of Population: 6,888,387 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 1,300.00 percentile rankings on each of the 10 topics included in the index in Doing Business 2012: starting a business, DB2012 rank: 101 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2011 rank: 97 investors, paying taxes, trading across borders, Change in rank: -4 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see Note: See the data notes for sources and the data notes for more details). 1 definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 Papua New Guinea 6 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 2012 Papua New Guinea 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy the regional average (figure 1.2). The economy’s stands in the aggregate ranking on the ease of doing rankings on the topics included in the ease of doing business is useful. Also useful is to know how it ranks business index provide another perspective (figure compared with other economies and compared with 1.3). Figure 1.2 How Papua New Guinea and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2012 Papua New Guinea 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Papua New Guinea ranks on Doing Business topics Source: Doing Business database. Doing Business 2012 Papua New Guinea 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing This measure shows the distance of each economy to business tells only part of the story, so do changes in the ―frontier,‖ a synthetic measure based on the most that ranking. Yearly movements in rankings can efficient practice or highest score observed for each provide some indication of changes in an economy’s Doing Business indicator across all economies and regulatory environment for firms, but they are always years included in the Doing Business sample since relative. An economy’s ranking might change because 2005. Nine areas of business regulation are covered. of developments in other economies. An economy that Comparing the measure for an economy at 2 points in implemented business regulation reforms may fail to time allows users to assess how much the economy’s rise in the rankings (or may even drop) if it is passed regulatory environment as measured by Doing by others whose business regulation reforms had a Business has changed over time—how far it has moved more significant impact as measured by Doing toward (or away from) the most efficient practices and Business. strongest regulations in areas covered by Doing Moreover, year-to-year changes in the overall rankings Business (figure 1.4). The results may show that the do not reflect how the business regulatory pace of change varies widely across the areas environment in an economy has changed over time— measured. They also may show that an economy is or how it has changed in different areas. To aid in relatively close to the frontier in some areas and assessing such changes, Doing Business 2012 relatively far from it in others. introduces the distance to frontier measure. Figure 1.4 How far has Papua New Guinea come in the areas measured by Doing Business? Distance to frontier, 2005 and 2011 Note: For economies added to the Doing Business sample after 2005, the starting point is the year in which they were added: 2006 for Montenegro; 2007 for Brunei Darussalam, Liberia and Luxembourg; 2008 for The Bahamas, Bahrain and Qatar; and 2009 for Cyprus and Kosovo. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2012 Papua New Guinea 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Papua New Guinea Marshall Islands DB2012 Best performer globally Papua New Guinea Papua New Guinea Vanuatu DB2012 Kiribati DB2012 Indicator Samoa DB2012 Tonga DB2012 Palau DB2012 DB2012 DB2011 DB2012 Starting a Business 84 83 141 52 124 22 33 114 New Zealand (1) (rank) Procedures (number) 6 6 7 5 8 4 4 8 Canada (1)* Time (days) 51 51 31 17 28 9 16 35 New Zealand (1) Cost (% of income per 15.6 17.7 22.2 17.7 5.8 9.7 10.3 47.1 Denmark (0.0)* capita) Paid-in Min. Capital (% 0.0 0.0 21.1 0.0 15.5 0.0 0.0 0.0 82 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 138 138 106 8 39 68 32 40 China (1) (rank) Procedures (number) 21 21 16 8 22 21 9 11 Denmark (5) Time (days) 219 219 170 87 71 87 69 39 Singapore (26)* Cost (% of income per 65.6 74.4 163.7 29.1 5.2 59.2 251.5 341.7 Qatar (1.1) capita) Doing Business 2012 Papua New Guinea 11 Marshall Islands DB2012 Best performer globally Papua New Guinea Papua New Guinea Vanuatu DB2012 Kiribati DB2012 Indicator Samoa DB2012 Tonga DB2012 Palau DB2012 DB2012 DB2011 DB2012 Getting Electricity (rank) 20 19 159 76 80 32 29 147 Iceland (1) Procedures (number) 4 4 6 5 5 4 5 5 Germany (3)* Time (days) 66 66 97 67 125 34 42 257 Germany (17) Cost (% of income per 66.9 74.2 5162.7 1010.0 145.9 857.1 111.3 1171.3 Japan (0.0) capita) Registering Property 87 86 69 183 20 26 141 111 New Zealand (3) (rank) no Procedures (number) 4 4 5 5 5 4 4 Portugal (1)* practice no Time (days) 72 72 513 14 15 108 118 Portugal (1) practice Cost (% of property no 5.1 5.1 0.0 0.4 1.6 15.2 7.0 Slovak Republic (0.0) value) practice Getting Credit (rank) 98 96 159 78 182 126 78 78 United Kingdom (1)* Strength of legal rights 5 5 5 9 1 7 9 9 New Zealand (10)* index (0-10) Depth of credit 3 3 0 0 0 0 0 0 Japan (6)* information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Portugal (86.2) (% of adults) Private bureau coverage 1.8 0.6 0.0 0.0 0.0 0.0 0.0 0.0 New Zealand (100.0)* (% of adults) Protecting Investors 46 44 46 155 174 29 111 79 New Zealand (1) (rank) Doing Business 2012 Papua New Guinea 12 Marshall Islands DB2012 Best performer globally Papua New Guinea Papua New Guinea Vanuatu DB2012 Kiribati DB2012 Indicator Samoa DB2012 Tonga DB2012 Palau DB2012 DB2012 DB2011 DB2012 Extent of disclosure 5 5 6 2 0 5 3 5 France (10)* index (0-10) Extent of director 5 5 5 0 0 6 3 6 Singapore (9)* liability index (0-10) Ease of shareholder suits 8 8 7 8 8 8 8 5 New Zealand (10)* index (0-10) Strength of investor 6.0 6.0 6.0 3.3 2.7 6.3 4.7 5.3 New Zealand (9.7) protection index (0-10) Paying Taxes (rank) 106 103 6 96 97 66 29 32 Canada (8) Payments (number per 33 33 7 21 19 37 20 31 Norway (4) year) Time (hours per year) 194 194 120 128 128 224 164 120 Luxembourg (59) Trading Across Borders 99 99 85 66 124 96 77 128 Singapore (1) (rank) Documents to export 7 7 6 5 6 7 7 7 France (2) (number) Hong Kong SAR, Time to export (days) 26 26 21 21 29 27 20 21 China (5)* Cost to export (US$ per 664 664 1120 945 1070 820 775 1690 Malaysia (450) container) Documents to import 9 9 7 5 10 7 6 8 France (2) (number) Time to import (days) 29 29 21 25 33 31 24 20 Singapore (4) Cost to import (US$ per 722 722 1120 970 1030 848 775 1690 Malaysia (435) container) Doing Business 2012 Papua New Guinea 13 Marshall Islands DB2012 Best performer globally Papua New Guinea Papua New Guinea Vanuatu DB2012 Kiribati DB2012 Indicator Samoa DB2012 Tonga DB2012 Palau DB2012 DB2012 DB2011 DB2012 Enforcing Contracts 163 164 75 63 144 80 53 71 Luxembourg (1) (rank) Time (days) 591 591 660 476 810 455 350 430 Singapore (150) Cost (% of claim) 110.3 110.3 25.8 27.4 35.3 19.7 30.5 56.0 Bhutan (0.1) Procedures (number) 42 42 32 36 38 44 37 30 Ireland (21)* Resolving Insolvency 116 114 183 135 61 145 108 53 Japan (1) (rank) no Time (years) 3.0 3.0 2.0 1.0 2.5 2.7 2.6 Ireland (0.4) practice no Cost (% of estate) 23 23 38 23 38 22 38 Singapore (1)* practice Recovery rate (cents on 23.7 23.9 0.0 17.9 40.5 15.1 25.6 42.7 Japan (92.7) the dollar) Note: The methodology for the paying taxes indicators changed in Doing Business 2012; see the data notes for details. For these indicators, the best performer globally is the economy that has implemented the most efficient practices in its tax system and is not necessarily the one with the highest ranking. For more information on “no practice� marks, see the data notes for details. * 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). Source: Doing Business database. Doing Business 2012 Papua New Guinea 14 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 Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures that are officially required or commonly received done in practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that all government and nongovernment entities involved in the process  Has a turnover of at least 100 times income per capita. function without corruption. And it assumes that the business:  Does not qualify for any special benefits.  Is a limited liability company, located in the  Does not own real estate. largest business city.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2012 Papua New Guinea 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Papua New procedures, takes 51 days, costs 15.6% of income per Guinea? According to data collected by Doing capita and requires paid-in minimum capital of 0.0% of Business, starting a business there requires 6 income per capita (figure 2.1). Figure 2.1 What it takes to start a business in Papua New Guinea Paid-in minimum capital (% of income per capita): 0.0 Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Papua New Guinea 16 STARTING A BUSINESS Globally, Papua New Guinea stands at 84 in the other useful information for assessing how easy it is for ranking of 183 economies on the ease of starting a an entrepreneur in Papua New Guinea to start a business (figure 2.2). The rankings for comparator business. economies and the regional average ranking provide Figure 2.2 How Papua New Guinea and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2012 Papua New Guinea 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how the process have changed—and which have not (table easy (or difficult) it is to start a business in Papua New 2.1). That can help identify where the potential for Guinea today, data over time show which aspects of improvement is greatest. Table 2.1 The ease of starting a business in Papua New Guinea over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 83 84 Procedures (number) 6 6 6 6 6 6 6 6 6 Time (days) 51 51 51 51 51 51 51 51 51 Cost (% of income per 28.8 28.2 27.7 23.8 24.2 21.7 18.9 17.7 15.6 capita) Paid-in Min. Capital (% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 of income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Papua New Guinea 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by Papua New Guinea on ways to improve the ease of the economies that today have the best performance starting a business. And changes in regional averages regionally or globally on the procedures, time, cost or can show where Papua New Guinea is keeping up— paid-in minimum capital required to start a business and where it is falling behind. (figure 2.3). These economies may provide a model for Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2012 Papua New Guinea 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In the case of paid-in minimum capital, 82 economies globally and 14 economies in East Asia & Pacific have no paid-in minimum capital. Source: Doing Business database. Doing Business 2012 Papua New Guinea 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Papua New Guinea (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has Papua New Guinea made starting a business easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Papua New Guinea 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Papua New Guinea is a set of specific procedures— the bureaucratic and legal steps that an entrepreneur must complete to incorporate and City: Port Moresby register a new firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Private Limited Liability Company professionals and the study of laws, regulations and Start-up capital: 10 times GNI per capita publicly available information on business entry in that economy. Following is a detailed summary of Paid-in minimum capital (% of income per those procedures, along with the associated time capita): 0.0 and cost. These 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). Summary of procedures for starting a business in Papua New Guinea—and the time and cost Time to No. Procedure Cost to complete complete Obtain a company seal Although companies are not expressly mandated by law to make a 1 company seal, they are required to have a seal to meet the Companies 4 days PGK 60 Act requirements for issuing share certificates or for entering into deeds and contracts. The fee for a seal varies with its size but is about PGK 40– 80. A seal can be obtained in a week. Obtain name and register the company with the Registrar of Companies A company registration application must be submitted to the Registrar of Companies. Using standard Form 1, the application must include 3 proposed names of the company, the postal and street address of the registered office, and the number and names of the directors, the shareholders, and the secretaries. Form 1 must also be accompanied by 18 days PGK 260 2 - A certified copy of the company constitution, if applicable. - Form 2, the consent of each director, which requires the full name, nationality, date of birth, and postal and residential addresses. - Form 3, the consent of any secretary, which requires the full name, nationality, date of birth, and postal and residential addresses. - Form 4, the consent of each shareholder, which requires each shareholder’s date of birth, full name or corporate name, nationality or country of incorporation, postal and residential addresses, number and class of shares, and consideration for shares. - Form 6, an application for name reservation. Doing Business 2012 Papua New Guinea 22 Time to No. Procedure Cost to complete complete A company is no longer required to have a memorandum or articles of association. A proposed company may opt to have a constitution but is not required to do so. The total registration fee is PGK 260 for domestic companies as follows: - Application to register a company: PGK 150. - Application to reserve company name: PGK 50 (see Procedure 2). - Stamp duty: PGK 60. If the company has a constitution, an additional stamp duty fee of PGK 40 applies. Register with the tax authorities; register for VAT purposes; register with the Employment Register Under the Income Tax Act, a company carrying on business or deriving income in Papua New Guinea must appoint a Papua New Guinea resident to be a public officer. The appointment must be made 3 months from the date the company starts business operations or derives income in the country, by written notice to the Internal Revenue Commission. All tax notices and forms are filed to the attention of the Internal Revenue Commissioner. Although different officers in this agency will likely attend to the separate notices and forms, these forms can be submitted to the Commissioner in a single filing. 3 9 days no charge The procedure takes a week to a month. If a company employs one or more employees in Papua New Guinea with a weekly salary of more than PGK 126 a week, they must register as a ―group employer‖ by submitting a written notice to the Internal Revenue Commission. No fees apply. Any business or individual whose annual turnover exceeds (or is likely to exceed) PGK 100,000, must register for goods and services tax (GST) by filing Form 1 with the Internal Revenue Commission. This standard form requires the company business name and a description of its proposed main business activities along with the street and postal address of the registered office and a statement of its monthly sales and liabilities (approximate). No fees apply. Apply for a trade license from the National Capital District Commission 4 20 days PGK 50 Companies in Port Moresby must obtain a trading license from the National Capital District Commission. * Open an account with an Authorized Superannuation Fund (ASF) According to the amendment to the Superannuation (General 9 days, Provisions) Act 2000, a company with 15 or more employees must (simultaneous with no charge 5 contribute to an Authorized Superannuation Fund (ASF; a procedure 3) superannuation fund that the Central Bank has approved and licensed). An employer must remit its employer contributions to the ASF within 14 Doing Business 2012 Papua New Guinea 23 Time to No. Procedure Cost to complete complete days of the end of each calendar month in which the relevant contribution is due for deduction from an employee's pay. It is an offence not to make contributions. Under the act, the Central Bank has the power to instigate proceedings against any offence by a person. It takes 7–10 days to open an account. * Register workers with the private insurers for work injury 20 days, Although there is no registration requirement, it is an offence for an (simultaneous with PGK 200 6 employer to employ any worker without an insurance or indemnity procedure 3) policy issued by a licensed insurer for injury to the worker arising out of or during employment. Registration time is 10–30 days. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Papua New Guinea 24 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 PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes  Is a limited liability company operating in  Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The  Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long.  Has 60 builders and other employees.  Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring  Is a new construction (there was no special conditions). previous construction on the land).  Will take 30 weeks to construct (excluding all  Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2012 Papua New Guinea 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to construction permits there requires 21 procedures, build a warehouse in Papua New Guinea? According to takes 219 days and costs 65.6% of income per capita data collected by Doing Business, dealing with (figure 3.1). Figure 3.1 What it takes to comply with formalities to build a warehouse in Papua New Guinea Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Papua New Guinea 26 DEALING WITH CONSTRUCTION PERMITS Globally, Papua New Guinea stands at 138 in the ranking provide other useful information for assessing ranking of 183 economies on the ease of dealing with how easy it is for an entrepreneur in Papua New construction permits (figure 3.2). The rankings for Guinea to legally build a warehouse. comparator economies and the regional average Figure 3.2 How Papua New Guinea and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2012 Papua New Guinea 27 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how which aspects of the process have changed—and easy (or difficult) it is to deal with construction permits which have not (table 3.1). That can help identify where in Papua New Guinea today, data over time show the potential for improvement is greatest. Table 3.1 The ease of dealing with construction permits in Papua New Guinea over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 138 138 Procedures (number) 21 21 21 21 21 21 21 Time (days) 219 219 219 219 219 219 219 Cost (% of income per 119.7 105.6 102.0 91.3 79.5 74.4 65.6 capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Papua New Guinea 28 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by Guinea on ways to improve the ease of dealing with the economies that today have the best performance construction permits. And changes in regional regionally or globally on the procedures, time or cost averages can show where Papua New Guinea is required to deal with construction permits (figure 3.3). keeping up—and where it is falling behind. These economies may provide a model for Papua New Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2012 Papua New Guinea 29 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Papua New Guinea 30 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Papua New Guinea (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has Papua New Guinea made dealing with construction permits easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Papua New Guinea 31 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Papua New BUILDING A WAREHOUSE Guinea are based on a set of specific procedures— the steps that a company must complete to legally build a warehouse—identified by Doing Business City : Port Moresby through information collected from experts in construction licensing, including architects, Estimated construction lawyers, construction firms, utility PGK 1,170,540 Warehouse Value : service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and that apply to a company and structure matching cost, are summarized below. the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Papua New Guinea —and the time and cost Time to No. Procedure Cost to complete complete Request and obtain planning permission from Department of Lands and Physical Planning 30 days PGK 100 1 Request and obtain certificate of ownership and site map from Department of Lands and Physical Planning 30 days PGK 100 2 * Request and obtain permission from Fire authority 3 30 days no charge * Request and obtain project clearance from Health Department 4 29 days no charge * Request and obtain project clearance from Department of Environment and Conservation 28 days no charge 5 * Request and obtain project clearance from Water and Sewage Authority 27 days no charge 6 Request and obtain building permit from Department of Lands and Physical Planning 7 90 days PGK 100 The building permit is issued by the Municipal Building Board after all clearances have been obtained. Request and receive foundations work inspection from 1 day no charge 8 Municipality Doing Business 2012 Papua New Guinea 32 Time to No. Procedure Cost to complete complete In some cases, a telephone call is enough to schedule the inspection. However, in other cases, BuildCo might have to provide transportation to the inspector. Inspections must be requested by the company at each phase of the construction work. Request and receive concrete work inspection from Municipality 9 1 day no charge Request and receive steel work for slabs inspection from Municipality 1 day no charge 10 Request and receive frame inspection from Municipality 11 1 day no charge Request and receive damp-proof course inspection from Municipality 1 day no charge 12 Request water and sewage connection 13 1 day no charge * Receive plumbing inspection 14 1 day no charge * Connect to water and sewage services from Eda Ramu 15 29 days PGK 2,000 * Request telephone connection 16 1 day no charge * Receive inspection from Telikom 17 1 day no charge * Connect to phone services from Telikom 18 27 days PGK 100 Request occupancy permit In the case of a small project, the Building Board is not involved in the approval, and the occupancy permit can be granted in a day. However, 19 if the building requires approval by the Building Board, the issuance of 1 day no charge the permit will take a month since the board meets once a month. The Chief Building Inspector proposes the project to the Building Board, which then grants the final decision. The occupancy permit may also be issued upon completion of certain phases of the project. Receive inspection 20 1 day no charge Obtain occupancy permit 29 days no charge 21 Doing Business 2012 Papua New Guinea 33 Time to No. Procedure Cost to complete complete * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Papua New Guinea 34 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a 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 Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is 150 meters long.  Is a new construction being connected to  Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead  Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer’s private domain is feet). negligible. The electricity connection:  Involves installing one electricity meter. The monthly electricity consumption will be 0.07  Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2012 Papua New Guinea 35 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity requires 4 procedures, takes 66 days and costs 66.9% connection in Papua New Guinea? According to data of income per capita (figure 4.1). collected by Doing Business, getting electricity there Figure 4.1 What it takes to obtain an electricity connection in Papua New Guinea Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Papua New Guinea 36 GETTING ELECTRICITY Globally, Papua New Guinea stands at 20 in the another perspective in assessing how easy it is for an ranking of 183 economies on the ease of getting entrepreneur in Papua New Guinea to connect a electricity (figure 4.2). The rankings for comparator warehouse to electricity. economies and the regional average ranking provide Figure 4.2 How Papua New Guinea and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2012 Papua New Guinea 37 GETTING ELECTRICITY Even more helpful than rankings for other economies economies, the practices of their utilities may provide a may be the indicators underlying those rankings (table model for Papua New Guinea on ways to improve the 4.1). If obtaining a new electricity connection requires ease of getting electricity. Regional and global averages fewer procedures, less time or less cost in other on these indicators may provide useful benchmarks. Table 4.1 The ease of getting electricity in Papua New Guinea and comparator economies Marshall Islands Pacific average Global average Papua New East Asia & Vanuatu Kiribati Guinea Samoa Tonga Palau Indicator Rank 20 159 76 80 32 29 147 75 .. Procedures (number) 4 6 5 5 4 5 5 5 5 Time (days) 66 97 67 125 34 42 257 88 111 Cost (% of income per capita) 66.9 5162.7 1010.0 145.9 857.1 111.3 1171.3 1,079.4 1,942.3 Source: Doing Business database. Doing Business 2012 Papua New Guinea 38 GETTING ELECTRICITY What are the details? The indicators reported here for Papua New Guinea OBTAINING AN ELECTRICITY CONNECTION are based on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local City: Port Moresby distribution utility—identified by Doing Business. Data are collected from the distribution utility, then Name of Utility: PNG Power Ltd completed and verified by electricity regulatory agencies and independent professionals such as The procedures are those that apply to a warehouse electrical engineers, electrical contractors and and electricity connection matching the standard construction companies. The electricity distribution assumptions used by Doing Business in collecting the utility surveyed is the one serving the area (or areas) in data (see the section in this chapter on what the which warehouses are located. If there is a choice of indicators cover). The procedures, along with the distribution utilities, the one serving the largest associated time and cost, are summarized below. number of customers is selected. Summary of procedures for getting electricity in Papua New Guinea—and the time and cost Time to No. Procedure Cost to complete complete Submit application with PNG Power LTD and await and receive estimate The customer submits the application in person, by telephone or in 1 writing with PNG Power LTD requesting electricity service and provides 24 calendar days PGK 1,970.5 relevant information such as power requirement based on electrical equipment , drawings showing layout of the building, etc. A minimum of two identifications for verification of the consumer is required. * Receive external inspection 2 An external inspection is conducted by the utility. Someone from the 1 calendar day no charge applicant's party has to be present. After the inspection, the utility prepares the estimate and sends it to the customer. * Request and receive internal inspection by PNG Power Ltd. Before undertaking the electrical wiring of the building the customer submitted a Notice of Intention to start electrical works to PPL. He also paid the service fee (regulated charge which covers metering and service line) when submitting Notice of Intention form. This fee is regulated and set by the Regulator annually. 5 calendar days PGK 432.0 3 After the electrical works is completed, including installation of metering equipment, the customer submits a Completion Notice. Upon receiving the Completion Notice PPL/ICCC inspectors inspect the electrical wirings for conductivity, safety and workmanship standard. Someone from the applicant party has to be present. If these are met a no Fault Notice is issued and is passed on to customer service to connect customer. Doing Business 2012 Papua New Guinea 39 Time to No. Procedure Cost to complete complete Receive external connection works and meter installation by PNG Power Ltd. All external connection works are done by the utility. The utility installs a transformer. Material is usually available. The meter gets installed at the 4 same time when the connection is done if the connection fee has been 42 calendar days PGK 44.0 paid. With the Capital Advance Policy the price of the external connection is reimbursed to the customer through offsetting of electrical bills. The Connection Fee/Charge is regulated and set by the Independent Consumer and Competition Commission (ICCC) * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Papua New Guinea 40 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 immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned.  Are located in the periurban area of the economy’s largest business city.  Has no mortgages attached and has been under the same ownership for the past 10  Have 50 employees each, all of whom are years. nationals.  Consists of 557.4 square meters (6,000 square  Perform general commercial activities. 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. condition and complies with all safety standards, building codes and legal  Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2012 Papua New Guinea 41 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 72 days and costs 5.1% of the Papua New Guinea? According to data collected by property value (figure 5.1). Doing Business, registering property there requires 4 Figure 5.1 What it takes to register property in Papua New Guinea Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Papua New Guinea 42 REGISTERING PROPERTY Globally, Papua New Guinea stands at 87 in the other useful information for assessing how easy it is for ranking of 183 economies on the ease of registering an entrepreneur in Papua New Guinea to transfer property (figure 5.2). The rankings for comparator property. economies and the regional average ranking provide Figure 5.2 How Papua New Guinea and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2012 Papua New Guinea 43 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how of the process have changed—and which have not easy (or difficult) it is to register property in Papua (table 5.1). That can help identify where the potential New Guinea today, data over time show which aspects for improvement is greatest. Table 5.1 The ease of registering property in Papua New Guinea over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 86 87 Procedures (number) 4 4 4 4 4 4 4 4 Time (days) 72 72 72 72 72 72 72 72 Cost (% of property value) 5.2 5.2 5.1 5.1 5.1 5.1 5.1 5.1 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Papua New Guinea 44 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by Guinea on ways to improve the ease of registering the economies that today have the best performance property. And changes in regional averages can show regionally or globally on the procedures, time or cost where Papua New Guinea is keeping up—and where it required to complete a property transfer (figure 5.3). is falling behind. These economies may provide a model for Papua New Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2012 Papua New Guinea 45 REGISTERING PROPERTY Cost (% of property value) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Papua New Guinea 46 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Papua New Guinea (table 5.2)? Table 5.2 How has Papua New Guinea made registering property easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Papua New Guinea 47 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 City: Port Moresby through information collected from local property Property Value: 182,805.1 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in Papua New Guinea—and the time and cost Time to No. Procedure Cost to complete complete Conduct pre-completion, title searches and municipal charges searches at the Office of the Registrar of Titles, Lands Department The Municipality uses computers and can do this procedure on the spot. The checking is made in the electronic database and also on paper (in case something has not been entered into the system). Requests can also be made by fax. 1 The Lands Department manages 2 parallel systems: it manages titles on 1 day PGK 50 paper and also has an electronic database where all operations related to a title are registered (in particular titles and encumbrances). A company search can also be made to verify that the company has not been delisted. The documents must be stamped at the Internal Revenue Commission Once the documents have been duly executed and exchanged then the documents must be stamped at the Internal Revenue Commission. Stamp duty is paid by the purchaser. 14 days 5% of property value 2 Stamp duty rates table (Stamp Duties Act 1952): Value of property less than 36,000 PGK: 2% Value of property 36,000 to 70,000 PGK: 3% Value of property 70,000 to 140,000 PGK: 4% Value of property over 140,000 PGK: 5% Documents are lodged for the approval of the Minister for Lands at the Department of Lands 35 days PGK 50 3 Once the documents have been stamped, the Division Land Doing Business 2012 Papua New Guinea 48 Time to No. Procedure Cost to complete complete management, in the 2nd floor of the Minister of lands, receives the file for approval by the Ministry of lands. This division analyses if the land rents have been fully paid, and if the conditions of the lease have been approved (for example if the agreed improvements have been made). There are no physical inspections. The minister has one delegate that signs the files in the name of the minister, and another extra delegate could also be named. The transfer and the title documents are lodged for registration with the Department of Lands (The Registrar of Titles) Following completion of the sale of the property, the transfer and the title documents (i.e. the State Lease) are lodged for registration with the Department of Lands (The Registrar of Titles). Once the employees of the Land Department verify the transaction and summarize it in a preformatted page (worksheet), the Registrar of titles will approve the transaction. This transaction will then be typed in the paper titles (both in the title that remains in the Registry and in the title 22 days PGK 100 4 kept by the owner - lessee). Since 1996, the transactions are inputted into an electronic system. This system is not accessible online. Note on the property registry: The registry uses a Torrens titling system, and is centralized for the whole country. Titles are managed in paper. There is also a computer system that records the information, but the information is not available on-line. The transfer documents are not scanned and are not included in the system. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Papua New Guinea 49 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 the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine  Has 100 employees. the scope of the secured transactions system,  Is 100% domestically owned, as is the lender. involving a secured borrower and a secured lender and examining legal restrictions on the use of The ranking on the ease of getting credit is based on movable collateral. These scenarios assume that the the percentile rankings on its component indicators: borrower: the depth of credit information index (weighted at 37.5%) and the strength of legal rights index  Is a private, limited liability company. (weighted at 62.5%).  Has its headquarters and only base of operations in the largest business city. Doing Business 2012 Papua New Guinea 50 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Papua New Guinea stands at 98 in the collateral and bankruptcy laws in Papua New Guinea ranking of 183 economies on the ease of getting credit facilitate access to credit? The economy has a score of (figure 6.1). The rankings for comparator economies 3 on the depth of credit information index and a score and the regional average ranking provide other useful of 5 on the strength of legal rights index (see the information for assessing how well regulations and summary of scoring at the end of this chapter for institutions in Papua New Guinea support lending and details). Higher scores indicate more credit information borrowing. and stronger legal rights for borrowers and lenders. Figure 6.1 How Papua New Guinea and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 Papua New Guinea 51 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how where institutions and regulations have been well the credit information system and collateral and strengthened—and where they have not (table 6.1). bankruptcy laws in Papua New Guinea support lending That can help identify where the potential for and borrowing today, data over time can help show improvement is greatest. Table 6.1 The ease of getting credit in Papua New Guinea over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 96 98 Strength of legal rights 5 5 5 5 5 5 5 5 index (0-10) Depth of credit 0 0 0 0 0 0 3 3 information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (% of adults) Private bureau 0.0 0.0 0.0 0.0 0.0 0.0 0.6 1.8 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Papua New Guinea 52 GETTING CREDIT One way to put an economy’s getting credit indicators index for Papua New Guinea in 2011 and shows the into context is to see where the economy stands in the number of other economies having the same score in distribution of scores across other economies. Figure 2011. Figure 6.3 shows the same thing for the depth of 6.2 highlights the score on the strength of legal rights credit information index. Figure 6.2 Have legal rights for borrowers and lenders Figure 6.3 Have the coverage and accessibility of credit become stronger? information grown? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2011 information index (0–6), 2011 Source: Doing Business database. Source: Doing Business database. Doing Business 2012 Papua New Guinea 53 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Papua New Guinea (table 6.2)? Table 6.2 How has Papua New Guinea made getting credit easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. Operation of a new private credit bureau improved the credit DB2011 information system in Papua New Guinea. DB2010 No reform. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Papua New Guinea 54 GETTING CREDIT What are the details? The getting credit indicators reported here for Papua The data on the legal rights of borrowers and lenders New Guinea are based on detailed information are gathered through a survey of financial lawyers and collected in that economy. The data on credit verified through analysis of laws and regulations as information sharing are collected through a survey of a well as public sources of information on collateral and public credit registry or private credit bureau (if one bankruptcy laws. For the strength of legal rights index, exists). To construct the depth of credit information a score of 1 is assigned for each of 8 aspects related to index, a score of 1 is assigned for each of 6 features of legal rights in collateral law and 2 aspects in the public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in Papua New Guinea Papua New East Asia & Indicator OECD high income Guinea Pacific Strength of legal rights index (0-10) 5 7 7 Depth of credit information index (0-6) 3 2 5 Public registry coverage (% of adults) 0.0 10.3 9.5 Private bureau coverage (% of adults) 1.8 18.1 63.9 Strength of legal rights index (0–10) Index score: 5 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend No automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an No electronic database indexed by debtor's names? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No debtor defaults outside an insolvency procedure? Doing Business 2012 Papua New Guinea 55 Strength of legal rights index (0–10) Index score: 5 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its No security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 3 bureau registry Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? No No 0 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as Yes No 1 financial institutions? Are more than 2 years of historical credit information No No 0 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect No No 0 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms 12,079 0 Number of individuals 60,924 0 Source: Doing Business database. Doing Business 2012 Papua New Guinea 56 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors’ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders’ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices  Is a publicly traded corporation listed on the economy’s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns.  Has a board of directors and a chief executive  The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law.  All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer.  Mr. James, a director and the majority  Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2012 Papua New Guinea 57 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Papua New protection index (figure 7.1). While the indicator does Guinea? The economy has a score of 6.0 on the not measure all aspects related to the protection of strength of investor protection index, with a higher minority investors, a higher ranking does indicate that score indicating stronger protections (see the an economy’s regulations offer stronger investor summary of scoring at the end of this chapter for protections against self-dealing in the areas measured. details). Globally, Papua New Guinea stands at 46 in the ranking of 183 economies on the strength of investor Figure 7.1 How Papua New Guinea and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 Papua New Guinea 58 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how the global ranking on the strength of investor well regulations in Papua New Guinea protect minority protection index over time shows whether the investors today, data over time show whether the economy is slipping behind other economies in protections have been strengthened (table 7.1). And investor protections—or surpassing them. Table 7.1 The strength of investor protections in Papua New Guinea over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 44 46 Extent of disclosure 5 5 5 5 5 5 5 index (0-10) Extent of director 5 5 5 5 5 5 5 liability index (0-10) Ease of shareholder 8 8 8 8 8 8 8 suits index (0-10) Strength of investor 6.0 6.0 6.0 6.0 6.0 6.0 6.0 protection index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Papua New Guinea 59 PROTECTING INVESTORS But the overall ranking on the strength of investor director liability and ease of shareholder suits indices protection index tells only part of the story. Economies may also be revealing (figure 7.2). Equally interesting may offer strong protections in some areas but not may be the changes over time in the regional average others. So the scores recorded over time for Papua scores for those indices. New Guinea on the extent of disclosure, extent of Figure 7.2 Have investor protections become stronger? Strength of investor protection index (0-10) Extent of disclosure index (0-10) Doing Business 2012 Papua New Guinea 60 PROTECTING INVESTORS Extent of director liability index (0-10) Ease of shareholder suits index (0-10) Note: The higher the score, the stronger the investor protections. The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Papua New Guinea 61 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in Papua New Guinea (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has Papua New Guinea strengthened investor protections—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Papua New Guinea 62 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for liability and ease of shareholder suits indices, a score is Papua New Guinea are based on detailed information assigned for each of a range of conditions relating to collected through a survey of corporate and securities disclosure, director liability and shareholder suits in a lawyers and are based on securities regulations, standard case study transaction (see the notes at the company laws and court rules of evidence. To end of this chapter). The summary below shows the construct the extent of disclosure, extent of director details underlying the scores for Papua New Guinea. Summary of scoring for the protecting investors indicators in Papua New Guinea Papua New East Asia & Indicator OECD high income Guinea Pacific Extent of disclosure index (0-10) 5 5 6 Extent of director liability index (0-10) 5 5 5 Ease of shareholder suits index (0-10) 8 6 7 Strength of investor protection index (0-10) 6.0 5.4 6.0 Score Extent of disclosure index (0-10) 5 What corporate body provides legally sufficient approval for the transaction? 1 Whether disclosure of the conflict of interest by Mr. James to the board of directors is 1 required? Whether immediate disclosure of the transaction to the public and/or shareholders is 2 required? Whether disclosure of the transaction in published periodic filings (annual reports) is 1 required? Whether an external body must review the terms of the transaction before it takes place? 0 Extent of director liability index (0-10) 5 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold members of the approving body liable for the damage that 1 the Buyer-Seller transaction causes to the company? Whether a court can void the transaction upon a successful claim by a shareholder plaintiff? 0 Doing Business 2012 Papua New Guinea 63 Score Whether Mr. James pays damages for the harm caused to the company upon a successful 1 claim by the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 1 shareholder plaintiff? Whether fines and imprisonment can be applied against Mr. James? 0 Ease of shareholder suits index (0-10) 8 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction 0 documents before filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to 1 investigate the transaction? Whether the plaintiff can obtain any documents from the defendant and witnesses during 3 trial? Whether the plaintiff can request categories of documents from the defendant without 1 identifying specific ones? Whether the plaintiff can directly question the defendant and witnesses during trial? 2 Whether the level of proof required for civil suits is lower than that of criminal cases? 1 Strength of investor protection index (0-10) 6.0 Source: Doing Business database. Notes: Extent of disclosure index (0–10) Scoring for the extent of disclosure index is based on 5 components: Which corporate body can provide legally sufficient approval for the transaction 0 = CEO or managing director alone; 1 = shareholders or board of directors vote and Mr. James can vote; 2 = board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote. Whether disclosure of the conflict of interest by Mr. James to the board of directors is required 0 = no disclosure; 1 = disclosure of the existence of a conflict without any specifics; 2 = full disclosure of all material facts. Whether immediate disclosure of the transaction to the public, the regulator or the shareholders is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Whether disclosure of the transaction in the annual report is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Doing Business 2012 Papua New Guinea 64 Whether it is required that an external body (for example, an external auditor) review the transaction before it takes place 0 = no; 1 = yes. Extent of director liability index (0–10) Scoring for the extent of director liability index is based on 7 components: Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction causes to the company 0 = suits are unavailable or available only for shareholders holding more than 10% of the company’s share capital; 1 = direct or derivative suits available for shareholders holding 10% of share capital or less. Whether shareholders can hold Mr. James liable for the damage that the transaction causes to the company 0 = Mr. James is not liable or is liable only if he acted fraudulently or in bad faith; 1 = Mr. James is liable if he influenced the approval or was negligent; 2 = Mr. James is liable if the transaction is unfair or prejudicial to the other shareholders. Whether shareholders can hold the approving body (the CEO or members of the board of directors) liable for the damage that the transaction causes to the company 0 = members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1 = liable for negligence in the approval of the transaction; 2 = liable if the transaction is unfair or prejudicial to the other shareholders. Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0 = rescission is unavailable or available only in case of Seller’s fraud or bad faith; 1 = rescission is available when the transaction is oppressive or prejudicial to the other shareholders; 2 = rescission is available when the transaction is unfair or entails a conflict of interest. Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether both fines and imprisonment can be applied against Mr. James 0 = no; 1 = yes. Ease of shareholder suits index (0–10) Scoring for the ease of shareholder suits index is based on 6 components: What range of documents is available to the plaintiff from the defendant and witnesses during trial Score of 1 for each of the following: information that the defendant has indicated he intends to rely on for his defense; information that directly proves specific facts in the plaintiff’s claim; any information relevant to the subject matter of the claim; and any information that may lead to the discovery of relevant information. Doing Business 2012 Papua New Guinea 65 Whether the plaintiff can directly examine the defendant and witnesses during trial 0 = no; 1 = yes, with prior approval by the court of the questions posed; 2 = yes, without prior approval. Whether the plaintiff can obtain categories of relevant documents from the defendant without identifying each document specifically 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital can request that a government inspector investigate the transaction without filing suit in court 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital have the right to inspect the transaction documents before filing suit 0 = no; 1 = yes. Whether the standard of proof for civil suits is lower than that for a criminal case 0 = no; 1 = yes. Strength of investor protection index (0–10) Simple average of the extent of disclosure, extent of director liability and ease of shareholder suits indices. Doing Business 2012 Papua New Guinea 66 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 2 being applied to the total tax rate. To make the Profit or corporate income tax data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2009. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded.  Taxes and mandatory contributions include  Taxes and mandatory contributions are corporate income tax, turnover tax and all measured at all levels of government. labor taxes and contributions paid by the company.  A range of standard deductions and exemptions are also recorded. 2 The threshold is defined as the highest total tax rate among the top 30% of economies in the ranking on the total tax rate. It will be calculated and adjusted on a yearly basis. The threshold is not based on any underlying theory. Instead, it is intended to mitigate the effect of very low tax rates on the ranking on the ease of paying taxes. Doing Business 2012 Papua New Guinea 67 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Papua New Guinea stands at 106 in the taxes in Papua New Guinea—and how much do firms ranking of 183 economies on the ease of paying taxes pay in taxes? On average, firms make 33 tax payments (figure 8.1). The rankings for comparator economies a year, spend 194 hours a year filing, preparing and and the regional average ranking provide other useful paying taxes and pay total taxes amounting to 22.0% information for assessing the tax compliance burden of profit (see the summary at the end of this chapter for businesses in Papua New Guinea. for details). Figure 8.1 How Papua New Guinea and comparator economies rank on the ease of paying taxes Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Papua New Guinea 68 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how of the process have changed — and which have not easy (or difficult) it is to comply with tax rules in Papua (table 8.1). That can help identify where the potential New Guinea today, data over time show which aspects for easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Papua New Guinea over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 103 106 Payments (number per 33 33 33 33 33 33 33 year) Time (hours per year) 207 207 207 194 194 194 194 Total tax rate (% profit) 41.7 41.7 41.7 41.7 42.3 42.3 42.3 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the rank on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Papua New Guinea 69 PAYING TAXES Equally helpful may be the benchmarks provided by Guinea on ways to ease the administrative burden of the economies that today have the best performance tax compliance. And changes in regional averages can regionally or globally on the number of payments or show where Papua New Guinea is keeping up—and the time required to prepare and file taxes (figure 8.2). where it is falling behind. These economies may provide a model for Papua New Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2012 Papua New Guinea 70 PAYING TAXES Total tax rate (% of profit) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. The best performer globally on an indicator has implemented the most efficient practices in its tax system but is not necessarily the one with the highest ranking on the indicator. In some cases 2 or more economies share the top regional ranking on an indicator. DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Papua New Guinea 71 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Papua New Guinea (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Papua New Guinea made paying taxes easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Papua New Guinea 72 PAYING TAXES What are the details? The indicators reported here for Papua New Guinea that the company completed during the year. are based on a standard set of taxes and contributions Respondents are asked how much in taxes and that would be paid by the case study company used by mandatory contributions the business must pay and Doing Business in collecting the data (see the section in what the process is for doing so. The taxes and this chapter on what the indicators cover). Tax contributions paid are listed in the summary below, practitioners are asked to review standard financial along with the associated number of payments, time statements as well as a standard list of transactions and tax rate. Summary of tax rates and administrative burden in Papua New Guinea Papua New East Asia & Indicator OECD high income Guinea Pacific Payments (number per year) 33 25 13 Time (hours per year) 194 215 186 Profit tax (%) 22.0 16.8 15.4 Labor tax and contributions (%) 11.7 10.7 24.0 Other taxes (%) 8.6 6.9 3.2 Total tax rate (% profit) 42.3 34.5 42.7 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 153 30.0% 22 profits Employer paid - gross 12 8 8.4% 9.5 Superannuation salaries value of various NCDC land tax 1 0 unimproved 3.7 rates land value of various Land lease tax 1 0 unimproved 3.7 rates land Employer paid - Training gross 1 0 2% 2.3 tax salaries various type of Vehicle tax 1 0 0.8 rates vehicle Doing Business 2012 Papua New Guinea 73 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate included in included in Fuel tax 1 0 0.2 fuel price fuel price insurance Tax on insurance contracts 1 0 6.50% 0.1 premium withdrawals Tax on check transactions 1 0 0.01% from bank 0.1 account GST (VAT) 12 33 10.0% value added 0 not included various Stamp duty 1 0 0 small amount rates Totals 33 194 42.3 Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Papua New Guinea 74 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining all the documents (excluding tariffs) associated with exporting and Inland transport and handling importing a standard shipment of goods by ocean transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business:  Is of medium size and employs 60 people.  Do not require refrigeration or any other  Is located in the periurban area of the special environment. economy’s largest business city.  Do not require any special phytosanitary or  Is a private, limited liability company, environmental safety standards other than domestically owned, formally registered accepted international standards. and operating under commercial laws and regulations of the economy.  Are one of the economy’s leading export or import products. The traded goods:  Are transported in a dry-cargo, 20-foot full  Are not hazardous nor do they include container load. military items. Doing Business 2012 Papua New Guinea 75 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Papua New Globally, Papua New Guinea stands at 99 in the Guinea? According to data collected by Doing ranking of 183 economies on the ease of trading Business, exporting a standard container of goods across borders (figure 9.1). The rankings for requires 7 documents, takes 26 days and costs $664. comparator economies and the regional average Importing the same container of goods requires 9 ranking provide other useful information for assessing documents, takes 29 days and costs $722 (see the how easy it is for a business in Papua New Guinea to summary of procedures and documents at the end of export and import goods. this chapter for details). Figure 9.1 How Papua New Guinea and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2012 Papua New Guinea 76 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how the process have changed—and which have not (table easy (or difficult) it is to export or import in Papua New 9.1). That can help identify where the potential for Guinea today, data over time show which aspects of improvement is greatest. Table 9.1 The ease of trading across borders in Papua New Guinea over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 99 99 Documents to export 7 7 7 7 7 7 7 (number) Time to export (days) 26 26 26 26 26 26 26 Cost to export (US$ per 584 584 584 664 664 664 664 container) Documents to import 9 9 9 9 9 9 9 (number) Time to import (days) 29 29 29 29 29 29 29 Cost to import (US$ per 642 642 642 722 722 722 722 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Equally helpful may be the benchmarks provided by Guinea on ways to improve the ease of trading across the economies that today have the best performance borders. And changes in regional averages can show regionally or globally on the documents, time or cost where Papua New Guinea is keeping up—and where it required to export or import (figure 9.2). These is falling behind. economies may provide a model for Papua New Doing Business 2012 Papua New Guinea 77 TRADING ACROSS BORDERS Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2012 Papua New Guinea 78 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2012 Papua New Guinea 79 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Papua New Guinea 80 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 tools to facilitate trade—including single windows, Business recorded in Papua New Guinea (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has Papua New Guinea made trading across borders easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Papua New Guinea 81 TRADING ACROSS BORDERS What are the details? The indicators reported here for Papua New Guinea freight forwarders, shipping lines, customs brokers, are based on a set of specific procedural requirements port officials and banks. The procedural requirements, for trading a standard shipment of goods by ocean and the associated time and cost, for exporting and transport (see the section in this chapter on what the importing a standard shipment of goods are listed in indicators cover). Information on the procedures as the summary below, along with the required well as the required documents and the time and cost documents. to complete each procedure is collected from local Summary of procedures and documents for trading across borders in Papua New Guinea Papua New East Asia & Indicator OECD high income Guinea Pacific Documents to export (number) 7 6 4 Time to export (days) 26 22 10 Cost to export (US$ per container) 664 906 1,032 Documents to import (number) 9 7 5 Time to import (days) 29 23 11 Cost to import (US$ per container) 722 954 1,085 Procedures to export Time (days) Cost (US$) Documents preparation 13 218 Customs clearance and technical control 4 58 Ports and terminal handling 3 174 Inland transportation and handling 6 214 Totals 26 664 Procedures to import Time (days) Cost (US$) Documents preparation 19 218 Customs clearance and technical control 4 57 Ports and terminal handling 4 233 Inland transportation and handling 2 214 Totals 29 722 Doing Business 2012 Papua New Guinea 82 TRADING ACROSS BORDERS Documents to export Documents to import Bill of lading Bill of lading Customs export declaration Cargo release order Commercial Invoice Commercial invoice Foreign exchange authorization Customs import declaration Packing list Foreign exchange authorization Tax certificate Inspection report Terminal handling receipts Packing list Tax certificate Terminal handling receipts Doing Business 2012 Papua New Guinea 83 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs, including expert fees assumptions about the case: Enforcement costs  The seller and buyer are located in the economy’s largest business city.  The buyer orders custom-made goods,  The dispute on the quality of the goods then fails to pay. requires an expert opinion.  The seller sues the buyer before a  The judge decides in favor of the seller; there competent court. is no appeal.  The value of the claim is 200% of income  The seller enforces the judgment through a per capita. public sale of the buyer’s movable assets.  The seller requests a pretrial attachment to secure the claim. Doing Business 2012 Papua New Guinea 84 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Papua New Guinea stands at 163 in the dispute through the courts in Papua New Guinea? ranking of 183 economies on the ease of enforcing According to data collected by Doing Business, contracts (figure 10.1). The rankings for comparator enforcing a contract requires 42 procedures, takes 591 economies and the regional average ranking provide days and costs 110.3% of the value of the claim (see other useful benchmarks for assessing the efficiency of the summary at the end of this chapter for details). contract enforcement in Papua New Guinea. Figure 10.1 How Papua New Guinea and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2012 Papua New Guinea 85 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how over time help identify which areas have changed and easy (or difficult) it is to enforce a contract in Papua where the potential for improvement is greatest (table New Guinea today, data on the underlying indicators 10.1). Table 10.1 The ease of enforcing contracts in Papua New Guinea over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 164 163 Time (days) 591 591 591 591 591 591 591 591 591 Cost (% of claim) 110.3 110.3 110.3 110.3 110.3 110.3 110.3 110.3 110.3 Procedures (number) 43 43 43 43 43 43 42 42 42 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Papua New Guinea 86 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by for Papua New Guinea on ways to improve the the economies that today have the best performance efficiency of contract enforcement. And changes in regionally or globally on the number of steps, time or regional averages can show where Papua New Guinea cost required to enforce a contract through the courts is keeping up—and where it is falling behind. (figure 10.2). These economies may provide a model Figure 10.2 Has enforcing contracts become easier over time? Procedures (number) Time (days) Doing Business 2012 Papua New Guinea 87 ENFORCING CONTRACTS Cost (% of claim) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Papua New Guinea 88 ENFORCING CONTRACTS Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in Papua New Guinea introducing new technology. Lower-income economies (table 10.2)? often work on reducing backlogs by introducing Table 10.2 How has Papua New Guinea made enforcing contracts easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. The specialized commercial track at the National Court of DB2010 Papua New Guinea—introduced in 2007—has become fully operational, improving contract enforcement. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Papua New Guinea 89 ENFORCING CONTRACTS What are the details? The indicators reported here for Papua New Guinea other court regulations, as well as through surveys are based on a set of specific procedural steps completed by local litigation lawyers (and, in a quarter required to resolve a standardized commercial dispute of the economies covered by Doing Business, by through the courts (see the section in this chapter on judges as well). The procedures for resolving a what the indicators cover). These procedures, and the commercial lawsuit, and the associated time and cost, time and cost of completing them, are identified are listed in the summary below. through study of the codes of civil procedure and Summary of procedures for enforcing a contract in Papua New Guinea—and the time and cost Papua New East Asia & Indicator OECD high income Guinea Pacific Time (days) 591 518.71 518.03 Filing and service 30 Trial and judgment 381 Enforcement of judgment 180 Cost (% of claim) 110.3 47.79 19.71 Attorney cost (% of claim) 82.8 Court cost (% of claim) 11 Enforcement Cost (% of claim) 16.5 Procedures (number) 42 36.75 31.42 Source: Doing Business database. Doing Business 2012 Papua New Guinea 90 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 Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be business and the case. It assumes that the recovered company:  Is a domestically owned, limited liability company operating a hotel.  Has 201 employees, 1 main secured creditor  Operates in the economy’s largest business and 50 unsecured creditors. city.  Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2012 Papua New Guinea 91 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses Globally, Papua New Guinea stands at 116 in the characterize the top-performing economies. How ranking of 183 economies on the ease of resolving efficient are insolvency proceedings in Papua New insolvency (figure 11.1). The rankings for comparator Guinea? According to data collected by Doing economies and the regional average ranking provide Business, resolving insolvency takes 3.0 years on other useful benchmarks for assessing the efficiency of average and costs 23% of the debtor’s estate. The insolvency proceedings in Papua New Guinea. average recovery rate is 23.7 cents on the dollar. Figure 11.1 How Papua New Guinea and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2012 Papua New Guinea 92 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the efficiency has changed—and where it has not (table efficiency of insolvency proceedings in Papua New 11.1). That can help identify where the potential for Guinea today, data over time show where the improvement is greatest. Table 11.1 The ease of resolving insolvency in Papua New Guinea over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 114 116 Time (years) 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Cost (% of estate) 23 23 23 23 23 23 23 23 23 Recovery rate (cents on 21.8 22.0 22.0 23.7 23.9 24.7 24.7 23.9 23.7 the dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2012 Papua New Guinea 93 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by Guinea on ways to improve the efficiency of insolvency the economies that today have the best performance proceedings. And changes in regional averages can regionally or globally on the time or cost of insolvency show where Papua New Guinea is keeping up—and proceedings or on the recovery rate (figure 11.2). where it is falling behind. These economies may provide a model for Papua New Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2012 Papua New Guinea 94 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Papua New Guinea 95 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Papua New Guinea (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Papua New Guinea made resolving insolvency easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. 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. Source: Doing Business database. Doing Business 2012 Papua New Guinea 96 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income (GNI) per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2012 reports 2010 income per capita property. Second, they gauge the time and cost of as published in the World Bank’s World Development achieving a regulatory goal or complying with Indicators 2011. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2010 GNI in contract, go through bankruptcy or trade across U.S. dollars is used as the denominator. Data were borders. Third, they measure the extent of legal not available from the World Bank for Afghanistan; protections of property, for example, the protections Australia; The Bahamas; Bahrain; Brunei Darussalam; of investors against looting by company directors or Canada; Cyprus; Djibouti; the Islamic Republic of the range of assets that can be used as collateral Iran; Kuwait; New Zealand; Oman; Puerto Rico according to secured transactions laws. Fourth, a set of (territory of the United States); Qatar; Saudi Arabia; indicators documents the tax burden on businesses. Suriname; Taiwan, China; the United Arab Emirates; Finally, a set of data covers different aspects of West Bank and Gaza; and the Republic of Yemen. In employment regulation. these cases GDP or GNP per capita data and growth rates from the International Monetary Fund’s World The data for all sets of indicators in Doing Business Economic Outlook database and the Economist 3 2012 are for June 2011. Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and income group classifications, available at The Doing Business data are collected in a http://www.worldbank.org/data/countryclass. The standardized way. To start, the Doing Business team, World Bank does not assign regional classifications with academic advisers, designs a questionnaire. The to high-income economies. For the purpose of the questionnaire uses a simple business case to ensure Doing Business report, high-income OECD comparability across economies and over time—with economies are assigned the ―regional‖ classification assumptions about the legal form of the business, its OECD high income. Figures and tables presenting size, its location and the nature of its operations. regional averages include economies from all Questionnaires are administered through more than income groups (low, lower middle, upper middle 9,028 local experts, including lawyers, business and high income). consultants, accountants, freight forwarders, Population government officials and other professionals routinely administering or advising on legal and regulatory Doing Business 2012 reports midyear 2010 population statistics as published in World requirements. These experts have several rounds of Development Indicators 2011. interaction with the Doing Business team, involving conference calls, written correspondence and visits by the team. For Doing Business 2012 team members The Doing Business methodology offers several visited 40 economies to verify data and recruit advantages. It is transparent, using factual information respondents. The data from questionnaires are about what laws and regulations say and allowing subjected to numerous rounds of verification, leading multiple interactions with local respondents to clarify to revisions or expansions of the information collected. potential misinterpretations of questions. Having representative samples of respondents is not an issue; 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 Papua New Guinea 97 Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business published a subnational study comparisons and benchmarks are valid across for the Philippines and a regional report for Southeast economies. Finally, the data not only highlight the Europe covering 7 economies (Albania, Bosnia and extent of specific regulatory obstacles to business but Herzegovina, Kosovo, the former Yugoslav Republic of also identify their source and point to what might be Macedonia, Moldova, Montenegro and Serbia) and 22 reformed. cities. It also published a city profile for Juba, in the Information on the methodology for each Doing Republic of South Sudan. Business topic can be found on the Doing Business The subnational studies point to differences in website at http://www.doingbusiness.org/methodology/. business regulation and its implementation—as well as in the pace of regulatory reform—across cities in the same economy. For several economies subnational Limits to what is measured studies are now periodically updated to measure The Doing Business methodology has 5 limitations that change over time or to expand geographic coverage should be considered when interpreting the data. First, to additional cities. This year that is the case for the the collected data refer to businesses in the economy’s subnational studies in the Philippines; the regional largest business city and may not be representative of report in Southeast Europe; the ongoing studies in regulation in other parts of the economy. To address Italy, Kenya and the United Arab Emirates; and the this limitation, subnational Doing Business indicators projects implemented jointly with local think tanks in were created (see the section on subnational Doing Indonesia, Mexico and the Russian Federation. Business indicators). Second, the data often focus on a Besides the subnational Doing Business indicators, specific business form—generally a limited liability Doing Business conducted a pilot study this year on company (or its legal equivalent) of a specified size— the second largest city in 3 large economies to assess and may not be representative of the regulation on within-country variations. The study collected data for other businesses, for example, sole proprietorships. Rio de Janeiro in addition to São Paulo in Brazil, for Third, transactions described in a standardized case Beijing in addition to Shanghai in China and for St. scenario refer to a specific set of issues and may not Petersburg in addition to Moscow in Russia. represent the full set of issues a business encounters. Fourth, the measures of time involve an element of judgment by the expert respondents. When sources Changes in what is measured indicate different estimates, the time indicators reported in Doing Business represent the median The methodology for 3 of the Doing Business topics values of several responses given under the was updated this year—getting credit, dealing with assumptions of the standardized case. construction permits and paying taxes. Finally, the methodology assumes that a business has First, for getting credit, the scoring of one of the 10 full information on what is required and does not components of the strength of legal rights index was waste time when completing procedures. In practice, amended to recognize additional protections of completing a procedure may take longer if the secured creditors and borrowers. Previously the business lacks information or is unable to follow up highest score of 1 was assigned if secured creditors promptly. Alternatively, the business may choose to were not subject to an automatic stay or moratorium disregard some burdensome procedures. For both on enforcement procedures when a debtor entered a reasons the time delays reported in Doing Business court-supervised reorganization procedure. Now the 2012 would differ from the recollection of highest score of 1 is also assigned if the law provides secured creditors with grounds for relief from an Doing Business 2012 Papua New Guinea 98 automatic stay or moratorium (for example, if the regulatory environment for local entrepreneurs in each movable property is in danger) or sets a time limit for economy has changed over time. the automatic stay. Ease of doing business Second, because the ease of doing business index now The ease of doing business index ranks economies includes the getting electricity indicators, procedures, from 1 to 183. For each economy the ranking is time and cost related to obtaining an electricity calculated as the simple average of the percentile connection were removed from the dealing with rankings on each of the 10 topics included in the index construction permits indicators. in Doing Business 2012: starting a business, dealing Third, a threshold has been introduced for the total tax with construction permits, registering property, getting rate for the purpose of calculating the ranking on the credit, protecting investors, paying taxes, trading ease of paying taxes. All economies with a total tax across borders, enforcing contracts, resolving rate below the threshold (which will be calculated and insolvency and, new this year, getting electricity. The adjusted on a yearly basis) will now receive the same employing workers indicators are not included in this ranking on the total tax rate indicator. The threshold is year’s aggregate ease of doing business ranking. In not based on any underlying theory. Instead, it is addition to this year’s ranking, Doing Business presents meant to emphasize the purpose of the indicator: to a comparable ranking for the previous year, adjusted highlight economies where the tax burden on business for any changes in methodology as well as additions of 4 is high relative to the tax burden in other economies. economies or topics. Giving the same ranking to all economies whose total Construction of the ease of doing business index tax rate is below the threshold avoids awarding economies in the scoring for having an unusually low Here is one example of how the ease of doing business total tax rate, often for reasons unrelated to index is constructed. In the Republic of Korea it takes 5 government policies toward enterprises. For example, procedures, 7 days and 14.6% of annual income per economies that are very small or that are rich in capita in fees to open a business. There is no minimum natural resources do not need to levy broad-based capital required. On these 4 indicators Korea ranks in th th rd taxes. the 18 , 14 , 53 and 0 percentiles. So on average st Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on Data challenges and revisions th getting credit, 25 percentile on paying taxes, 8 th th percentile on enforcing contracts, 7 percentile on Most laws and regulations underlying the Doing resolving insolvency and so on. Higher rankings Business data are available on the Doing Business indicate simpler regulation and stronger protection of website at http://www.doingbusiness.org. All the property rights. The simple average of Korea’s sample questionnaires and the details underlying the st percentile rankings on all topics is 21 . When all indicators are also published on the website. Questions economies are ordered by their average percentile on the methodology and challenges to data can be rankings, Korea stands at 8 in the aggregate ranking submitted through the website’s ―Ask a Question‖ on the ease of doing business. function at http://www.doingbusiness.org. More complex aggregation methods—such as principal components and unobserved components— Ease of doing business and distance to frontier 4 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a This year’s report presents results for 2 aggregate comparable time series since the year the relevant economy or topic measures: the aggregate ranking on the ease of doing was first included in the data set. The time series is available on the business and a new measure, the ―distance to frontier.‖ Doing Business website (http://www.doingbusiness.org). The Doing While the ease of doing business ranking compares Business report publishes yearly rankings for the year of publication as well as the previous year to shed light on year-to-year economies with one another at a point in time, the developments. Six topics and more than 50 economies have been distance to frontier measure shows how much the added since the inception of the project. Earlier rankings on the ease of doing business are therefore not comparable. Doing Business 2012 Papua New Guinea 99 yield a ranking nearly identical to the simple average Consider the example of Canada. It stands at 12 in the 5 used by Doing Business. Thus, Doing Business uses aggregate ranking on the ease of doing business. Its the simplest method: weighting all topics equally and, ranking is 3 on both starting a business and resolving within each topic, giving equal weight to each of the insolvency, and 5 on protecting investors. But its 6 topic components. ranking is only 59 on enforcing contracts, 42 on trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a Variation in performance across the indicator sets is ―no practice‖ mark. Similarly, an economy receives a not at all unusual. It reflects differences in the degree ―no practice‖ or ―not possible‖ mark if regulation exists of priority that government authorities give to but is never used in practice or if a competing particular areas of business regulation reform and the regulation prohibits such practice. Either way, a ―no ability of different government agencies to deliver practice‖ mark puts the economy at the bottom of the tangible results in their area of responsibility. ranking on the relevant indicator. Economies that improved the most across 3 or more The ease of doing business index is limited in scope. It Doing Business topics in 2010/11 does not account for an economy’s proximity to large Doing Business 2012 uses a simple method to calculate markets, the quality of its infrastructure services (other which economies improved the most in the ease of than services related to trading across borders and doing business. First, it selects the economies that in getting electricity), the strength of its financial system, 2010/11 implemented regulatory reforms making it the security of property from theft and looting, its easier to do business in 3 or more of the 10 topics macroeconomic conditions or the strength of 7 included in this year’s ease of doing business ranking. underlying institutions. Thirty economies meet this criterion: Armenia, Burkina Variability of economies’ rankings across topics Faso, Burundi, Cape Verde, the Central African Republic, Chile, Colombia, the Democratic Republic of Each indicator set measures a different aspect of the Congo, Côte d'Ivoire, The Gambia, Georgia, Korea, business regulatory environment. The rankings of an Latvia, Liberia, FYR Macedonia, Mexico, Moldova, economy can vary, sometimes significantly, across Montenegro, Morocco, Nicaragua, Oman, Peru, Russia, indicator sets. The average correlation coefficient São Tomé and Príncipe, Senegal, Sierra Leone, between the 10 indicator sets included in the Slovenia, the Solomon Islands, South Africa and aggregate ranking is 0.36, and the coefficients Ukraine. Second, Doing Business ranks these between any 2 sets of indicators range from 0.17 economies on the increase in their ranking on the ease (between protecting investors and getting electricity) of doing business from the previous year using to 0.57 (between starting a business and protecting comparable rankings. investors). These correlations suggest that economies rarely score universally well or universally badly on the Selecting the economies that implemented regulatory indicators. reforms in at least 3 topics and improved the most in the aggregate ranking is intended to highlight economies with ongoing, broad-based reform programs. 5 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to Distance to frontier measure Do It‖ (World Bank, Washington, DC, 2005). Principal components This year’s report introduces a new measure to and unobserved components methods yield a ranking nearly identical to that from the simple average method because both illustrate how the regulatory environment for local these methods assign roughly equal weights to the topics, since the businesses in each economy has changed over time. pairwise correlations among indicators do not differ much. An The distance to frontier measure illustrates the alternative to the simple average method is to give different weights distance of an economy to the ―frontier‖ and shows to the topics, depending on which are considered of more or less importance in the context of a specific economy. 6 7 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2012 Papua New Guinea 100 the extent to which the economy has closed this gap The difference between an economy’s distance to over time. The frontier is a score derived from the most frontier score in 2005 and its score in 2011 illustrates efficient practice or highest score achieved on each of the extent to which the economy has closed the gap to the component indicators in 9 Doing Business indicator the frontier over time. sets (excluding the employing workers and getting The maximum (max) and minimum (min) observed electricity indicators) by any economy since 2005. In values are computed for the 174 economies included starting a business, for example, New Zealand has in the Doing Business sample since 2005 and for all achieved the highest performance on the time (1 day), years (from 2005 to 2011). The year 2005 was chosen Canada and New Zealand on the number of as the baseline for the economy sample because it was procedures required (1), Denmark and Slovenia on the the first year in which data were available for the cost (0% of income per capita) and Australia on the majority of economies (a total of 174) and for all 9 paid-in minimum capital requirement (0% of income indicator sets included in the measure. To mitigate the per capita). effects of extreme outliers in the distributions of the Calculating the distance to frontier for each economy rescaled data (very few economies need 694 days to involves 2 main steps. First, individual indicator scores complete the procedures to start a business, but many th are normalized to a common unit. To do so, each of need 9 days), the maximum (max) is defined as the 95 the 32 component indicators y is rescaled to (y − percentile of the pooled data for all economies and all min)/(max − min), with the minimum value (min) years for each indicator. representing the frontier—the highest performance on Take Colombia, which has a score of 0.21 on the that indicator across all economies since 2005. Second, distance to frontier measure for 2011. This score for each economy the scores obtained for individual indicates that the economy is 21 percentage points indicators are aggregated through simple averaging away from the frontier constructed from the best into one distance to frontier score. An economy’s performances across all economies and all years. distance to the frontier is indicated on a scale from 0 Colombia was further from the frontier in 2005, with a to 100, where 0 represents the frontier and 100 the score of 0.43. The difference between the scores shows lowest performance. an improvement over time. Doing Business 2012 Papua New Guinea 101 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2012 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 183 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Reports http://www.doingbusiness.org/custom-query/ Access to Doing Business reports as well as subnational and regional reports, reform case Law library studies and customized economy and regional Online collection of business laws and profiles regulations relating to business and gender http://www.doingbusiness.org/reports/ issues http://www.doingbusiness.org/law-library/ Methodology http://wbl.worldbank.org/ The methodologies and research papers underlying Doing Business Contributors http://www.doingbusiness.org/methodology/ More than 9,000 specialists in 183 economies who participate in Doing Business Research http://www.doingbusiness.org/contributors/doing- Abstracts of papers on Doing Business topics business/ and related policy issues http://www.doingbusiness.org/research/ Doing Business 2012 Papua New Guinea 102