39326 DBinSonuthAsia ousi es ing s 2007 © 2007 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, D.C. 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail feedback@worldbank.org All rights reserved. 1 2 3 4 5 09 08 07 06 . 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 Group 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 Group encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Copies of Doing Business 2007: How to Reform, Doing Business in 2006: Creating Jobs, Doing Busi- ness in 2005: Removing Obstacles to Growth, and Doing Business in 2004: Understanding Regulation may be purchased at www.doingbusiness.org. Contents Doing Business in South Asia 2007 is third in a series of re- Overview 1 gional Doing Business reports. Doing Business investigates the scope and manner of regulations that enhance business activ- Country profiles ity and those that constrain it. New quantitative indicators on Afghanistan 15 business regulations and their enforcement can be compared Bangladesh 19 across the 8 countries in the region and over time, together Bhutan 25 with global best practices. Doing Business in South Asia also India 29 builds indicators for 12 cities in India, 6 in Pakistan and 4 in Maldives 37 Bangladesh. Doing Business in 2004: Understanding Regulation Nepal 41 presented indicators in 5 topics: starting a business, hiring and firing workers, enforcing contracts, getting credit and clos- Pakistan 45 ing a business. Doing Business in 2005: Removing Obstacles to Sri Lanka 52 Growth updated these measures and added another two sets: registering property and protecting investors. Doing Business Appendix I: Indicator tables 57 in 2006: Creating Jobs updates all previous measures and adds Appendix II: Data details 63 an additional three sets: dealing with licenses, paying taxes Appendix III: Rankings 93 and trading across borders, to create a total of 10 areas mea- sured. Doing Business in 2007: How to Reform again updated Data notes 95 the 10 areas measured in previous reports. The indicators are used to analyze economic outcomes and identify what reforms Acknowledgments 113 have worked, where, and why. Overview In India 8 million workers have formal jobs in the pri- insurance and pension benefits. Businesses pay taxes. vate sector--in a country of over 1 billion people and a Products are subject to quality standards. And busi- workforce of 458 million. In Pakistan, an estimated 7 nesses can more easily obtain bank credit or use courts million out of a labor force of 45 million work in the for- to resolve disputes. mal private sector. Sri Lanka has about 4 million people Many governments have taken action, in both rich working in formal jobs in the private sector--out of a and emerging economies. Twelve emerging economies, workforce of 7 million. including 3 in Eastern Europe and 5 in East Asia rank in Reform can change this, by making it easier for for- the top 30 on the ease of doing business (table 1.1). mal businesses to create more jobs. Women and young South Asian countries have further to go. None workers benefit the most. Both groups account for a make the top 30 list. The Maldives is the closest, with the large share of the unemployed. Reform also expands the highest ranking in the region at 53rd out of 175. At the reach of regulation by bringing businesses and workers other end, Afghanistan ranks 162nd. Reform is sorely into the formal sector. There, workers can have health needed. Within countries, cities vary in their performance TABLE 1.1 on the ease of doing business. Doing Business studies 4 Top 30 economies on the ease of doing business cities in Bangladesh, 12 cities in India and 6 in Pakistan. Singapore 6 Lithuania South Asia rankings In India, Hyderabad outperforms the rest. In Pakistan, 2 New Zealand 7 Estonia 53 Maldives Karachi, and in Bangladesh, Dhaka. But a big gap re- 3 United States 8 Thailand 74 Pakistan 4 Canada 9 Puerto Rico 88 Bangladesh mains between India and Pakistan's best and the ease of 5 Hong Kong, China 20 Belgium 89 Sri Lanka doing business in Bangkok or Johannesburg (appendix 6 United Kingdom 2 Germany 00 Nepal III). Typically, large business centers such as Mumbai 7 Denmark 22 Netherlands 34 India and Calcutta have a high volume of business activity, so 8 Australia 23 Korea 38 Bhutan 9 Norway 24 Latvia 62 Afghanistan regulatory bottlenecks create more congestion. Other 0 Ireland 25 Malaysia Doing Business subnational studies show a similar pat- Japan 26 Israel tern, for example in Brazil where Sao Paulo scores on the 2 Iceland 27 St. Lucia lower end of the ease of doing business. 3 Sweden 28 Chile 4 Finland 29 South Africa Good practices exist within India, Pakistan and Ban- 5 Switzerland 30 Austria gladesh. If each Indian state were to adopt the country's Note: The rankings for all economies are benchmarked to April 2006. The ease of doing busi- best practice in each of the Doing Business indicators, ness averages country rankings across the 0 topics covered in Doing Business 2007. This year's rankings are not comparable to last year's as 20 new economies have been added, India would rank 79th in the world on the ease of doing and the methodology for four topics was changed. See the Data notes for details. business instead of its current ranking at 134th. This Source: Doing Business database. means, for example, adopting Jaipur's regulations on 2 DoINg BuSINESS IN SouTH ASIA 2007 starting a business, Bhubaneshwar's rules on licensing, gia, the global leader in reforms, improved in 6 of the 10 contract enforcement and taxes, Hyderabad's property areas covered by Doing Business 2007 (table 1.2). One of regulations and Chennai's trade practices. these reforms--in starting a business--reduced start-up The same is true for Pakistan. If each Pakistani re- time from 21 to 16 days and cut minimum capital re- gion adopted Lahore's regulations on starting a business, quirements by 90%. And results were fast: registrations Peshawar's regulations on dealing with licenses, employ- jumped by 55% over the previous year. ing workers and contract enforcement and Karachi's The pace of reform was slower in South Asia in regulations on bankruptcy, taxes and property, Pakistan's 2005­06 than any other region--with only 25% of ranking would jump from 74th to 52nd on the ease of countries improving on the Doing Business indicator. doing business. And if Bangladesh adopted for example Five reforms in India and two in Pakistan reduced the Bogra's regulations on starting a business and dealing time, cost and hassle for businesses to comply with legal with licenses, Khulna's rules on contract enforcement, and administrative requirements. No other South Asian Chittagong's trade practices and Dhaka's bankruptcy economy reformed its business regulations in 2005-06. regulations, its ranking would go up from 88th to 62nd. India, as the leading reformer in South Asia, took over the top reformer spot from Pakistan, which held it in last year's report and was also among the top 20 re- Who is reforming? formers worldwide. India cut the time to start a business from 71 to 35 days and reduced the corporate income Two hundred and thirteen reforms to business regula- tax rate from 36.59% to 33.66%. A Supreme Court deci- tions--in 112 economies--were introduced between sion made enforcing collateral simpler--easing access January 2005 and April 2006. Reformers simplified busi- to credit. New risk management procedures in customs ness regulations, strengthened property rights, eased tax helped lower import time by 2 days and exports by 9 burdens, increased access to credit and reduced the cost days. And reforms to stock exchange rules toughened of exporting and importing. protections for investors. Although the reforms im- Reform is moving at a faster pace in some econo- proved India's ranking, it still ranks relatively low at mies than in others. The most reform took place in 134th--41 places after China, which is reforming at a Eastern Europe, where 89% of countries took at least one faster pace than India. step to make things easier for business (figure 1.1). Geor- Pakistan was the runner-up reformer in South Asia TABLE 1.2 The top 10 global reformers and South Asia Starting Dealing with Employing Registering Getting Protecting Paying Trading across Enforcing Closing a Economy a business licenses workers property credit investors taxes borders contracts business Georgia 3 3 3 3 3 3 Romania 3 3 3 3 3 3 Mexico 3 3 3 China 3 3 3 3 Peru 3 3 3 3 7 France 3 3 3 3 3 Croatia 3 3 3 Guatemala 3 3 3 Ghana 3 3 3 Tanzania 3 3 3 3 South Asia Region Afghanistan Bangladesh Bhutan India 3 3 3 3 3 Maldives 7 Nepal Pakistan 3 3 Sri Lanka 7 Note: Economies are ranked on the number and impact of reforms. First, Doing Business selects the economies that reformed in 3 or more of the Doing Business topics. Second, it ranks these econo- mies on the improvement in rank in the ease of doing business from the previous year. The larger the improvement, the higher the ranking as a reformer. "X" indicates a negative reform. Source: Doing Business database. oVERVIEW 3 FIGURE 1.1 Reforms can improve competitiveness, reduce Slower pace of reform in South Asia than other regions informality Countries that made at least one positive reform in 2005­06 (%) Reforms allow firms to grow faster and create jobs. An Eastern Europe & Central Asia increasing number of those jobs will be in the formal OECD economy because the benefits of being formal--such as high income easier access to credit and better utility services--often Sub-Saharan Africa outweigh the costs (such as taxes). Improving a country's Middle East & North Africa performance on the Doing Business indicators to the Latin America level of the top 30 countries is associated with a 9 per- & Caribbean East Asia centage point fall in the share of GDP accounted for by & Paci c informal activity (figure 1.2). South Asia Reform can ease the bureaucratic burden on all 0 20 40 60 80 100 businesses. By providing easy start-up requirements and strong property rights, any business will have the op- Source: Doing Business database. portunity to thrive. Better performance on the indicators measured by Doing Business is also associated with greater in 2005­06. Reforms to modernize customs reduced economic growth and lower unemployment. It also means time to import from 39 to 19 days and time to export less opportunities for corruption--as each point of con- from 33 to 24 days. Corporate tax rates fell from 39% in tact between the entrepreneur and a bureaucrat is an 2004 to 37% in 2005 and 35% in 2006. opportunity for a bribe to exchange hands. Yet good regu- Bangladesh also made progress. The Land Registra- latory performance is not a function of wealth: poorer tion Act of 2004, in force since July 1, 2005, decreased economies can--and frequently do--perform better than the property registration cost from 11% to 10.5% of the richer economies on Doing Business indicators. property value. It also introduced standardized deeds and more transparency in land transactions to stem the level of fraud in land tenure and, as a result, the level of land litigation in future years. Two countries--Sri Lanka and the Maldives--made doing business more difficult. Sri Lanka reintroduced a stamp duty and levied a new tax on profits. The Maldives now requires a mandatory two-month notice period before workers can be dismissed, a move that may especially discourage businesses from hiring poor, low- skilled and young workers. FIGURE 1.2 The ease of doing business is associated with less informality Informal sector (share of GDP) Implied cut in the informal sector from improving to the top on ease of doing business Higher 40% Implied cut 30% Implied share after cut 20% 10% Lower Least di cult Most di cult Least di cult Most di cult Countries ranked by ease of doing business, quintiles Note: Relationships are signi cant at 1% level and remain signi cant when controlling for income per capita. Source: Doing Business database, Schneider (2005), WEF (2004). 4 DoINg BuSINESS IN SouTH ASIA 2007 What to reform in South Asia 11 months, and the mandated notice from 8 to 2 weeks. This helped create 300,000 new jobs. South As a region, South Asia performs comparatively well Asian countries could also look to Armenia, Hong Kong (China), and Uruguay for examples on how to in two Doing Business areas: new business start-up and reduce severance pay for redundancy. investor protection (tables 1.3 and 1.4). It is extremely difficult to dismiss workers, however, and access to · Remove time limits on term contracts. Pakistan credit is severely limited. Trading across borders and permits term contracts for a maximum of only 9 contract enforcement are also slow and complex. Priori- months. Bhutan permits them for only 1 year. Such inflexibility in the timing and use of employees ties for reform across the region are: make labor market limits companies' ability to grow and thrive. Both regulations more flexible, ensure more efficient contract countries can look to China, Malaysia, Singapore enforcement, and facilitate trade. and New Zealand who place no limits on the dura- Making labor market regulations more flexible tion of fixed term contracts, and in so doing increase job opportunities for workers. To improve labor flexibility and help create jobs, South Asian governments can: Ensuring more efficient contract enforcement · Simplify procedures for redundancy dismissal. India, Nepal and Sri Lanka all have rigid require- Without efficient courts, less wealth is created. When ments for redundancy dismissal. If a firm cannot contracts can be enforced efficiently, businesses expand fire excess workers in times of low demand, it is their trade networks and employ more workers. Steps less likely to hire in times of high demand. This towards improving contract enforcement are: hurts both the worker and employer--with fewer · Introduce specialized commercial divisions in ex- jobs overall and less flexibility for the firm to grow. isting courts or set up specialized separate commer- Australia, Denmark and Thailand are examples of cial courts, which are associated with faster contract the many economies that have more flexible require- enforcement because judges become experts in han- ments for redundancy firing. dling commercial disputes. Although some special- · Cut the mandated notice period and the severance ized courts exist in South Asian countries, such as payment for redundancy dismissal. The notice the Money Loan Courts in Bangladesh and the Debt period for firing a worker is 13 weeks in India. Sri Recovery Tribunals in India, these courts do not Lanka requires a severance payment of 39 months deal with all types of commercial disputes that can of wages. When such tight restrictions are placed arise between businesses. Countries like Tanzania on a firm's ability to fire, that firm necessarily be- and Peru recently introduced separate commercial comes wary of hiring. While political reaction to courts and can serve as models in South Asia. suggested labor reforms can be severe, the reforms · Impose strict deadlines for the exchange of evi- work: Colombia cut severance payment from 26 to dence and give judges the authority to enforce such TABLE 1.3 Priorities for South Asia are contract enforcement, labor, and trade regulations Starting Dealing with Employing Cost Registering Getting Protecting Paying Trading across Enforcing Closing a a business licenses workers of firing property credit investors taxes borders contracts business High income: OECD 2 2 2 East Asia & Pacific 3 3 3 4 4 3 2 2 3 5 3 Eastern Europe & Central Asia 4 6 5 2 2 5 7 5 2 2 4 Latin America & Caribbean 5 2 3 5 5 3 4 5 3 6 4 5 Middle East & North Africa 6 5 4 4 3 5 7 3 4 4 3 6 South Asia 2 4 6 7 6 6 2 4 6 7 6 7 Sub-Saharan Africa 7 7 7 6 7 7 6 6 7 5 7 Source: Doing Business database. oVERVIEW 5 TABLE 1.4 Doing Business rankings of countries in South Asia Country ranking Starting Dealing withEmploying Registering Getting Protecting Paying Trading acrossEnforcing Closing a (­75) a business licenses workers property credit investors taxes borders contracts business 53 Maldives 3 9 5 72 43 60 9 83 4 74 Pakistan 54 89 26 68 65 9 40 98 63 46 88 Bangladesh 68 67 75 67 48 5 72 34 74 93 89 Sri Lanka 44 7 98 25 0 60 57 99 90 59 00 Nepal 49 27 50 25 0 60 88 36 05 95 34 India 88 55 2 0 65 33 58 39 73 33 38 Bhutan 79 45 6 4 59 8 68 50 56 5 62 Afghanistan 7 .. 74 69 74 73 30 52 65 5 Source: Doing Business database. time limits. In 2002, India amended its Code of Civil · Make document filing electronic. India is the only Procedure to allow out-of-court evidence exchange country in the region that allows for electronic filing in the High Courts. Bangladesh recently introduced of documents, and it is only partial. When Singa- a maximum number of adjournments before the pore introduced electronic filing for all documents Money Loan Courts. All countries in the region can necessary for trading, time for cargo clearance fell improve the efficiency of their courts by imposing from 4 days to 30 minutes. The number of ship- and enforcing procedural deadlines. Limiting inter- ments processed rose threefold to 32,000 a day and locutory appeals will also reduce court delays. the cost to businesses of handling trade documents · Introduce transparent and objective processes fell by a third. Mauritius and Tunisia provide similar for selecting judges to attract the best and brightest examples to learn from. to the judiciary. When judges are highly regarded, · Apply a risk assessment policy for inspections. they have the moral authority to enforce court rules. Almost 70% of cargo containers are opened and Publicizing cases of corrupt judges or other court inspected when clearing customs in South Asia. personnel, such as bailiffs, will show citizens that a In OECD countries, only 5% of imports undergo government is serious about reducing corruption. inspection. The difference is explained by risk as- In Kenya, opinion polls showed that the public ap- sessment policy. In OECD countries, a software proved of the government's prosecution of judges program calculates the probability of inspection charged with corruption. based on the profiles of the business and the freight Facilitating trade forwarders, the type of goods and their destination. This system has allowed Mexico to limit inspections Businesses engage in more trade when port and customs to 10% of shipments, Thailand to 15%, and Latvia to administration is efficient. To cut the red tape a busi- 20%, cutting trading delays. It has also increased the ness confronts when trying to import and export, South detection of smuggled goods. As part of their trade Asian countries can: reforms, India and Pakistan started implementing risk management techniques which have contrib- uted to a reduction in trading time. 6 DoINg BuSINESS IN SouTH ASIA 2007 How to reform Starting a business Globally, the top reforming economies for the past 3 When an entrepreneur draws up a business plan and years made nearly 85% of reforms in the first 15 months tries to get it underway, the first hurdles that need to be of a new government. The message: for a government overcome are the procedures required to incorporate recently elected or reelected, the time to push through and register the new firm. Cumbersome entry proce- ambitious reforms is at the start of its term. In the words dures push entrepreneurs into the informal economy, of one reformer: "Reform is like repairing a car with the where businesses pay no taxes and many of the benefits engine running--there is no time to strategize." When that regulation is supposed to provide are missing. the government succeeds in these early reforms, citizens Because reforms to make business start-up cheaper start seeing benefits--more jobs and more resources for and faster are often simple, they have attracted a lot of health and education. The appetite for further reforms attention. Forty-three countries globally eased business grows. In Georgia and Romania--the countries that entry in 2005-06. Yet India was the only South Asian have moved up fastest in the Doing Business rankings-- country to streamline start-up last year. India cut the reformers took on simultaneous reforms in several areas time to start a business from 71 days to 35 days by sim- at the start of their mandate. plifying a complex tax registration system. Previously, But few countries have the opportunity (or feel the stamp duty payment was routed through the stamp pressure) for a reform blitz. Instead, reformers must office only. Now, certain dealers have been authorized decide which reforms to tackle first. Four steps to suc- to affix stamps on most of the documents. The time for cessful reform are: start-up is now at par with China (figure 1.3). The cost · Start simple and consider administrative reform that of setting up a new company increased from 62% of in- don't need legislative changes. come per capita to 73.7% in 2005-06, largely because of · Cut unnecessary procedures, reducing the number of an increase in value added tax (VAT) registration fees. bureaucrats entrepreneurs interact with. Reforms are ongoing. In March 2006, the Indian · Introduce standard application forms and publish as Ministry of Company Affairs launched its "MCA21" much regulatory information as possible. program to computerize and link all company registra- · And remember: many of the frustrations for busi- tion offices. It will be possible in the future to incorpo- nesses come from how regulations are administered. rate an Indian company from anywhere in the world. The internet alleviates these frustrations without The implementation of the system is most advanced in changing the spirit of the regulation. Delhi. India's improvement in business start-up helped Pakistan did all these things in reforming its trade elevate the South Asia region to the second position on administration. Apart from implementing risk manage- the ease of business entry, trailing only high-income ment techniques, Pakistan also introduced a new cus- OECD countries (figure 1.4). On average, it requires toms clearance process that allows importers to file cargo FIGURE 1.3 declarations before goods arrive at the port. Now it takes Big improvements in China and India 19 days to import goods--from the conclusion of a sales Requirements for starting a business contract to the arrival of the goods at the warehouse. In 89 1104 2004 it took 39 days. Whatever reformers do, they should always ask the 73.7 question, "Who will benefit the most?" If reforms are 62.0 seen to benefit only foreign investors, or large inves- 2004 48 tors, or bureaucrats-turned-investors, they reduce the 2006 legitimacy of the government. Reforms should ease the 35 35 burden on all businesses: small and large, domestic and 15.9 213 foreign, rural and urban. This way there is no need to 9.3 NONE guess where the next boom in jobs will come from. Any China India China India China India business will have the opportunity to thrive--whether it's Time Cost Minimum capital (days) (% of income (% of income making movies in Mumbai, writing software programs per capita) per capita) in Bangalore or making surgical instruments in Sialkot. Source: Doing Business database. oVERVIEW 7 FIGURE 1.4 South Asia performs well on ease of starting a business cess, costing 973% of income per capita. In Japan, one of the easiest countries in which to build a warehouse, a South Asia High-income rankings builder need only to complete 11 procedures requiring OECD 17 Afghanistan 96 days and 20% of the average annual income to fulfill South 31 Maldives Asia all regulations. The region's best performer is the Mal- 44 Sri Lanka East Asia & 49 Nepal dives, where completing regulatory requirements takes the Paci c 54 Pakistan 10 procedures, 118 days with a cost of 40% of income Europe & 68 Bangladesh Central Asia 79 Bhutan per capita. 88 India Latin America No country in the region reformed the law and ad- & the Caribbean ministration over construction activities in 2005­06. Sri Middle East & North Africa Lanka made it slightly easier for businesses to obtain a Sub-Saharan fixed telephone line. Sri Lanka Telecom has now comput- Africa erized its records, so an inspector no longer inspects the Easy Ease of business start up Di cult company on site before installing a fixed telephone line. Source: Doing Business database. Employing workers 8 procedures and 32 days to set up a new company in South Asian countries. Only the Maldives has a legal Rigid employment regulation stifles new job creation. requirement on the minimum start-up capital. However, With it, employers choose among job candidates conser- the average cost of start-up in the region is still a lofty vatively. Some workers benefit--mostly men with years 47% of income per capita. By comparison, in OECD of experience on the job. But young, female and low- countries and Central Asia, the cost is 5% and 14% of skilled workers often lose out. In countries where labor income per capita, respectively. markets are inflexible, this lack of opportunity pushes workers into the informal sector. Labor regulations in South Asia are a matter of Dealing with licenses extremes. The region has the lowest hiring cost in the world. Social security contributions only account for Stricter licensing protects public safety and health--ex- 7% of a worker's salary. The rigidity of hours index for cept when the regulation is so burdensome that busi- South Asia is also low, at 25 in a scale from 0 to 100 nesses move to the informal economy. Doing Business (where 100 is the highest rigidity), reflecting relatively uses construction licenses as the starting point for the few restrictions on overtime and annual paid vacation. discussion of licensing because construction is among This level even surpasses that of OECD countries (an the largest sectors in every economy. Moreover, the ra- average of 45). tionale for such licensing is straightforward: well-built Firing workers is a different story. In South Asia, homes and offices save lives. firing a redundant worker costs on average 72 weeks The ease of dealing with licenses is measured by of salary (figure 1.5). In 2005 Sri Lanka was the most the number of procedures, time and cost required for expensive place in the world to dismiss workers after a typical medium-sized company to construct a 2-story Zimbabwe, Sierra Leone and Egypt. In New Zealand warehouse with an area of 1,300 square meters (14,000 and the United States, the cost of dismissing redundant square feet). On average, complying with building rules workers is zero. in South Asia is relatively straightforward. The region Procedural requirements for dismissing workers ranks just after OECD high income countries and East are also a burden. The region is ahead of only Africa on Asia. It takes on average 16 procedures, 226 days and the difficulty of firing index. India, Nepal and Sri Lanka costs 375% of income per capita to obtain all the re- impose the most restrictions, requiring a host of notifi- quired building permits. cations and approvals to fire. Nevertheless there is room for improvement in most countries. Within the region, complying with building requirements takes the most time in Nepal--a builder needs 424 days. Pakistan has the most expensive pro- 8 DoINg BuSINESS IN SouTH ASIA 2007 Registering property Getting credit Property registries were first developed to raise tax rev- Access to credit is consistently rated by firms as one enue. Defining and publicizing property rights through of the greatest barriers to operating and growth. Small registries has proven good for entrepreneurs as well. businesses are constrained the most. Businesses get bet- Land and construction account for between half and ter access to loans and more favorable terms of credit three-quarters of the wealth in any economy. Securing when creditors and borrowers have stronger legal rights rights to this property strengthens incentives to invest and information on credit histories is available. But in and facilitates trade. And with formal property titles, most poor countries, credit registries and effective col- entrepreneurs can obtain mortgages on their homes or lateral laws are lacking. Banks make fewer loans. land and start businesses. But when registering property Compared with other regions, South Asia falls be- is cumbersome, ownership slips back to informal. hind in both the availability of credit information and It takes 8 procedures, 425 days to register property the legal rights of borrowers and lenders. The average in Bangladesh and 252 days in Afghanistan, but only 1 performance on the index of credit information is only day in Norway and 2 days in Sweden. South Asia fares 2 out of a 0-6 scale, second worst in the world behind poorly in terms of ease of registering property, scor- Africa. Credit registries (both public and private) cover ing only higher than Africa and Latin America among only 1% of the adult population on average, the lowest regions. The average time for completing a property in the world, compared with an average of 69% and 35% transfer is 118 days, compared with 32 days in OECD in OECD countries and Latin America, respectively countries and 86 days in the East Asia and Pacific region. (table 1.5). South Asian countries did not implement any The cost is also high, at 5% of the value of property, com- changes that improved their scores on the credit infor- pared with 4% in East Asia. Nepal boasts the simplest mation indicators in 2005-06. property system in the region, with property registration The collateral and bankruptcy laws of most South taking 3 procedures, 5 days and costing 6% of property Asian countries do not effectively protect the legal rights value. But the value of registration remains low because of borrowers and lenders. The Doing Business legal rights of numerous title disputes. index measures how well laws facilitate access to credit, Bangladesh was the only South Asian country that including whether they allow all assets to be used as col- made progress in property registration in 2005­06, lateral, provide for a unified registry of security interests, cutting its registration fee from 11% to 10.5% of the and permit out-of-court enforcement of loan agree- property value. A new registration act introduced stan- ments. Out of the 10 criteria in the index, Afghanistan dardized deeds and greater transparency in land trans- scores 0, making it the worst performer in this indicator actions, with a goal of reducing corruption. globally. The region's average is 3.8, also the lowest in the world. FIGURE 1.5 High ring cost in South Asia Cost of ring (weekly wages) Europe & South Asia Central Asia 26 Sri Lanka 178 High-income Bhutan OECD 31 95 East Asia & Pakistan 90 the Paci c 42 Nepal 90 Middle East & India 56 North Africa 57 Bangladesh 51 Latin America & the Caribbean 59 Maldives 9 Sub-Saharan Afghanistan 4 Africa 71 South Asia 72 Source: Doing Business database. oVERVIEW 9 TABLE 1.5 it takes place. The CEO or managing director alone can Poor coverage of credit information in South Asia Public registry Private bureau provide legally sufficient approval for the transaction. coverage coverage Other countries in the region only require directors to (% of adults) (% of adults) disclose such transactions in the annual report--long Afghanistan 0 0 after the possible damage is done. In Afghanistan and Bangladesh 0.6 0 Nepal, it is difficult to hold directors liable for the dam- Bhutan 0 0 ages caused by the related-party transaction unless there India 0 6. is evidence of fraud or bad faith. Maldives 0 0 The payoff for protecting investors is large. India, Nepal 0 0. Pakistan 0.3 . with the most developed stock markets in the region, is Sri Lanka 0 3. taking action. In 2005-06 India continued the corporate Source: Doing Business database. governance reforms it started last year. As of January 2006, India's listed companies must comply with new Once the type of security is agreed on, lenders want standards. This includes having more independent di- to check for existing rights to the collateral. The best way rectors on the companies' boards and audit committees, is with a collateral registry. Collateral registries are most a code of conduct for board members, more responsibili- effective when they are unified by region and cover all ties for audit committees and mandatory certification by types of assets. In South Asia, although most countries the CEO and COO of a company's financial statements. have some type of collateral registry, restrictions on their Nepal has strong investor protection provisions on coverage of firms and types of assets limit their value. the books, but these are rarely invoked and equity mar- The good news is that countries are acting. India's kets are nascent. In 2005, Nepal made its laws stronger Supreme Court recently upheld the right of banks to but at the same time included a provision stating that the take possession of collateral without court involvement. protections for investors do not apply to transactions that A simple notice to the debtor is now sufficient to obtain are part of the "company's ordinary course of business." payment in at least half of defaults. The reform also in- In practice, directors can avoid all the stronger investor troduced time limits on initial judgments and appeals protections in the new law by claiming the transaction is in collateral enforcement cases. Under the amended a part of the company's ordinary course of business. Enforcement of Security Interest and Recovery of Debt Law, the Debt Recovery Tribunals are now required to decide appeals within 60 days. Paying taxes Taxes are essential. Without them, there would be no Protecting investors money to build schools, hospitals, courts, roads, airports or other public infrastructure that helps businesses and Protection of investors is crucial to entrepreneurship society be more productive and better off. and investment. In countries with higher risk of expro- Still, there are good ways and bad ways to collect priation by corporate insiders, investment as a share of taxes. In Hong Kong (China), all the taxes a medium- GDP is half that in countries with good investor protec- size business needs to pay each year is 1 income tax and tion. Stock markets are smaller and underdeveloped. 1 fuel tax totaling 29% of commercial profits (i.e. sales On average South Asia scores relatively well on the less materials and labor costs). It takes 4 annual elec- strength of investor protection index, trailing as a region tronic filings and 80 hours to comply with tax require- only the OECD and East Asia. Except in Afghanistan ments. However, a medium-sized business in India has and Bhutan, which are far from having vibrant equity to make 59 tax payments totaling 81% of commercial markets, countries in the region give shareholders strong profits. A Bangladeshi firm needs to make 17 payments, powers to challenge transactions involving conflicts of but the whole process takes 400 hours. interest. However, the region has a low score in the ex- On average South Asia has a relatively simple tax tent of disclosure index--4 out of a 0-10 scale. Afghani- system compared to other regions in the world. Com- stan and the Maldives require no disclosure on "related- panies make an average of 30 tax payments each year party" transactions at all, not even in the annual report; (figure 1.6). The average total tax payment amounts to and no external auditor reviews the transaction before about 45% of commercial profits, lower than Africa, 0 DoINg BuSINESS IN SouTH ASIA 2007 FIGURE 1.6 Relatively few tax payments per year in South Asia in the world. The cost to import and export goods is only Number of annual tax payments higher in Africa and Eastern Europe and Central Asia. South Asia More cargo traded is inspected in South Asia than in any 1 Maldives High-income other region, leading to significant delays (table 1.6). Every OECD 15.3 2 Afghanistan 17 Bangladesh container is opened in Nepal and Sri Lanka. Contrast this Middle East & 19 Bhutan North Africa 28.9 35 Nepal with OECD countries, where 5% of imports undergo East Asia & 47 Pakistan inspection. Three countries--Afghanistan, Bangladesh the Paci c 29.8 59 India and Bhutan--require both import and export licenses for South 61 Sri Lanka Asia 30.1 shipments. Sri Lanka requires licenses for importing. Sub-Saharan The benefits of trade are well documented. So are Africa 41.0 some of the barriers to trade. Much attention has been Latin America & the Caribbean 41.3 given to reducing trade barriers such as tariffs and quo- Europe & tas. But regulatory hurdles can incur higher costs to Central Asia 50.0 trade than tariffs. For manufactured exports, the cost of trade transactions in developing countries--which Source: Doing Business database. includes the cost of dealing with customs and the cost of inland transport--exceeds the cost imposed by tariffs in Latin America, the OECD and Eastern Europe and the European Union and the United States. Red tape is Central Asia. Nevertheless, there is more to be done. estimated to cost more than 10% of the value of exports The time to comply with tax requirements averages 304 in developing countries. hours, compared with 202 hours in OECD countries. Contrary to popular belief, customs paperwork and These high compliance costs create incentives to evade, other red tape (often called "soft infrastructure") cause driving many firms into the underground economy, and the most delays in exporting and importing. In South do not translate to higher revenues. Asia, only one third of the delays are caused by problems Two countries in the region made it easier to pay with "hard infrastructure" such as poor port facilities taxes in 2005-06: India and Pakistan. India reduced its or roads (figure 1.7). In Sri Lanka, fulfilling pre-arrival corporate tax rate from 36.59% to 33.66%. India also documentation and customs requirements takes 23 of shifted from sales to value added taxes, which are harder the 27 days to import. In Bangladesh, 45 out of 57 days. to evade. Pakistan lowered its corporate income tax rate In 2005-06, 19 countries made it easier to trade from 39% to 37%. For the year ending on December across borders. In Pakistan, trading is now significantly 31, 2006, the corporate income tax rate will be further easier than just a year ago. Time to import dropped reduced to 35%. Pakistan also made its revenue system from 39 to 19 days. The improvement comes from a more taxpayer-friendly by introducing electronic filing new customs clearance process that allows traders to and one-stop shops for taxpayers. file cargo declarations before shipments arrive and to Sri Lanka moved in the opposite direction, reintro- pay tariffs and port fees electronically. Risk management ducing a stamp duty, raising its profit tax and levying a techniques are now used for choosing which containers new tax on profits. to inspect. A pilot run between April 2005 and January Trading across borders TABLE 1.6 Many inspections in South Asia % of import When a Bangladeshi company imports goods, it has to Region cargo inspected prepare 16 separate of documents. The whole process High income OECD 5 takes 57 days. In Afghanistan, where 70-80% of busi- East Europe & Central Asia 8 nesses import, it takes 88 days and involves 11 docu- East Asia & Pacific 3 ments to ship goods from abroad. Contrast this with the Latin America & Caribbean 5 Middle East & North Africa 63 single signature a Danish or Finnish importer needs. Sub-Saharan Africa 67 Trade in South Asia takes an average of 34 days and South Asia 69 8 documents to export, and 42 days and 13 documents to Source: Doing Business database. import, making it the second least trade-friendly region oVERVIEW FIGURE 1.7 Big delays in importing caused by red tape Time (days) Inland transportation Port and terminal handling 80 Customs and inspection Document preparation 60 40 20 GLOBAL BEST PRACTICE 0 South Asia OECD Denmark Pakistan Maldives Sri Lanka Nepal India Bhutan Bangladesh Afghanistan average average Source: Doing Business database. 2006 trained staff and the main traders. The Karachi con- must go through 38 procedures, compared with 22 pro- tainer terminal has since fully moved to the new system. cedures in OECD countries. Twenty-six percent of the Less time is also needed to export goods from Pakistan: claim's value is lost in the process, more than double the a drop from 33 days in 2004 to 24 days in 2005-06. costs in rich countries. India reformed as well: time to export decreased The majority of countries in South Asia--India, from 36 days to 27 days and time to import from 43 days Pakistan, Afghanistan and Bangladesh--are among the to 41 days. Like Pakistan, India now applies risk manage- 20 countries with the most lengthy contract enforcement ment techniques to decide which containers to inspect. process. A simple commercial case takes almost 5 years The Bangalore Customs Commissioner introduced an in Afghanistan and almost 4 years in Bangladesh and electronic payment system which allows companies to India. (figure 1.8). In Bangladesh, 46% of the claim is lost pay customs duties online. Nearly 63% of import docu- in attorneys' fees and court fees. ments and 35% of export documents have been filed Yet reforms in South Asia are slow in coming. In online since the introduction of the Electronic Data 2005­06, 18 countries reformed procedures for contract Interchange in Bangalore. enforcement. None were in South Asia. Because of long court delays, companies start to look for alternative ways to resolve their disputes. In India, mediation and arbi- Enforcing contracts FIGURE 1.8 Lengthy delays in enforcing contracts Efficient contract enforcement encourages businesses to engage with new customers. The institution that enforces Time to enforce OECD Sub Saharan South Asia a contract (days) average Africa average contracts--between debtors and creditors, suppliers and customers--is the courts. Yet in many countries around Bhutan 275 the world courts are slow, inefficient and corrupt. Com- Nepal 590 plex enforcement procedures lead business to avoid Maldives 665 courts in favor of simpler, often informal, alternatives. In developing countries, more procedures are associated Sri Lanka 837 with less--not more--fairness and impartiality in the Pakistan 880 legal system. India 1,420 Resolving commercial disputes through the courts Bangladesh 1,442 is more time consuming in South Asia than any other region. It takes 969 days on average compared with 642 Afghanistan 1,642 days in Latin America, 606 days in the Middle East and 581 days in Sub-Saharan Africa. On average, litigants Source: Doing Business database. 2 DoINg BuSINESS IN SouTH ASIA 2007 tration have become more popular in recent years. But With the new bankruptcy law that came into effec- arbitral awards still end up in court because the Indian tive in 2005, Brazil, which previously had delays as long Supreme Court gives courts large powers to annul the as India's, has more than halved the time necessary to go decisions from arbitrators. In November 2005, Pakistan through the bankruptcy process. Twelve other countries opened a mediation center in Karachi to respond to the revamped their insolvency laws during 2005-06. No need for a more efficient justice system. countries in South Asia reformed bankruptcy in 2005- 06. India continued implementing reforms to repeal the Sick Industrial Companies Act (SICA) through the Closing a business proposed Companies (Amendment) Act, 2002. SICA had previously prevented bankrupt companies from Every country needs effective procedures for closing a being liquidated. The reforms will establish bankruptcy failed business or saving a viable one that is experienc- tribunals, but they are not yet in full operation. Once ing temporary problems. Efficient bankruptcy systems the amendment comes into force, recovery rates are ex- encourage entrepreneurs to start up businesses, as easier pected to rise considerably. Pakistan and Maldives have exit means easier entry. Bottlenecks in bankruptcy cut draft laws to improve the bankruptcy process. But so far, the amount that claimants can recover, scaring away these laws have not been adopted. creditors. Bankruptcy is hopelessly inefficient in most coun- tries. Claims are eroded by long delays, high costs and by laws that either kill viable businesses or keep unviable ones alive. Creditors, workers, tax agencies and other claimants recover, on average, only 31 cents on the dollar after a bankruptcy case winds up. Sub-Saharan Africa and South Asia have the worst recovery rates in bankruptcy, averaging 18 cents and 20 cents of every dollar, respectively. The insolvency process also takes longer in South Asia than in any other region, averaging 4 years. India has the longest bankruptcy proceedings in the world. A bankruptcy case takes an average of 10 years. Only 13 cents of every dollar of debt can be recovered in the end. COUNTRYPROFILES 13 Country Profiles Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka COUNTRY PROFILES 15 COUNTRY PROFILE AFGHANISTAN The lowest ranked country overall in South Asia Ranking UNITED NEW UNITED NEW HONG KONG BEST (1) SINGAPORE CANADA JAPAN STATES ZEALAND KINGDOM ZEALAND MALDIVES CHINA DENMARK JAPAN 1 5 10 17 15 30 20 25 30 35 40 45 50 55 60 65 74 70 75 80 85 SOUTH 90 95 ASIA 100 105 RANGE 110 115 120 125 130 NO 135 Afghanistan DATA 140 152 145 151 150 155 160 162 169 174 165 170 Worst (175) 173 165 175 Ease of Starting a Dealing with Employing Registering Getting Protecting Paying Trading Enforcing Closing a doing business licenses workers property credit investors taxes across contracts business business borders Starting a business banking, insurance, foreign exchange, transportation, construction, hospitality, travel and real estate sectors. In Business registration is an area where Afghanistan is some of these sectors, there is no rationale for requiring close to global best practices. It takes only 3 procedures an additional license, and a simple business registration to fulfill all start-up requirements and the process is usu- should suffice. In others, the rationale is strong (such as ally completed within 8 days. To operate legally, an in- in the pharmaceutical industry) but considerable scope vestor may register through the Afghanistan Investment exists for streamlining the licensing process. In Afghani- Support Agency (AISA). AISA was set up in 2003 with stan, investors also often have to personally transmit the mandate of promoting investment in the country. the paperwork from office to office and wait while each Before its inception it took 28 procedures and 90 days bureaucrat works on the application. to complete start-up requirements. The creation of the AISA registration process now puts Afghanistan in 17th Employing workers place worldwide on the ease of starting a business--an improvement over 2005 when it ranked 22nd. Afghanistan ranks 74th on the ease of employing work- What to reform ers. The cost of hiring is zero, as there are no social se- curity payments or payroll taxes associated with hiring AISA is relatively new and would-be entrepreneurs a new worker. In Pakistan and India, such costs amount need to be made more aware of its services. Alternative to 12% and 17% salary respectively. The cost of firing ways to register through the previous system should be is low--an employer must only give 1 month's notice discontinued to avoid confusion and duplication. Start- when dismissing a worker. By comparison, costs of firing up costs are also relatively high in Afghanistan--67% of amount to 56 weeks' wages in India and 90 weeks' wages income per capita. Although an improvement over 2005, in Pakistan. Overall the rigidity of employment score is when costs were 75% of income per capita, they are still low at 46 out of a possible 100. well above the South Asia average of 47% of income per capita. Registration fees comprise more than 80% of What to reform the costs. Reducing these fees would place Afghanistan Although employment regulations in Afghanistan are in line with lower-cost countries such as Sri Lanka, the flexible overall, some specific rigidities dampen incen- Maldives and Pakistan, and encourage more businesses tives to create formal jobs. In particular, Afghanistan's to register formally. performance on the difficulty of hiring index, at 67 out While the general registration process was stream- of 100, is relatively high (the South Asian average is 42 lined, industry-specific start-up barriers remain. In out of 100). Term contracts are significantly restricted many sectors, investors must also obtain a license from based on the nature of the task and the length of the the ministry responsible for the industry in which it contract. Loosening these rules will encourage the cre- plans to operate, such as in the pharmaceutical, trade, ation of more formal sector jobs. Outside the scope of 16 DOINg BUSINESS IN SOUTH ASIA IN 2007 FIGURE 2.1 Registering property in Afganistan Time (days) Cost (% of property value) Procedures 300 10 1. Submit two signed copies of Circular Form to the Head of Makhzan (judge) 2. The signed Circular Form is then submitted to the Chief of Makhzan 240 8 3. Circular Form sent to Imlak (Municipal Land O ce) for certi cation Cost 4. An Imlak committee establishes the value of the land 180 6 5. The Circular Form is submitted to the local Tax Collection O ce 6. The Circular Form is submitted to the provincial Tax Collection O ce 7. Submit the Circular Form to the Human Resource Directorate 120 4 8. The completed Circular Form is submitted back to the Primary Court judge Time 9. Seller pays property taxes at a designated bank 60 2 10. Submit the completed Circular Form to the Primary Court 11. The buyer obtains a copy of the deed 0 0 1 Procedures 11 Source: Doing Business database. the Doing Business indicators--which focus on private reform in Afghanistan can be to rebuild the administra- sector employment--an important priority is to develop tion of property deeds, design effective property dispute a sound mechanism for retrenchment of workers in resolution mechanisms and implement a transparent state-owned enterprises. This is necessary to facilitate means for enforcing decisions. Reducing the complexity state-owned enterprise reform, including liquidation of the property registration process is also an important and privatization. element in securing property rights. Though land reg- istration pilot projects have been proposed in Afghani- Registering property stan, their scale will need to be substantially increased to address urgent national needs. The registration system Afghanistan ranks 169th globally in 2006 on the ease does not require sophisticated technologies--Thailand is of registering property--the same as in 2005 and well an example of best practices with paper-based registra- below the South Asian average. It takes 252 days to tion that requires only 2 procedures and 2 days. Stamp complete the 11 procedures required and costs 10% of duties and taxes should also be reduced to encourage the property value (figure 2.1). The greatest bottleneck is formal registration. Typically reductions in fees lead to in the time needed for the primary court to process the more revenues, as more properties are registered and deed, which can take up to 1 year in some cases. Such with less underreporting of property values. delays are common when courts are involved in property registration. The complexity of the procedures--requir- ing visits to different levels of the courts, the land office, Getting credit the tax collection office, the human resource directorate Afghanistan scores zero on all four Doing Business indi- and the bank--discourages formal property registra- cators on the ease of getting credit. Lenders look at the tion. borrower's credit history and collateral when extending What to reform loans. But in Afghanistan there are no credit registries to provide lenders with information on the borrower's Most private land in Afghanistan does not have a clear credit history. There is no functioning secured transac- title. Many land title records have been destroyed over tions law to allow creditors to take and enforce collateral the years, particularly during the recent conflicts in Af- effectively. And there are no functioning property reg- ghanistan. The land courts that are in charge of land ti- istries to support the use of land as collateral. Although tling and property transfer are said to be among the most discussions have been held on the possibility of estab- corrupt in Afghanistan. Reforming both land ownership lishing a basic credit bureau, none has been established. and land registration rules are urgent priorities. With- out secure property rights, businesses invest less and are constrained in getting credit. The first steps toward COUNTRY PROFILES 17 What to reform Paying taxes The government could start by creating a simple credit registry to facilitate the exchange of information on Afghanistan ranks well--in 30th place--on the ease of repayment patterns among financial institutions. Regis- paying taxes. Only two tax payments are required in a tries are inexpensive to establish--less than $2 million-- year, for corporate income tax and a business receipts and can be expanded in scope as the market develops. tax. It takes about 275 hours of work to fulfill annual tax Although land reforms will take time to implement, the requirements, compared with 400 hours in Bangladesh government can support the development of secured and 560 hours in Pakistan. The tax burden is relatively lending by introducing a collateral law for movable prop- low at 36% of profits compared to 40% in Bangladesh, erty. Small businesses typically have 70% of their assets 43% in Pakistan and 81% in India. in movable property--including equipment, inventory and accounts receivable. Access to loans will increase if What to reform Afghanistan adopts a secured transactions law that al- Although Afghanistan ranks well on the ease of paying lows all of these assets to be used as collateral provides taxes, there remains a degree of uncertainty on tax policy, for a unified registry of security interests and permits caused primarily by a lack of information. In 2005, the out-of-court enforcement of collateral agreements. government reversed its position on tax holidays offered to investors. Many new investors were lured to Afghani- Protecting investors stan with the promise of a 4- or 7-year tax holiday. Now, at least some of them have been informed that not only Afghanistan does not have an active equity market. Laws are they going to lose the tax holiday, but they also must provide none of the protections for shareholders mea- pay tax retroactively for past years. The government sured in the Doing Business protecting investors indica- has stated that the phase-out of the tax holiday is not tor--Afghanistan is ranked 173rd out of 175 economies retroactive and that only firms that did not complete the on this measure. There are no requirements for insiders formalities to receive the tax holidays in a timely man- to disclose transactions involving conflicts of interest, no ner or were promised them by unauthorized persons are penalties for managers and directors who misuse their losing them. But many firms did not understand what position, and no procedures available for shareholders the process was or who was authorized to grant them a to seek redress in cases of self-dealing. holiday. This experience illustrates the need for adequate What to reform information about policy and procedures, to counter the already substantial risk and uncertainty of doing busi- Complex minority investor protections are more ap- ness in Afghanistan. propriate for countries with stock exchanges and devel- oped markets than for countries with nascent financial institutions, such as Afghanistan. Afghanistan can ben- Trading across borders efit, however, from a baseline of simple protections for In 2004 the government passed a customs reform pack- minority investors. First, Afghanistan can adopt simple age that makes Afghanistan one of the most open econo- board approval procedures for large transactions involv- mies in the region. Among other reforms, the new law ing company insiders. This will structure the decision- simplified the tariff structure and reduced the range of making within a company and limit directors' ability to tariffs from a maximum of 150% to a range of 3 to 16%. misuse company funds. Periodic reporting to investors The average tariff rate is 5%. In addition, the Ministry on the major actions of the company would also in- of Finance with the Ministry of Commerce is imple- crease transparency of company actions. And finally, if menting a Customs Modernization Program to clarify an investor feels the company is being operated in a way roles and responsibilities among agencies and improve that inappropriately benefits the directors or manag- customs service. ers personally, that investor should be permitted to sue However, there is still much to do. Afghanistan those directors and managers for any damage caused to ranks 152nd on the ease of trading across borders, well the company. Through these three steps, Afghan law can below the South Asia average. Importing requires 88 provide visibility into company operations and redress days and 11 documents (table 2.1). Businesses report for any abuse. Such reforms will encourage investors to that customs officials continue to use wide discretion on entrust their money to Afghan companies. the valuation and inspection procedures, which leads 18 DOINg BUSINESS IN SOUTH ASIA IN 2007 Table 2.1 and reportedly endemic corruption. Consequently, busi- Long delays for importing in Afghanistan nesses do not rely on the formal judicial system. Only 3 Days Documents Cost(US$percontainer) of the 338 firms in a recent Investment Climate Survey Pakistan 19 12 1,005 Maldives 21 9 1,784 reported using the commercial courts to settle a pay- SriLanka 27 13 789 ment dispute in the past two years. Nepal 37 10 1,800 India 41 15 1,244 What to reform Bhutan 42 14 1,950 Bangladesh 57 16 1,287 Establishing fast, fair and affordable courts is a long- Afghanistan 88 11 2,100 term goal for Afghanistan. In the short term, a com- Source: Doing Businessdatabase mercial arbitration system can be introduced to resolve disputes as courts develop. But as commercial arbitra- to corruption and delays. The situation is slightly better tion is rarely faster and cheaper than the judicial process, for export which takes 66 days and 7 documents. How- it is not a long-term solution. When establishing rules ever, the cost of importing and exporting to and from of civil procedure for the developing court system, Af- Afghanistan is much higher than the average in South ghanistan can encourage efficiency by: giving judges the Asia. For example, a 20-foot container costs $2,500 to be authority to impose strict deadlines for the exchange of exported from Afghanistan. In Nepal, the second most evidence and arguments, limiting the disputed issues at a expensive South Asian country to export from, the same pre-trial conference, limiting the opportunity for parties container only costs $1,600 to export. The 2005 World to change claims and introduce counterclaims, impos- Bank Investment Climate Survey, a cross-country study ing a maximum length for arguments and sanctioning of firms, found that customs procedures in Afghanistan dilatory tactics. Summary proceedings and other types are significantly slower than among its neighbors, which of fast track procedures can be introduced to dispose further erodes the competitiveness of Afghan products. quickly of undisputed claims or claims that cannot be What to reform seriously disputed. An efficient system of enforcing judg- ments through private enforcement officers is also criti- Afghanistan can boost trade and reduce smuggling and cal to the efficiency of the entire judicial process. corruption in customs by cutting red tape in the import and export process. Large gains can be made with simple reforms, such as standardizing paperwork and eliminat- Closing a business ing unnecessary documentation. But broader reforms Afghanistan is recorded as "no practice" on the ease of are also needed. Inland transportation is another large closing a business, as there have been no bankruptcy bottleneck in the trading process, taking 15 days. Ef- cases in the country. Businesses simply close operations, ficient, safe and reliable trade corridors will significantly leaving creditors with no option other than to attempt cut delays. Trade-related standards and procedures need recovery through ordinary enforcement proceedings. to be harmonized. Finally, the institutional responsi- There is no bankruptcy law. bilities for trade, such as the division of responsibilities between the Ministries of Finance and Commerce need What to reform to be clarified. Bankruptcy law is most relevant in countries with de- veloped financial systems and where businesses have Enforcing contracts several creditors who would compete for recovery of limited funds of an insolvent firm. In poor countries, Afghanistan ranks 165th on the ease of enforcing con- reformers would do better to focus on improving fore- tracts. It takes almost five years or 1,642 days to enforce closure of secured debt outside of bankruptcy. Afghani- a commercial contract and costs 25% of the value of the stan can improve a lender's chances of recovery from an claim. It is no surprise then that businesses use mostly insolvent business by introducing a secured transactions informal mechanisms, including force, to resolve dis- law that allows for out-of-court enforcement. As a next putes. There are no formal alternative dispute resolu- step, the government can introduce a bankruptcy law to tion mechanisms such as arbitration or mediation. The handle more complex insolvencies with several claim- formal court system suffers from a lack of qualified legal ants, which may emerge as the economy develops. professionals, no method to hold judges accountable, COUNTRY PROFILES 19 COUNTRY PROFILE BANGLADESHRanked 3rd in South Asia, following the Maldives and Pakistan. Ranking UNITED NEW UNITED NEW HONG KONG BEST (1) SINGAPORE CANADA JAPAN STATES ZEALAND KINGDOM ZEALAND MALDIVES CHINA DENMARK JAPAN 1 15 5 10 15 20 25 30 35 40 45 50 68 67 48 55 60 65 Bangladesh 75 72 70 75 80 85 88 93 90 95 SOUTH 100 105 ASIA 110 115 RANGE 134 120 125 130 135 140 145 150 155 160 165 Worst (175) 167 174 170 175 Ease of Starting a Dealing with Employing Registering Getting Protecting Paying Trading Enforcing Closing a doing business licenses workers property credit investors taxes across contracts business business borders What to reform Starting a business Company registration at the Registrar of Joint Stock Entrepreneurs in Bangladesh do not need to put up any Companies takes 2 weeks compared to 3 days in Paki- minimum capital to start a business, but that is about all stan. A project is underway to automate the Registrar of the relief they get. Bangladesh has a worldwide rank of Joint Stock Companies and streamline the registration 68 on the ease of starting a business. The process requires process. This is a good opportunity to reduce registra- 8 procedures taking 37 days at a cost of 88% of income tion fees. By simplifying the registration process, admin- per capita--a decline from 94% in 2005. Within the istrative expenses can be cut. And lower registration fees region, only Bhutan and India make start-up more bur- will encourage more entrepreneurs to register their busi- densome. The greatest obstacle is cost, which is higher in nesses formally. Costs can be reduced further by making Bangladesh than in any other South Asian country. Only the use of lawyers optional, as in Pakistan and Nepal. To Nepal (where start-up costs 79% of income per capita), ensure the legality of the documents, standardized docu- Afghanistan (67%) and India (74%) are in a comparable ments can be introduced. This also makes the registrar's league. Elsewhere in the region it takes less than 22% of job easier and reduces the rejection rate of applications. income per capita to start a business (table 2.2). Further reforms can target delays. Registration with Within Bangladesh start-up takes 30 days in both tax authorities requires 2 procedures, i.e. registering with Khulna and Bogra and 37 days in Dhaka and Chittagong. the tax authority and registering for value added tax While all entrepreneurs have to complete all 8 proce- (VAT). These can be pursued simultaneously with the dures, the cost of starting a business in Bogra, Khulna longer taking 9 days. In Sri Lanka, which requires only and Chittagong (62% of income per capita in each case) one tax registration procedure, the time is 2 days. Bangla- is lower than in the capital city, Dhaka (88%). desh can speed things in other areas as well. For example, although the database of company names was computer- Table 2.2 Starting a business in South Asia ized in 2003, it still takes 5 days to verify the uniqueness Country ranked by Cost Min.capital of a name. In Pakistan, it takes only 24 hours. ease of starting a Procedures Time (%ofincomeper (%ofincomeper business (number) (days) capita) capita) Table 2.3 Subnational rankings on the ease of doing business Afghanistan 3 8 67 0 in Bangladesh Maldives 5 13 18 7 1 Dhaka SriLanka 8 50 9 0 2 Chittagong Nepal 7 31 79 0 3 Khulna Pakistan 11 24 21 0 4 Bogra Bangladesh 8 37 88 0 Note:TherankingsforallcitiesarebenchmarkedtoApril2006andreportedinAppendix Bhutan 10 62 17 0 III.Theeaseofdoingbusinessaveragesrankingsacrossthe10topicscoveredinDoing India 11 35 74 0 Business.Thisexcludesvariablessuchasmacroeconomicpolicy,qualityofinfrastructure, currencyvolatility,investorperceptions,orcrimerates. Source: Doing Businessdatabase Source: Doing Businessdatabase. 20 DOINg BUSINESS IN SOUTH ASIA IN 2007 Dealing with licenses Authority, the Rajdhani Unnayan Kartripakkha (RAJUK), and those for obtaining a power connection. Registration is only the beginning. Businesses then need Other reforms are underway and require contin- to obtain an array of permits and licenses to begin op- ued implementation. The Board of Investment recently erating--a cumbersome process in Bangladesh. As an introduced e-government processes that allow online example it takes 13 procedures and 185 days to obtain tracking of various approval requests. This has resulted the permits and licenses to build a warehouse. While in some reduction in time needed to obtain approvals. the number of procedures is comparable to the OECD The Bangladesh Export Processing Zones Authority average (14 steps), and better than the regional average (BEPZA) is introducing e-government in its work to (16 steps), the time to complete the warehouse licensing facilitate online clearances and other investor services. process (185 days) is more than a month longer than the These projects need to be sustained and replicated in OECD average of 150 days. While the cost of licensing other government agencies. Strict time limits in licensing (272% of income per capita) is almost three times the combined with a silence-is-consent rule--where the au- per capita income, and much higher than the OECD thorization is automatically given after a specific period average of 72%, it is lower than the regional average of time passes--can further reduce delays. of 376%, which includes Pakistan's cost of 973% and 606% for India. The three most burdensome steps are obtaining project clearance from the Department of En- Employing workers vironment (30 days, costing on average $400), obtaining Bangladesh scores among the best in the region and project clearance and the building permit from the City ranks 75th worldwide on the ease of employing work- Development Authority (75 days, costing $70) and ob- ers. There is no variation for all indicators of employ- taining a power connection (40 days, costing from $100 ing workers at the sub-national level because the same to $1,000 depending on the project size). national employment regulations apply throughout the Obtaining a license in Chittagong and Bogra, espe- country. The cost of hiring is zero--there are no social cially in the pre-construction period, requires more pro- security taxes or payroll taxes associated with hiring a cedures (in total 15 and 14 procedures, respectively) but new employee. By contrast, in India, Pakistan and Sri less time (150 and 146 days, respectively) compared with Lanka the cost of hiring ranges between 12 and 17% of Dhaka (13 procedures in 185 days). The cost of licensing salary. It is also relatively easy to fire a worker in Ban- in terms of percentage of income per capita is the highest gladesh. Employers are not required to obtain approval in Dhaka (272%), more than twice as much as in Chit- from a third party before dismissing one redundant tagong (128%), Khulna (104%) or Bogra (115%), mainly worker or even for collective dismissal. There is no legal because of the cost of obtaining facilities from utilities requirement to retrain or replace workers prior to dis- authorities (about $760) and a $400 fee to obtain project missal. Only 1 month's notice is required and there is clearance from the Environment Department in Dhaka. no legally mandated penalty for redundancy dismissal. What to reform Severance payments can be costly though, amounting to 47 weeks. The rigidity of hours worked is also quite low A recent World Bank Group Foreign Investment Advisory in Bangladesh. Until recently, trade union activity was Service (FIAS) review of the environmental clearance not allowed within export processing zones. The govern- process concluded that delays in the processing of envi- ment has recently enacted a law allowing limited trade ronmental clearance certificates (ECCs) can be reduced union activities in the export processing zones. by improving the capacity of inspectors and technical officers. The lack of trained staff, plus deficiencies in the What to reform legal framework and corrupt practices, also means that While by regional standards Bangladesh boasts fairly businesses often get clearance without putting in place an flexible employment laws and regulations, it could nev- adequate environmental management system. Although ertheless work to increase flexibility. Bangladesh's total all industries are required to have an ECC, a large majority firing costs, at 51 weeks' wages, are high. Decreasing the is operating without such certificates. In brief, well mean- cost of firing would make it easier for employers to hire ing businesses are harassed while the goal of environmen- workers when there is a rise demand, because employers tal protection is often unrealized. A similar review should would be less fearful of burdensome firing costs in the be conducted of the procedures at the City Development event of an economic downturn. COUNTRY PROFILES 21 Bangladesh could also benefit from loosening its the City Development Authority to transfer ownership restrictions on weekend work. Under the Factories Act of the property--which makes the registration process of 1965 if an employer wishes to have an employee work in Dhaka lengthier and costlier than in the rest of the on a weekly holiday, the employer must, first, give notice country. In the case of Bogra and Chittagong it takes 391 to an inspector of this intention and, then, display a no- days and costs 10% of property value and in Khulna it tice to the same effect in the workplace. This process can takes 373 days and costs 9% of property value, compared be simplified. The same goes for restrictions on redun- to Dhaka (425 days and 10.5% of property value). dancy. In Bangladesh an employer must send copies of redundancy notices to an inspection official. Streamlin- What to reform ing the employment process makes it simpler for busi- Reforms to make property registration easier have nesses to respond to shifts in the market, and reducing started. A Land Registration Act came into force on July bureaucracy would lower their costs of operation. 1, 2005. It will help reduce false and multiple registra- In September 2006 the government passed a new tions of land. Registration fees were also cut by 1%, al- labor law. The effects of this new law can be expected to though they remain high overall at 10.5%. A pilot project be felt in the coming year. to computerize land records has been completed in the Demra thana of the Dhaka district. Title deed require- Registering property ments are being simplified--with the title, the location of the land and the map on a single page and all other Bangladesh has a worldwide rank of 167 on the ease of documents in a backup database. The government is registering property, among the worst global rankings by moving ahead in replicating the pilot model in phases in any South Asian country on any of the Doing Business other thanas (Upa-Zillas) of the country under a public- indicators. It takes 8 procedures and 425 days to register private partnership. property. By contrast in Nepal 3 procedures are required Simple reforms can also have a big impact. Ban- and in Pakistan and India, 6. Sri Lanka also has 8 pro- gladesh can encourage formal property transactions by cedures--but the process there takes only 63 days. The further reducing the registration fees and stamp duties, cost of registering property is also high in Bangladesh, which cost 3% and 5%, respectively, of the property at 10.5% of the property value compared to a regional value. By contrast, in Pakistan the stamp duty is 3% and average of 5%. registration fee is 1% of the property value. In Sri Lanka, The longest delay is in registering the property at the there is no separate registration fee; it is subsumed municipal deed registry office, which takes between 180 within a stamp duty set at 4% of the property value. In and 540 days. The buyer may obtain a certified registra- India, while the stamp duty is 5% of property value, the tion document within a week, but obtaining the original registration fee is only 1%. Typically reductions in fees certificate may require about 6 months to 1½ years, or lead to more revenues, as more properties are registered even up to 2 years in some cases. By contrast, in Sri and with less underreporting of property values. Lanka it takes only 36 days to register at the land registry. FIGURE 2.2 In Pakistan, 38 days. In Nepal, it takes only 1 to 2 days Getting credit in Bangladesh for registration of the deed at the land revenue office and issuance of a new title certificate. Obtaining the permis- 10 6 100% 100% sion from the municipality office, the RAJUK, to transfer property ownership, one of the early steps in the process, Bangladesh 7 adds 60 days to the process in Bangladesh. Verification OECD of the record of rights from the land revenue office adds another 15 to 60 days. South Asia 2 The ease of registering property varies by city. regional average While there are seven common registration procedures throughout the country, for the land being developed 0 by City Development Authority (for instance, RAJUK's 0.6 Legal rights Credit Private Public development of model towns in Gulshan, Banani, Barid- index information bureau registry (0­10) index (0­6) coverage coverage hara, Uttara and the Nikunja Residential Area) one (% of adults) (% of adults) additional step is required--obtaining permission from Source: Doing Business database. 22 DOINg BUSINESS IN SOUTH ASIA IN 2007 Getting credit Lenders are also more likely to extend credit when they can accurately assess borrower risk. The government Bangladesh ranks 48th worldwide and ahead of the can encourage more effective sharing of credit informa- South Asian average on the ease of getting credit. There tion by: supporting the computerization of the credit reg- is no regional variation within Bangladesh. Although no istry; making available at least 2 years of historical data; private credit bureau operates, a public credit registry expanding the registry's coverage to include information functions reasonably well. Bangladesh scores 2 out of on loans under $800; and extending the credit registry 6 on the credit information index--at the same level as to cover information from microfinance institutions and Nepal but behind Pakistan, India and Sri Lanka. With non-financial institutions, such as utilities, retailers and a score of 7 out of 10, Bangladesh is the top performer trade creditors. Finally, Bangladesh can change its laws in the region on the index of legal rights for borrowers to allow private institutions to provide credit informa- and lenders, higher than the OECD average of 6 (fig- tion services. While it is unlikely that such an industry ure 2.2). This high score is in large part a result of the would immediately flourish, private credit bureaus are Money Loan Court Act of 2003. The reform significantly generally more effective at serving lenders than public sped foreclosure on collateral by introducing summary registries. Allowing them to form in Bangladesh can be proceedings and allowing credit institutions to sell col- an important element in the move from a relationship- lateral by public auction after giving due notice to the based economy to a relationship-neutral economy. defaulting debtors. In the short to medium term, access to finance for Further improvements are needed. It is estimated that small businesses can be expanded, and technical as- 6 million households in the middle category (small busi- sistance to financial institutions can help them develop nesses, and small and marginal farmers), are too poor for credit products for small businesses. Bank portfolios the formal banking sector and too rich for the traditional should be expanded outside the largest two metropolitan microfinance sector. Only 7% of one million potentially centers, which currently account for the vast majority of eligible small businesses are currently served by the bank- financial intermediation. ing sector. Private commercial banks cannot profitably serve this missing middle segment because they do not have the appropriate products and processes to reach it. Protecting investors For example, a typical application for a small business Bangladesh has a global rank of 15 on the protecting loan requires up to 29 steps, 9 meetings with the client investors indicator--the top performer in the South Asia and over 50 different documents totaling 200 pages. Such region. As the indicator examines areas governed by na- cumbersome procedures make it very expensive for banks tional legislation in Bangladesh, there are no differences to lend money to small businesses. At the same time mar- at the sub-national level. Bangladesh performs particu- gins in the private banking sector are still sufficiently high larly well in the director liability index and shareholder that banks neither have to look for new markets nor invest in developing new products and technologies. FIGURE 2.3 What to reform Protecting investors in Bangladesh Bangladesh can expand access to credit by further 10 10 10 10 improving the ease of taking and enforcing collateral. Reforms to the existing secured transactions laws can 7 7 expand the pool of assets that can be used as collateral OECD 6.7 Bangladesh to enable every physical and juridical entity to securely 6 pledge all types of assets. Moreover, enforcement of col- South Asia regional lateral requires further streamlining. The Money Loan average Court Act's reform to allow creditors to sell collateral without a trial is a great step forward. But the major bottleneck lies in cumbersome procedures for selling Disclosure Director Shareholder Investor collateral through public auctions. Allowing for private, index liability suits index protection (0­10) index (0­10) index licensed enforcement and auction agents would signifi- (0­10) (0­10) cantly speed recovery of collateral. Source: Doing Business database. COUNTRY PROFILES 23 suits index, which measure the ease with which an come tax in Bangladesh accounts for the bulk of total tax investor can take directors and controlling shareholders revenues, and at 37.5% is the highest in the region. Such to court--and win--for violations of their duties to the high rates encourage tax evasion. Revenues can be main- company. Bangladesh also scores well in the disclosure tained or even increased if the tax rate is decreased along index and the investor protection index. On all four in- with broadening the tax base. A pre-announced program dices, Bangladesh scores above the regional average and of reductions in customs duties and, especially, para- higher even than the OECD average, except on the dis- tariffs to bring Bangladesh in line with the developing closure index (figure 2.3). There were no revisions to the country average within 5 years would give industry a clear investor protection regulations between 2005 and 2006. signal and allow companies to plan their investments. What to reform Investors in Bangladesh may be able to sue directors Trading across borders quite easily, but they are unlikely to learn of the mis- Bangladesh ranks 134th on the ease of trading across management in the first place. Disclosure requirements borders, well below the regional average. It takes 16 surrounding large, related-party transactions are weak. documents and 57 days to import, the second longest Bangladesh can improve transparency by requiring im- time among the South Asian countries after Afghanistan mediate public disclosure of large transactions involving with 88 days. Exporters are relatively better off, requiring company insiders. It could also mandate external review 7 documents and 35 days, comparable to Nepal (44 days) of such transactions--either by an independent auditor and Bhutan (39 days). The key export sector--garments, or the stock exchange--shining more light on transac- which account for nearly three-fourths of exports--can tions involving conflicts of interest. clear exports much faster. Even imports meant for the garments sectors clear much faster than average. In Paying taxes Bangladesh the total cost to import totals $1,287 per container, cheaper than Afghanistan ($2,100), Nepal Bangladesh ranks 72nd worldwide on the paying taxes ($1,800) and Bhutan ($1,950), but more expensive than indicator. A typical business makes only 17 tax pay- Sri Lanka ($789) and Pakistan ($1,005), and comparable ments per year, compared with 61 in Sri Lanka, 59 in to India ($1,244). The cheapest port at which to import is India and 47 in Pakistan. However, the time needed to Dhaka, at $829 per container, while the most expensive comply with tax rules is very high, at 400 hours, com- is Bogra ($979). It is cheapest to export from Chittagong pared with 264 in India and 274 in Bhutan. At 40.3% of ($553) due to its proximity to a seaport, and the costliest commercial profits, the total tax burden is still relatively to export from Dhaka ($607). high although below the regional average of 45.1% and OECD average of 47.8%. In Nepal, for example, the total What to reform tax burden is only 32.8% of commercial profits. The government has recently taken a number of initia- What to reform tives to improve the environment for trading across bor- ders. Customs procedures were streamlined by introduc- Bangladesh needs to accelerate the implementation of ing the ASYCUDA++ system, which involves electronic reforms to simplify tax compliance. The National Board processing and tracking of files. A one-stop service was of Revenue has launched a medium-term strategy to im- introduced at the Chittagong port to facilitate port- and prove tax administration. In November 2003, the Large customs-related paperwork. However, the infrastruc- Taxpayer Unit (LTU) for income tax was restructured ture of both sea and land ports requires improvement. (taxpayer services, revenue collection, accounting, audit, Further investment in port equipment and streamlining and enforcement). It was also given the responsibil- of processes is needed, in particular on the import side. ity for collecting withholding taxes. Steps were taken Trading across borders could be made easier by first to strengthen filing and payment procedures, improve reducing documentary requirements. For instance the detection of stop-filers, increase capacity for audits and requirement for import licenses and consular certifica- introduce computerization of certain LTU operations. tion of documents originating from abroad could be And an LTU for VAT was set up in October 2004. abolished. Bangladesh could also reduce many of the The government can also encourage compliance by fees related to imports. reducing tax rates to more moderate levels. Corporate in- 24 DOINg BUSINESS IN SOUTH ASIA IN 2007 Enforcing contracts implements a courier service, imposes time limits and creates a central filing system. These pilot programs Enforcing a contract in Bangladesh is the most cum- should be extended to other courts. Enforcing contracts bersome of all countries in the region. It requires 50 can be sped further by computerizing and linking the procedures and about 4 years (1,442 days) to enforce a courts' databases. The current system of double filing contract, compared to 20 procedures and 837 days in Sri cases at the central register and at the court of original Lanka (figure 2.4). Costs amount to 46% of the claim, jurisdiction is inefficient. Developing specialization in compared to 21% in Sri Lanka. commercial disputes by training judges is also important Though there is little difference among the various for unclogging the courts. cities of Bangladesh in terms of the procedures for en- forcing contracts, Dhaka is the most expensive (46% of claim) due to the high attorney fees and takes the second Closing a business longest time (1,442 days). It is comparatively less expen- Bangladesh is in 3rd place among its South Asian coun- sive in Bogra and Khulna (about 40% of claim) due to terparts when it comes to the ease of closing a business-- lower attorney fees, but takes the longest in Bogra (1,790 after Pakistan and Sri Lanka--and 93rd place worldwide. days), due to a 4-month delay in filing the lawsuit, as op- It takes 4 years to go through bankruptcy proceedings, posed to only a week in Dhaka. significantly lower than the 10 years it takes in India. The government introduced major reforms in the But that is little comfort as global best practice is 0.4 Civil Procedure Code in 2003. Delays are showing signs years (Ireland) and regional best practice is 2 years (Sri of improvement, but the reforms have yet to give the Lanka). The cost of insolvency is 8% of the estate value desired results. Two recent reforms have improved the and the recovery rate for claimants is 25%. judicial system. The Money Loan Court Act of 2003 set While in Dhaka it takes 4 years to go through bank- up a special court to deal exclusively with loan defaults ruptcy proceedings with a cost of 8% of the estate value, exceeding 5 lakhs, prescribed time limits for granting there have been less than 60 bankruptcy cases in Chit- judgments and imposed restrictions on appeals. tagong, Khulna and Bogra in the last 20 years. Therefore What to reform these cities score "no practice" on the Doing Business closing a business indicator. Bangladeshi entrepreneurs will benefit from further implementation and extension of the current reforms. What to reform Case management pilot programs in 5 districts have Efficient bankruptcy procedures increase the amount that given judges a more active role in determining the pace creditors recover from insolvent firms. They cause credit of cases. The project cuts short the serving of notice, markets to expand and investments to rise. Bangladesh can best improve insolvency proceedings by focusing on efficient foreclosure and liquidation proceedings. Bank- FIGURE 2.4 Lengthy delays in enforcing contracts ruptcy should allow for a fast process whereby creditors can decide on the highest value procedure. The process Time to enforce OECD South Asia a contract (days) average average should also give qualified insolvency managers incentives to follow quickly the most efficient procedure. Regardless Bhutan 275 of whether a firm enters foreclosure, liquidation or reor- Nepal 590 ganization, the administrator should be able to sell the Maldives 665 business as a going concern so that the new owners keep the intrinsic value of the operating business and not just Sri Lanka 837 the assets. Bangladesh can also improve the efficiency of Pakistan 880 bankruptcy by eliminating criminal liability for managers India 1,420 who allow a company to become insolvent. Such manag- Bangladesh 1,442 ers are forbidden from entering into a corporate position Afghanistan 1,642 for almost 7 years. This discourages entrepreneurship. It also dissuades companies from starting bankruptcy pro- ceedings early enough to save the company. Source: Doing Business database. COUNTRY PROFILES 25 COUNTRY PROFILE BHUTANOnly Afghanistan ranks lower in South Asia overall Ranking UNITED NEW UNITED NEW HONG KONG BEST (1) SINGAPORE CANADA JAPAN STATES ZEALAND KINGDOM ZEALAND MALDIVES CHINA DENMARK JAPAN 1 5 10 15 20 25 41 30 35 40 56 45 50 55 60 79 68 65 70 75 80 SOUTH 85 90 ASIA 95 100 RANGE 105 110 116 115 118 120 125 Bhutan 130 135 138 140 145 145 150 155 159 150 151 160 165 Worst (175) 170 175 Ease of Starting a Dealing with Employing Registering Getting Protecting Paying Trading Enforcing Closing a doing business licenses workers property credit investors taxes across contracts business business borders Bhutan ranks 138th out of 175 countries on the ease grants authorization automatically after a specific time of doing business. While wide-ranging reforms have has lapsed, can further reduce delays and encourage been initiated in Bhutan, implementation is still far businesses to register formally. from complete. The cost of delaying reforms is high in an increasingly international competitive environment. Progress in reforming business regulations will lead to Dealing with licenses more investment, job creation and growth. Licensing is time-consuming and bureaucratic, plac- ing Bhutan at 145th position worldwide, ahead of only Starting a business India in the South Asia region. Fulfilling the licensing and permit requirements to build a warehouse takes Bhutan ranks 79th on the ease of starting a business, 26 procedures and 204 days. Bhutan fares poorly when ahead of only India in the South Asia region. No mini- compared with other South Asian countries. mum capital requirement applies and start-up cost is one of the lowest in the region, at 17% of income per capita. What to reform However, entrepreneurs have to complete 10 separate As part of its reform of business registration, the gov- procedures taking 62 days, well above the regional aver- ernment is also streamlining licensing requirements. age of 8 procedures and 33 days, and the OECD average An amendment to the Companies Act is being drafted, of 6 procedures and 17 days. existing rules and regulations consolidated and capac- What to reform ity within the Registrar of Companies strengthened. The current process is characterized by a complex set of The Department of Industries in Bhutan has begun inspections, which should be simplified through the re- reforms to simplify the registration process. The initial forms. As with business start-up, creating strict time lim- target is to cut registration time to 47 days. Currently, its for licensing and a silence-is-consent rule, whereby entrepreneurs are required to obtain clearances from the licenses are automatically approved after a set amount of police, the Department of Industries, the city council, time has passed, can further reduce licensing delays. the company registry and the Ministry of Trade. Bhutan can greatly simplify start-up by creating a single access point, by locating representatives from the different Employing workers agencies in one building where the entrepreneurs can Rigid labor markets constrain private sector growth. obtain all of these clearances in one visit. Ideally, the gov- Bhutan ranks 116th worldwide on the ease of employing ernment can set up an online registration system, which workers. Regulations governing labor markets are rudi- unites different agencies and automatically forwards mentary in Bhutan. Employment of Bhutanese nationals an application from one agency to another. Strict time falls under the Rules and Regulations on Employment limits combined with a silence-is-consent rule, which of Bhutanese Nationals in the Private Sector (1997). Al- 26 DOINg BUSINESS IN SOUTH ASIA IN 2007 though procedures for dismissing workers are relatively The government has also prepared a Labor and Em- flexible, the cost of firing in terms of advance notice ployment Act to balance the legitimate needs of work- requirements, severance payments and penalties is one ers with the promotion of private sector activity. Once of the highest, at 95 times the weekly wage. The South effective, this Act will: (i) allow Bhutanese, particularly Asian regional average stands at 72, which is more than youths, to be employed in a wider spectrum of economic double the OECD average of 31. Restrictions on term activities, (ii) allow for more flexible working hours; (iii) contracts discourage new job creation. The minimum allow night work in industries requiring round-the-clock wage officially applies only to Bhutanese public sector work scheduling; and (iv) help streamline processes and workers, with limited impact on private businesses. reduce the time required for recruiting foreign workers. Part of the inflexibility in Bhutan's labor markets can be explained by the segmented nature of the labor mar- ket: it is estimated that non-nationals represent approxi- Registering property mately 50% of total formal sector employment. Stringent Bhutan ranks 41st on the ease of registering property. It restrictions exist for recruiting foreign workers. When takes 5 procedures and 93 days to transfer ownership of permitted, recruiting foreigners entails time-consuming a property just outside urban Thimpu (figure 2.5). De- procedures. To address the duality and gaps, the govern- lays are longer than in Nepal (5 days), Pakistan (50 days), ment is developing a more flexible labor policy, includ- India (62 days) and Sri Lanka (63 days). But costs to ing laws and regulations to reduce constraints for young register property are negligible, compared to the South people--the most greatly affected by the rigid labor in- Asia average of 5% of the property value. stitutions--in finding jobs. A critical element of reform involves the parliamentary ratification of the Labor and What to reform Employment Act that aims to balance the legitimate Reforms can start by taking property registration out of needs of workers with the objective of promoting private the courts and making it a purely administrative pro- sector activity. cess. In rural Thimpu, a judge reviews and approves the What to reform application for property transfer. This causes a 30-day delay for businesses registering property. It also takes Improving the functioning of labor markets is a priority time away from the main task of judges--resolving dis- for the government. A range of reforms to streamline the putes. The buyer then makes yet another application to process for recruiting foreign workers were implemented transfer property to the Department of Survey and Land recently. In particular, an online recruitment system has Records. By contrast, in central urban Thimpu courts cut the time to obtain permits for foreign workers from are not involved in transferring property. There, the City 3 months to 3 weeks. And a one-stop service center was Corporation records property transactions and the en- established, allowing applicants to complete the formali- tire registration process takes 44 days. ties for foreign worker recruitment in one place. Delays can also be reduced by continuing the pro- FIGURE 2.5 Registering property in Bhutan Time (days) Cost (% of property value) Procedures 90 .0090 1. File at the District Court of Thimphu for verdict date hearing Cost 2. Another hearing is conducted with the parties 75 .0075 3. Final hearing 4. The buyer applies to the Department of Survey & Land Records 60 .0060 for the transfer of the names in the Registry Time 45 5. Land ownership certi cate is received .0045 30 .0030 15 .0015 0 0 1 Procedures 5 Source: Doing Business database. COUNTRY PROFILES 27 cess of computerization of titles in the Department of What to reform Survey and Land Records. The process started in the 1990s and approximately 70% of titles are now digitized. Complex minority investor protections are more appro- These efforts have sped the registration process and priate for countries with stock exchanges and developed should be completed. The City Corporation in urban markets than for countries with nascent financial institu- Thimpu can also cut delays by following the example of tions, such as Bhutan. Bhutan can benefit, however, from its rural counterpart in computerizing records. enforcing a baseline of protections for minority inves- tors. In particular, enforcement can be strengthened by Getting credit providing greater access to evidence during trial. The court procedure code currently exempts witnesses from While Bhutan's financial sector is stable, it lacks depth. having to turn over evidence relevant to the case. This Bhutan ranks 159th out of 175 on the ease of getting opens a wide loophole for defendants looking to hide credit. While the establishment of a credit information evidence of their wrongdoing. Protections in other areas, bureau has been initiated, legal rights for borrowers and either through disclosure or detailed director obligations lenders are still weak. Developing financial markets is to the company, are less effective if they ultimately can- a major challenge. There are only 2 banks and 2 non- not be enforced in court. By reforming such loopholes, bank financial institutions in Bhutan. The loan market is Bhutan can encourage investors to entrust their money thin, substantial assets are held abroad and there is little to Bhutanese companies. private and international participation in banks. The gov- ernment remains the dominant shareholder in financial institutions. Some capital controls are imposed. Financial Paying taxes reforms to strengthen provisioning requirements and Bhutan ranks 68th on the ease of paying taxes, middle of capital adequacy are underway. The interest rate spread is the range for the South Asia region. Every year entrepre- about 10%, higher than the regional average of 7%. neurs must make 19 tax payments and spend 274 hours What to reform complying with tax rules. They pay 43% of profits in taxes. Tax revenue accounts for only around 50% of total The rights of creditors to take and enforce collateral effi- revenue, with the majority of non-tax revenue stemming ciently should be strengthened. Developing depth in the from power exports to India. The tax base is narrow, but financial sector by introducing new financial products-- is expanding with growing taxation of private businesses such as credit cards and ATM machines (first introduced and the introduction of an income tax in 2002-03. The in April 2004)--is needed. Setting up more efficient pay- government provides tax incentives to promote private ment mechanisms and increasing competition by open- sector development in manufacturing, services and ing the market to new non-bank financial institutions export-oriented industries for a period of three years. will further encourage lending. Finally, building the Revenue from taxes on trade is small. capacity of the Royal Monetary Authority to supervise banks and regulate insurance companies effectively is What to reform important for financial market development. Tax administration is improving in Bhutan. The cost of generating revenue is not unduly high. For example, as Protecting investors most items are imported into Bhutan, the sales tax is mostly collected at the point of entry, lowering admin- Bhutan ranks 118th on the protecting investors index, istrative costs. Corruption in tax administration is not below the South Asia average and ahead of only Af- known to be a major problem. Further improvements ghanistan. Although transactions involving conflicts of can focus on simplifying tax compliance for business. interest must be disclosed in periodic filings, there are The number of payments and number of different taxes no requirements for insiders to immediately disclose a company has to pay can be reduced by consolidating such transactions. The procedures available for share- different types of taxes and eliminating minor taxes that holders to seek redress in cases of self-dealing are also raise little revenue but increase hassle for business. The weak, with Bhutan scoring only 4 out of 10 on the ease government can also address gaps in monitoring and the of shareholder suits measure. use of personal identification numbers. 28 DOINg BUSINESS IN SOUTH ASIA IN 2007 Trading across borders Enforcing contracts It takes 39 days and 10 documents to fulfill all proce- Bhutan ranks 56th on the ease of enforcing contracts. It dures to export goods in Bhutan. Importing is no easier, takes on average 275 days to resolve disputes through the requiring 42 days and 14 documents. Bhutan ranks courts. Bhutan's ranking on contract enforcement im- 150th on the ease of trading across borders, far from the proved since last year because of a drop in costs. While top performers in the region. court fees are negligible in Bhutan, lawyers previously Although trade administration is an obstacle, Bhu- were charging their clients exorbitantly high amounts. tan is otherwise relatively open. Bhutan has a free trad- Last year, the Bhutanese authorities took reform mea- ing regime with India, which is its main trading partner sures to limit fees that lawyers can charge. As a result, and accounts for over 90% of exports and imports. Av- today the total cost of enforcing contracts amounts to erage tariffs are about 24% and there are 7 tariff bands. 20% of the value of the claim, compared with 114% of Bhutan does not have any taxes on exports. The South the value of the claim in 2005. Asia Free Trade Agreement (SAFTA) became opera- tional in January 2006 and Bhutan is also in the process What to reform of negotiating accession to the World Trade Organiza- Establishing fast, fair and affordable courts encourages tion. Five railway routes have been identified from India trade beyond established business partnerships. To fur- to Bhutan, and with the establishment of a dry port and ther cut delays, the number of appeals allowed can be direct transshipment possibilities through India, future reduced. The judiciary can also consistently grant sum- trade policy with the rest of the world will become more mary judgment when appropriate, as is provided for in meaningful. the Code of Civil Procedure. More generally, the govern- What to reform ment needs to build judicial capacity by increasing the number judges and lawyers skilled in commercial law. Bhutan's growing membership in various trade asso- ciations is likely to open up new markets for Bhutanese products. It can expand trade even further by tackling Closing a business administrative hurdles to import and export. Trade Bhutan is recorded as "no practice" on the ease of clos- agreements are most effective when they go beyond ing a business, as there are no bankruptcy cases in the simply liberalizing tariff regimes--especially for a land- country. Although Bhutan has a bankruptcy law, it is not locked country that depends on efficient border proce- applied. On average the company registry has recorded dures of its neighbors. Bhutan can pursue various border 3 business closings per year over the last 5 years. None cooperation agreements with its neighbors, in particular have been closed through bankruptcy proceedings. In- its major trading partner India. This will avoid multiple stead businesses simply discontinue operations, leaving inspections of cargo on both sides of the border, allow- creditors with no option other than to attempt recovery ing trade to flow freely across borders. through ordinary enforcement proceedings. Bhutan can further simplify trading procedures by introducing a unified customs declaration form, What to reform consolidating several documentary requirements for Bankruptcy law is most relevant in countries with de- different government departments. Also, Bhutan could veloped financial systems and where businesses have move away from a 100% physical inspection regime to a several creditors who would compete for recovery of computerized risk management system, where less than limited funds of an insolvent firm. In poor countries, 20% of all imports are selectively targeted for inspection. reformers would do better to focus on improving fore- Finally, Bhutan can cut delays in trade by improving closure of secured debt outside of bankruptcy. Bhutan road infrastructure on the main trade corridors and can increase a lender's chances of recovering from an developing a dry port. Ongoing work on the Thimphu- insolvent business by allowing for out-of-court enforce- Phuentsholing Express Highway and improvements to ment of collateral agreements and providing creditors railway routes between Bhutan and India are positive with priority to their collateral. steps in this direction. COUNTRY PROFILES 29 COUNTRY PROFILE INDIA Ranks lowest in South Asia in three areas Ranking UNITED NEW UNITED NEW HONG KONG BEST (1) SINGAPORE CANADA JAPAN STATES ZEALAND KINGDOM ZEALAND MALDIVES CHINA DENMARK JAPAN 1 5 10 15 33 20 25 30 35 40 45 50 55 60 65 65 70 88 75 80 SOUTH 85 90 ASIA 95 100 RANGE 105 110 112 110 115 120 125 India 139 133 130 134 135 140 145 150 155 158 155 160 165 Worst (175) 173 170 175 Ease of Starting a Dealing with Employing Registering Getting Protecting Paying Trading Enforcing Closing a doing business licenses workers property credit investors taxes across contracts business business borders Starting a business average is 17 days. The number of procedures to start a Starting a business in India has become considerably eas- business in India (11 procedures) is also high compared ier over the last two years. It now takes 35 days to register with the OECD average of 7 procedures and the South a company in Mumbai, compared with 71 days a year Asia average of 8. ago and 89 days in January 2004. The improvements are Although India does not impose a minimum capital a result of computerizing the process for obtaining tax requirement, the official costs to start a business are high, registration numbers--both Personal Account Numbers at 74% of income per capita. This has risen from 62% last (PANs) and Tax Account Numbers (TANs). Addition- year following increases in VAT registration fees. Costs ally, the stamp duty can now be paid through authorized are far above global benchmarks--such as 0% of income dealers (banks) as well as through the stamp office. per capita in Denmark and 9% of income per capita in There is still room for improvement, however. India China--and are even high in comparison to the South lags behind best practices when compared with other Asia average (47%) and the East Asia average (43%). countries. Start-up takes 2 days in Australia. The OECD Although all Indian cities have sped business start- up, large sub-national variations remain. Within India FIGURE 2.6 Time and cost to start a business in India the shortest time to start a business is 35 days in Mum- bai. It takes the longest in New Delhi and Bhubaneshwar MAHARASHTRA Time (days) Cost (% of GNI per capita) Mumbai 35 73.7% (52 days). It costs the least to start a business in Bhu- TAMIL NADU baneshwar (41% of income per capita) and the most in Chennai 44.0% 41 Mumbai (74%) (figure 2.6). BIHAR Patna 44.2% 41 RAJASTHAN Jaipur 50.1% 42 UTTAR PRADESH Lucknow 43.5% 42 ANDHRA PRADESH Table 2.4 Hyderabad 44.0% 43 Subnational rankings on the ease of doing business in India KARNATAKA 1 Hyderabad 7 Chandigarh Bangalore 55.6% 45 PUNJAB 2 Bangalore 8 NewDelhi Chandigarh 48.8% 45 3 Jaipur 9 Patna JHARKHAND 4 Chennai 10 Ranchi Ranchi 59.3% 46 WEST BENGAL 5 Bhubaneshwar 11 Mumbai Calcutta 48.5% 51 6 Lucknow 12 Calcutta ORISSA 41.3% 52 Bhubaneshwar Note:TherankingsforallcitiesarebenchmarkedtoApril2006andreportedinAppendix DELHI III.Theeaseofdoingbusinessaveragesrankingsacrossthe10topicscoveredinDoing 43.6% 52 New Delhi Business.Thisexcludesvariablessuchasmacroeconomicpolicy,qualityofinfrastructure, currencyvolatility,investorperceptions,orcrimerates. Source: Doing Business database. Source: Doing Businessdatabase. 30 DOINg BUSINESS IN SOUTH ASIA IN 2007 FIGURE 2.7 Starting a business in India Time (days) Cost (% of GNI per capita) Procedures 1 Present name of company for approval to the Registrar of Companies (ROC); 35 70 get the Memorandum and Articles of Association vetted by the ROC and printed 2 Make an application to the Superintendent of Stamps or an authorized bank 30 60 requesting stamping of the Memorandum of Association and Articles of Time Association 25 50 3 Present the required documents along with the registration fee to the Registrar of Companies to get the certi cate of incorporation 20 40 4 Obtain a company seal 5 Visit the UTI Investors Services Limited to obtain a Permanent Account Number 15 30 6 Obtain a Tax Account Number for income taxes deducted at source from the Assessing O ce in the Mumbai Income Tax Department 10 20 7 Register with Mumbai Shops and Establishment Act, 1948 8 Register for value added tax (VAT) before the Sales Tax O cer of the ward 5 10 in which the company is located 9 Register for Profession tax 0 0 1 10 Register with Employees' Provident Fund Organization (EPFO) Procedures 11 11 Register with ESIC (medical insurance) Source: Doing Business database. What to reform regions. In Mumbai it takes 8 days to complete both pro- In the future, the ongoing e-governance initiative of cedures, while in New Delhi and Bhubaneshwar it takes the Ministry of Company Affairs (MCA), referred to between 15 and 20 days. This is due to variations in ef- as the MCA-21 project, will further reduce the time ficiency with which the private companies that issue the to complete all procedures for which the ministry is PANs and TANs operate in the various Indian states. responsible, such as the approval of company names, To further reduce complexity, the government can the vetting of Memorandum and Articles of Association introduce a single unique company number that a new and registration. The main goal of this project is to make business could use for company, tax and social security electronic filing available through the MCA website so registrations. As a next step, the company registry could that Indian entrepreneurs can register their companies forward the relevant registration information directly to online. Still, other steps must be completed to legally the tax administration offices, the EPFO and the ESIC. start operating a business (figure 2.7). In this way, 7 steps could be reduced to one. A big reason why it takes so long to start a business in India is the large number of separate registrations a Dealing with licenses company must complete. A new business in India must Obtaining the necessary licenses to construct a ware- register for a tax account number (TAN) and a perma- house remains extremely costly in India, at 606% of in- nent account number (PAN) and must also register to come per capita. It is also complex and time consuming, pay VAT or sales tax. The new business must, in addi- requiring 20 procedures and 270 days. India fares poorly tion, register with the Labor Department's Employees' when compared with the South Asia average of 16 proce- Provident Fund Organization (EPFO) and with the dures and 226 days, costing 375% of income per capita. Employee's State Insurance Corporation (ESIC). It must India ranks 155th in the world on the ease of licensing. furthermore complete a registration under its state's Requirements vary considerably across states. It Shops and Establishments Act. takes 159 days to fulfill all regulatory requirements to The total time to start a business varies across Indian build a warehouse in Bhubaneshwar--the shortest within cities mainly because of differences in the number of India. At the other end of the spectrum it takes 522 days days required to file with the EPFO and the ESIC and in Ranchi. The cost is lowest in Patna--277% of income under the Shops and Establishments Act. For example, per capita--and highest in Calcutta--1,999% of income the filings with the EPFO and ESIC take one or two per capita. The number of procedures is lowest in Bhu- days in Mumbai, but can take up to 30 days in New baneshwar (16) and highest in Patna and Ranchi (25). Delhi. Registration under the Shops and Establishment Act takes 2 days in Mumbai but 7 days in New Delhi. Such results show there is potential for Indian cities to learn from each other. The number of days it takes to obtain the TAN and the PAN numbers also varies across COUNTRY PROFILES 31 What to reform What to reform Reform of licensing regulations is needed at both state Reforming labor regulations is a priority for India. The and municipal levels. The procedures that cause the current rigidities impose significant costs in terms of lost greatest bottlenecks are obtaining land use approvals, jobs. Recent World Bank research measuring both de building permits, power connections, water and sewer- jure and de facto applications of the Industrial Disputes age connections and final occupancy certificates. Various Act (IDA) has shown that manufacturing value added, municipal and state-level institutions are responsible for employment and the number of factories are all lower in monitoring these steps. Among them are the city Devel- states with more restrictive labor laws. Estimates suggest opment Authority, the Municipal Corporation, the State that India failed to create almost 3 million formal manu- Electricity Distribution Company and the Water and facturing jobs due to just two clauses in the IDA--on Sewerage Board. The difference in the time and number retrenchment barriers and dispute-related regulations. of procedures required across states suggests that there The retrenchment clauses make layoffs due to changing are considerable gains to be had from adopting best market conditions costly. And they hinder the closure practices from other states. As an example, obtaining a of firms with more than 100 workers. This makes firms building permit takes nearly 120 days in Patna, 60 days more reluctant to hire in the first place. The dispute- in New Delhi and 30 days in Mumbai and Bangalore. related clauses create incentives for adjudication rather Obtaining the land use approval takes nearly 90 days in than reconciliation. The result is an overloaded disputes Ranchi, 60 days in Lucknow and Patna, 50 days in Jai- resolution system. About 533,000 labor disputes are pur and Bhubaneshwar, 45 days in Chennai, 37 days in pending, 28,000 of them for more than 10 years. Chandigarh, 30 days in New Delhi, 25 days in Bangalore Reforms should have two main goals. First, they and only 3 days in Hyderabad. should simplify regulations--with special emphasis on improving industrial relations, facilitating dispute reso- Employing workers lution and removing ambiguity. Second, reforms should reduce rigidities in labor markets. Specifically 4 main India ranks 112th worldwide on the ease of employing reforms will increase flexibility: (i) consolidating and workers. On the rigidity of hours index, India's score--at simplifying labor laws from the current 47 laws to about 20 out of 100--compares relatively well with global 4 covering the main areas of conditions of work and wel- benchmarks. Performance is somewhat worse on the fare, wages and benefits, social security and dispute reso- difficulty of hiring index (33 out of 100), due to restric- lution; (ii) modernizing the Industrial Disputes Act to tions on term contracts. But regulations make it virtually FIGURE 2.8 impossible to fire a worker, in particular for companies Time and cost to register property in India employing 100 or more employees. Those companies Time (days) Cost (% of property value) must obtain the state government's prior approval. India ANDHRA PRADESH Hyderabad 35 10.6% scores 70 out of 100 on the difficulty of firing index, rela- KARNATAKA tive to the regional averages of 38 in South Asia, 20 in Bangalore 35 11.0% East Asia and 27 for OECD countries. Firms must pay UTTAR PRADESH Lucknow 43 11.6% 56 weeks of salary in notice, severance and penalties to RAJASTHAN 56 9.9% dismiss a worker--slightly less than the South Asian re- Jaipur MAHARASHTRA gional average of 72 weeks, but more than the East Asian Mumbai 62 7.8% average of 41 weeks and the OECD average of 31 weeks. TAMIL NADU Chennai 63 10.6% India's labor regulations are also unusually com- JHARKHAND 5.6% 86 plex. There are currently 47 national laws and 157 state Ranchi regulations that directly affect labor markets. These are BIHAR Patna 119 12.8% often inconsistent and at times overlapping. As a result ORISSA Bhubaneshwar 123 13.5% it is almost impossible for firms and workers to fully un- PUNJAB 9.8% 132 derstand their rights and obligations, or for enforcement Chandigarh authorities to ensure compliance. DELHI New Delhi 10.1% 138 WEST BENGAL Calcutta 155 12.3% Source: Doing Business database. 32 DOINg BUSINESS IN SOUTH ASIA IN 2007 reduce the bias towards the adjudication of disputes and with a month in Orissa. Other states can also follow Kar- to increase flexibility in hiring and firing while still pro- nataka's efforts to simplify procedures by amending their tecting workers' rights; (iii) resolving ambiguities con- Stamp Acts. Karnataka has discontinued using stamp cerning the Contract Labor (Regulation and Abolition) paper for paying stamp duty. Instead, stamp duty is pay- Act to introduce greater flexibility; and (iv) improving able by the Demand Draft at the time of registering. the labor law enforcement and inspection system. Getting credit Registering property India ranks 65th on the ease of getting credit, with no India ranks 110th on the ease of registering property. variation across cities. On the legal rights index, which The process takes 6 procedures and 62 days, placing measures the degree to which collateral and bankruptcy India among the upper half of South Asia countries. By laws facilitate lending, India scores 5 out of 10. Within contrast it takes only 1 day in Norway, 32 in China and South Asia only Bangladesh has a higher score (7). In the 47 in Brazil. Costs are also high. Entrepreneurs must pay broader Asian region, India fares better than China (2) 8% of the property value to register a transfer of owner- but worse than Malaysia (8). On the credit information ship. On average in South Asia property registration index, which measures rules affecting the scope, access costs 5% of the property value. It is only 3% in China, and quality of credit information, India has a score of 3 and there is no cost in Saudi Arabia. out of 6--same as Sri Lanka but behind Pakistan (4 out Within India, it takes the least time to register prop- of 6). Internationally, India is in the middle of the range erty in Bangalore and Hyderabad (35 days) and the most for this index, with Brazil scoring 5 and China 4. time in New Delhi (138 days) and in Calcutta (155 days) Over the last few years several reforms have im- (figure 2.8). It costs the least in Ranchi (6% of property proved the environment for getting credit. The Credit value) and the most in Bhubaneshwar (14%). The differ- Information Bureau of India Ltd. (CIBIL), a private part- ence in time across cities is due to the different amounts nership between several commercial banks and credit of time needed in each city to mutate a property title and information service providers, has started to increase the to register the transfer at the sub-registrar. The different amount of credit information available in the country. rates of stamp duty and transfer charges account for the CIBIL's coverage has more than doubled in the last year. differences in costs. As of December 2005 it had a database of 44 million bor- What to reform rowers. Most records are on consumers, since the com- mercial bureau has only just been launched. Further, the Reducing the high rates of stamp duties is an important Credit Information Companies (Regulation) Act, 2005, step toward making property registration easier. India's has been approved by both houses of parliament and has high costs discourage formal transactions and promote received the president's assent. All that remains is the of- rampant evasion. Government revenues are lower as ficial notification for implementation. a result. And businesses turn to cumbersome and less Creditors' rights have improved after a recent Su- secure alternatives to selling property because they want preme Court decision upheld the right of banks to take to avoid paying the stamp duties that are part of legally possession of collateral without court involvement. The transferring property ownership. For example, a business backlog of cases pending before the Debt Recovery may try to lease a property long-term or work out a co- Tribunals (DRTs) was reduced in recent years. In early operative housing arrangement. The state of Maharastra 2005, the Enforcement of Security Interest and Recov- experienced a 20% jump in revenues after halving stamp ery of Debts Law was amended to improve the rights of duties in 2004. At 7.8%, there is considerable room for secured creditors. The DRTs are now required to decide further reduction in cost. And other states should follow appeals within 60 days. The amended law allows bor- Maharastra's example and reduce fees. rowers to contest a bank's actions before a DRT without Delays can be reduced by computerizing and ratio- having to deposit 75% of the claim as a guarantee. After nalizing procedures at the property registry. Indian states a DRT renders a decision, any party can appeal the can learn from Karnataka's reforms in these areas. In Kar- decision to the Debt Recovery Appellate Tribunal. The nataka mutation takes less than 20 days, compared with amended law also allows banks and financial institutions 60 to 90 days in most cities. Similarly the execution of to withdraw a claim before a DRT and instead bring an the sale deed takes only 2 days in Karnataka as compared action under the Securitization Act. COUNTRY PROFILES 33 What to reform and Exchange Board of India (SEBI), has continually India can increase access to loans by reforming its col- raised the bar on corporate governance of listed entities. lateral and insolvency regimes. In particular, creditors As of January 1, 2006, Indian companies listed on a stock need to have clear priority to their collateral in and exchange must comply with numerous new standards. outside bankruptcy, as well as the ability to enforce The new requirements include: more independent di- collateral agreements without resorting to the courts. rectors on boards and audit committees, even greater The government is currently revamping the creditors' responsibilities for audit committees, and mandatory rights regime in bankruptcy in its draft amendments to certification by a company's chief executive officer and the Companies Act. In addition, the time necessary to chief financial officer of the company's financial state- enforce collateral has dropped significantly since the im- ments and of the effectiveness of internal accounting plementation of the Securitization and Reconstruction controls. These requirements track closely the obliga- of Financial Assets and Enforcement of Security Inter- tions included in the U.S. Sarbanes-Oxley Act. est Act (SARFAESI). However, some problems remain. SARFAESI is mainly effective in bringing recalcitrant What to reform debtors to the negotiating table and reworking payment India can improve its investor protections in four main obligations. Banks and financial institutions still need areas: (i) enhancing a plaintiff 's ability to hold a direc- to enforce their secured and unsecured claims through tor liable for damage to the company caused by a re- DRTs, which for a long time have functioned at less than lated-party transaction, even where the director meets full capacity. Other secured creditors have to resort to the disclosure requirements surrounding his personal enforcing their security through ordinary civil courts, interest in the deal; (ii) requiring immediate disclo- which can take more than 5 years. sure of transactions involving a company insider; (iii) Expanding the amount and quality of credit infor- permitting shareholders to inspect the internal docu- mation also increases access to credit. India can improve ments of a company; and (iv) lowering the ownership credit information sharing by allowing non-financial in- thresholds for minority shareholders to sue derivatively stitutions--such as retailers and utilities--to participate for damages to the company. Each of these actions will in the credit bureau. Data on both individuals and firms strengthen investors' trust in the Indian market--first, should also be included. The quality of information can by providing greater transparency in companies' opera- be further enhanced by giving borrowers the legal right tions and, second, by providing a means of redress for to inspect and correct their data. And the bureau will be any misconduct. of most use when it expands its coverage of the popula- tion. CIBIL is taking steps in these directions. FIGURE 2.9 Tax rates vary across India ORISSA Protecting investors Total tax rate Bhubaneshwar 79.6 (% of pro t) PUNJAB India performs relatively well on the protecting investors Chandigarh 79.6 indicator. It ranks 33rd worldwide and has a strength of WEST BENGAL Calcutta 80.8 investor protection score of 6 out of 10 across all cities. KARNATAKA Bangalore 81.0 This beats the South Asia and East Asia averages of 5 MAHARASHTRA and is equal to the OECD average of 6. Regulations pro- Mumbai 81.1 vide for relatively high levels of disclosure surrounding TAMIL NADU Chennai 81.1 transactions involving company insiders and also make UTTAR PRADESH 81.7 it easy to sue in cases of misconduct. But rules on direc- Lucknow ANDHRA PRADESH tors' liability for self-dealing are weak in India. Within Hyderabad 82.0 the region, only Bhutan, Nepal and Afghanistan have DELHI New Delhi 82.0 scores lower than India's on the director liability index. BIHAR Internationally, India's score on this measure is lower Patna 83.3 than all regional averages. Brazil and most countries in RAJASTHAN Jaipur 83.4 East Asia (except China) also score higher than India on JHARKHAND Ranchi 87.7 the director liability index. The Indian capital markets regulator, the Securities Source: Doing Business database. 34 DOINg BUSINESS IN SOUTH ASIA IN 2007 Paying taxes government. Having different taxes on the same tax base and collecting the taxes through different government India ranks 158th on the ease of paying taxes, well below agencies considerably increases the hassle of complying the South Asia average. It fares better than most of its with tax regulation. Companies have to pay taxes on South Asian peers in the time spent on complying with their sales on a monthly basis to both state and the fed- tax requirements, at 264 hours per year. But the tax re- eral tax authorities. Not only is this process burdensome gime is cumbersome, requiring 59 separate payments per for business, but it effectively doubles the enforcement year. It is still very expensive, with over 81.1 percent of work that the government needs to carry out--with commercial profits payable in tax. The result is significant activities at both the state and federal levels. These taxes tax evasion and avoidance. Compared with countries out- can be consolidated into one. The revenues from the side the region, India's tax regime is less burdensome than consolidated tax could then be distributed appropriately China's--where businesses spend 872 hours per year--as to the different government agencies. well as Brazil's--which requires businesses to spend 2,600 Two other taxes are priorities for reform. The intro- hours per year. However, India's tax rate of 81 percent is duction of the Fringe Benefit Tax in the Union Budget higher than Brazil's (71.7%) and China's (77.1%). in March 2005 has increased the burden of tax compli- The number of payments and time spent in comply- ance--as well as tax rates--with small firms being the ing with tax formalities did not change over the last year. hardest hit. Clarity on its applicability and removal of However, the total tax payable declined from 95.2 % of subjectivity in this process is needed. Finally, the admin- commercial profits in fiscal year 2004 to 81.1% for fiscal istration of the Central Sales Tax (CST) regime--which year 2005--largely as a result of the shift from sales tax to accounts for more than 50% of the time spent by firms VAT and also because the Finance Act in 2005 reduced on tax compliance--needs to be streamlined until the the corporate income tax from 36.59% to 33.66%. CST is phased out as planned. At the sub-national level, the tax payable as a per- centage of commercial profit varies from 79.6% in Chan- digarh and Bhubaneshwar to 87.7% in Ranchi (figure Trading across borders 2.9). The variations in tax rates can be explained by the India ranks 139th on the ease of trading across borders, differences in the implementation of VAT across Indian above only Afghanistan (152nd) and Bhutan (150th). Ex- states, the levy of additional taxes and the different rates porting goods takes 27 days, a significant improvement on and methods for calculating property taxes. Similarly, last year's time of 36 days. Even so, India lags behind the the number of tax-related payments is 59 in Mumbai East Asia average of 24 days and is also slower than China, and 63 in Chennai and Patna. Time spent on making tax where it takes 18 days to export goods. Indian exporters payments does not vary by city however. submit 10 documents, compared with the regional average What to reform of 8 documents and the East Asia average of 7 documents. Importing in India is even more cumbersome. It takes 15 Simple, moderate taxes and fast, cheap administration documents and 41 days to complete import procedures. can attract investors. The Investment Climate Surveys Contrast this with East Asia, where importing requires conducted in India have consistently identified tax com- 9 documents and 26 days. It takes 22 days to import in pliance as a significant obstacle to business, especially China. Last year, it took 43 instead of the current 41 days small firms. India has made improvements recently. to complete import procedures in India (figure 2.10). In particular, a VAT was introduced in April 2005. Of Within India, it is fastest to import and export from the 12 Indian states covered in Doing Business in South Chennai's port--17 days to export and 22 days to im- Asia, 8 states implemented a VAT in April 2005, 2 did port. Calcutta is close behind. There it takes 18 days to the same in April 2006, another followed suit in January export and 22 days to import. The most time is needed 2007 and one state has yet to schedule a date for VAT in Mumbai, 27 days to export and 41 days to import. implementation. Although the implementation of a VAT Chennai requires the fewest documents--7 to export is an improvement, there remains an urgent need to and 5 to import. The most paperwork is needed in Bhu- harmonize the classification of goods across states under baneshwar, New Delhi, Patna, Ranchi and even Calcutta the new VAT regime. where importing and exporting involves 11 documents. Another major challenge for India is to coordinate Chennai is also among the cheapest Indian cities the sales taxes and VAT collected at different levels of with which to trade. For example, businesses pay $1,030 COUNTRY PROFILES 35 FIGURE 2.10 Time to import and export in India waiting, compared with 2 days in Pakistan and only a Time (days) few hours in more efficient ports around the world. TAMIL NADU 22 Import Recent initiatives are improving the ease of trading Chennai 17 Export across borders, but need to be expanded and accelerated. WEST BENGAL 22 Calcutta 18 Risk management techniques focusing customs inspec- ANDHRA PRADESH 24 tions on higher-risk cargo have begun to speed trade. A Hyderabad 20 ORISSA 28 new 24-hour online container tracking system in Chen- Bhubaneshwar 20 nai enables traders to monitor container movement from BIHAR 25 Patna 21 the port to inland depots, thereby reducing delays in RAJASTHAN 28 processing transshipment requests. Under the National Jaipur 21 Highways Development Project a major effort is under- KARNATAKA 23 Bangalore 22 way to connect New Delhi, Mumbai, Calcutta and Chen- DELHI 24 New Delhi 22 nai (the "Golden Quadrilateral") via express highways. JHARKHAND 28 In Bangalore, the Customs Commissioner introduced Ranchi 26 an e-payment gateway allowing corporate customers to PUNJAB 27 Chandigarh 27 pay customs duties online as of 2006. All these efforts UTTAR PRADESH 29 are steps in the right direction, but to have greater impact Lucknow 27 MAHARASHTRA these changes need to cover more geographical territory Mumbai 27 41 and their implementation needs to be accelerated. Source: Doing Business database. in fees to export a 20-foot container from Chandigarh Enforcing contracts and New Delhi, compared to only $580 in Chennai. Commercial disputes before courts in India are among Calcutta has the lowest export cost ($505). Importing the most lengthy, costly and complex in South Asia in India costs less if the goods enter via Hyderabad and and globally--resulting in a rank of 173rd on the ease Chennai, with fees of $850 and $892 respectively. It is of enforcing contracts. It takes 1,420 days to enforce a most expensive to import through Mumbai ($1,244), contract in India, compared with 969 days on average in Jaipur ($1,163) and Bhubaneshwar ($1,166). South Asia, 351 days on average in OECD countries, 450 What to reform days in Malaysia and only 292 days in China. Court costs India's export-import regime is a significant bottleneck FIGURE 2.11 to sustaining its recent growth in international trade and Lengthy delays in courts across India GDP. Simple reforms can have a big impact. Contrary to ORISSA Bhubaneshwar 610 Days to enforce a contract popular belief, inadequate port infrastructure, although TAMIL NADU 683 important, is not the greatest obstacle to trade. Nearly Chennai RAJASTHAN 50% of delays are caused by cumbersome pre-arrival Jaipur 754 procedures. India can speed the process by establish- ANDHRA PRADESH Hyderabad 770 ing a single window for traders, linking all government BIHAR agencies involved in the clearance process. Next, India Patna 792 can develop computerized risk management inspection KARNATAKA Bangalore 800 systems. These will reduce the incidence of physical DELHI New Delhi 900 inspection of cargo, allowing customs staff to focus on PUNJAB cargo with a higher risk of a faulty declaration. Further Chandigarh 915 reducing the number of documents for trading and WEST BENGAL Calcutta 942 publishing regulations on customs clearances will im- UTTAR PRADESH 950 prove transparency and efficiency in customs clearances. Lucknow JHARKHAND Finally, India needs to improve its physical infrastruc- Ranchi 1,165 ture--roads, ports and rails--which remain a consider- MAHARASHTRA Mumbai 1,420 able drag on trade. For example, in India loading export 1 2 YEARS 3 4 cargo onto a vessel takes 8 days in terminal handling and Source: Doing Business database. 36 DOINg BUSINESS IN SOUTH ASIA IN 2007 and attorneys' fees add up to 36% of the value of the Claimants can expect to recover less than 13 cents on the claim. In China, they cost 27% of the claim and on aver- dollar in India, compared with an average of 20 cents in age in South Asia 26.4%. And while it takes 56 proce- South Asia, 18 cents in Sub-Saharan Africa, 32 cents in dures to enforce a contract in India, only 39 procedures China and 93 cents in Japan--the highest globally. are required on average in South Asia, 32 on average in Currently, the Companies Act of 1956 governs East Asia, and 31 in China. liquidations. They are carried out by official liquidators Within India, the shortest time needed to enforce a (OLs), who follow cumbersome procedures that cause contract is in Bhubaneshwar (610 days), Chennai (683 undue delay and thwart efficient outcomes. Directors days) and Jaipur (754 days) and the longest time is in typically retain possession of the company until an OL Mumbai (1,420 days) and Ranchi (1,165 days) (figure is appointed, and assets often dissipate in the interim. 1.11). Contract enforcement costs the least in Bhu- Creditors play a marginal role. Defaulting borrowers baneshwar (15% of the claim) and in Jaipur (16%) and take refuge under Sick Industrial Companies Act (SICA) the most in Mumbai (36%) and New Delhi (34%)--both provisions in order to avoid payment to creditors. More- large cities with high attorneys' fees. over, courts and tribunals are often overburdened with a Such high degrees of formalism in the courts are asso- large caseload. Both the Company Court and the Board ciated with less consistency, less honesty and less fairness for Industrial and Financial Reconstruction (BIFR) tri- in judicial decisions. And the long delays and high costs bunal lack adequate specialized resources. encourage firms to resolve disputes informally. Invest- Within India the shortest time to go through insol- ment Climate Surveys conducted by the World Bank find vency is roughly 8 years in New Delhi and Bangalore, that Indian firms do not choose to go to court to settle and the longest time is in Lucknow (15 years) and Cal- payment disputes unless absolutely necessary. While the cutta (20 years). The recovery rate is also the highest in fairness of the court system is less of an issue, the onerous Bangalore, at 20 cents on the dollar. The lowest recovery procedures, delays and total costs are big deterrents. rate is in Calcutta at only 6 cents on the dollar. What to reform What to reform Very lengthy procedures and limited capacity of the Insolvency reforms are underway. When it takes effect, judiciary in commercial law matters are the biggest the Companies (Second Amendment) Act, 2002, will obstacles to faster contract enforcement in India. The eliminate a number of deficiencies that have led to the government could undertake judicial reforms to speed failure of the SICA and BIFR. It will remove the much up court procedures, implement capacity building pro- abused statutory moratorium under SICA, and will set grams for judges and establish separate commercial up a National Company Law Tribunal (NCLT) consist- courts. Although specialized courts currently exist for ing of qualified people to preside over rehabilitation and tax and certain employment matters, judges in the dis- liquidation matters. It furthermore contains provisions trict courts still have to deal with a broad range of civil, that will prevent future misuse of SICA. criminal and commercial cases. However, the Second Amendment falls short of With the amendment of the Indian Code of Civil ensuring an effective insolvency regime in India. The Procedure in 2002, evidence can now be exchanged amendment will give creditors only a limited role in faster and more easily. Limiting the number of inter- rehabilitation and liquidation proceedings. It does not locutory appeals is another way to decrease delays in the define the necessary qualifications and competencies of courts. Finally, improving the efficiency in the enforce- insolvency practitioners outside those working at the ment of judgments is also needed. NCLT, and there are no provisions to deal with cross border insolvency complications. The J.J. Irani Commit- Closing a business tee reviewed the Second Amendment's provisions and recommended significant reforms to the Companies Insolvency procedures in India are among the most oner- Act. Implementing these would further improve the ousinSouthAsia.Indiascores133rdontheeaseofclosing system. In addition, the government needs to allocate a business. Going through bankruptcy takes 10 years--a sufficient resources to the implementation of the reforms tie with Chad for the longest time in the world. In South and put in place an education and certification program Asia, the time to go through bankruptcy on average is 4 for OLs, judges and other participants to build special- years, in East Asia 2 years and in OECD countries 1 year. ized knowledge in bankruptcy. COUNTRY PROFILES 37 COUNTRY PROFILE MALDIVES Ranks in the top third globally and highest in the region Ranking UNITED NEW UNITED NEW HONG KONG BEST (1) SINGAPORE CANADA JAPAN STATES ZEALAND KINGDOM ZEALAND MALDIVES CHINA DENMARK JAPAN 5 1 1 5 9 10 15 20 25 30 31 35 40 Maldives 45 50 53 55 60 60 65 83 70 75 80 SOUTH 85 90 ASIA 91 95 100 RANGE 105 114 110 115 120 125 130 135 140 172 143 145 150 155 160 165 Worst (175) 170 175 Ease of Starting a Dealing with Employing Registering Getting Protecting Paying Trading Enforcing Closing a doing business licenses workers property credit investors taxes across contracts business business borders Starting a business Dealing with licenses With 5 procedures and 13 days required to open a busi- The Maldives ranks 9th worldwide in terms of the ease ness, the Maldives ranks 31st globally on the ease of of dealing with licenses and continues to be the best starting a business. The Maldives is ahead of both the performer in South Asia. To build a warehouse in the South Asian average and OECD averages on the time Maldives, entrepreneurs are required to follow 10 pro- and number of procedures for business start-up. But at cedures that take 118 days and cost 40% of income per 18% income per capita, it ranks slightly behind Sri Lanka capita. The high ranking is due to the simplicity of the and Bhutan on the cost of start-up. Moreover, the Mal- process. Only 8 countries have fewer procedures for ob- dives is the only country in the region with a minimum taining a building license than the Maldives. Rankings capital requirement--the company law requires the en- on time and cost have somewhat more room for im- trepreneur to deposit a sum equal to 7% of the Maldives' provement. More than half of the total time is taken by income per capita before starting operation. two procedures--obtaining the building and occupancy What to reform permits--which together account for 86 days. The cost of utilities comprise almost 90% of total costs. The Maldives can further improve performance on the ease of starting a business by scrapping its minimum capital requirement and matching the zero minimum Employing workers capital rules in all other South Asia countries. This will The Maldives ranks 5th in the world on the ease of free up funds that can be put to better use in the busi- employing workers--and is by far the best-performing ness. It will also simplify the start-up process by cut- South Asian country on this indicator. With no social ting one more procedure. Capital requirements were security taxes or payroll taxes associated with recruiting originally designed to protect investors and creditors. a worker, the cost of hiring is zero. Restrictions on con- Evidence shows that not only do capital requirements ditions of work are minimal. Although employees are fail to achieve this objective, they impose significant prohibited from working more than 10 hours in a day, costs by increasing entry barriers. By removing capital there are no restrictions on night or holiday work and requirements, the Maldives would join a growing list no mandated annual leave. A 2006 reform introduced a of countries that have either eliminated or significantly 2 month mandatory notice period which raised the fir- reduced theirs, from China to France to Japan. ing cost to 8.7 weeks. 38 DOINg BUSINESS IN SOUTH ASIA IN 2007 Registering property performance in the credit information index--where the Maldives scores 0 out of a possible 6 because there is no Due to the legal uncertainty on whether land transfers public or private credit registry to facilitate the exchange between companies are permissible, the Maldives re- of credit information amongst lenders. ceives a `no practice' score for the Doing Business reg- The legal rights granted borrowers and lenders in istering property indicators, the lowest ranking. Until the Maldives are deficient in most respects. Laws require 2002, when the Land Act was approved, land could not a specific description of the assets in the security agree- be transferred freely. Traditionally, the government is- ment. As a result, it is impractical to use a changing pool sues time-bound leases to tourism resorts and allocates of assets (such as in an inventory or accounts receivable) an indefinite lease over land to individuals. Leases for as security for a loan. The secured lender has no priority individuals can be transferred upon death to their heirs right to the collateral either in or outside bankruptcy, in joint ownership. No cadastral survey exists to identify reducing the chances of loan recovery. If a borrower property boundaries. With the new 2002 Land Act and defaults, creditors are required to go through a lengthy the initiation of the Hulumale Development project on court enforcement process rather than enforce their reclaimed land, the government is taking steps to cre- security privately. The lack of a bankruptcy law further ate a land market by selling the land and conducting reduces the chances of loan recovery in the event a bor- a cadastral survey. However, it still remains uncertain rower becomes insolvent. All this makes security agree- whether land can be transferred between companies. ments in the Maldives less safe, more costly and difficult The lack of clarity on property rights is a significant to enforce. constraint to accessing finance, as lenders are unwilling to take land as collateral if they are unable to sell it freely What to reform upon the borrower's default. It also discourages invest- Improving credit institutions is a priority reform for ment in property. the Maldives. Lenders are more likely to extend loans What to reform if they are able to assess a borrower's credit history and when they can take and enforce security effectively. The Clarifying property rights is an urgently needed reform government can facilitate access to credit by, first, sup- in the Maldives. In particular, companies need the ex- porting the development of a credit bureau. The bureau press right to transfer land without restriction, as in all will be most effective if it distributes a broad range of other South Asian countries and almost all countries in information on past defaults and repayment patterns the world. Allowing for full title to land is preferable to and collects and makes information available electroni- a system of government leasing. What is most important cally. The Maldivian authorities are planning to set up is to provide businesses with the unrestricted right to a Credit Information Bureau with the assistance of the sell, lease, bequeath, mortgage and improve land. Entre- International Finance Corporation. In addition, the preneurs will invest and trade in property if these rights Bank of Maldives is planning to introduce mobile phone are secure. The government can provide this security by banking which will improve outreach. Second, the gov- more clearly defining property rights in land laws, as ernment can make loans more accessible by putting in well as by completing the cadastral survey and creating place a new secured transactions system that will reduce a unified cadastre and property registry that keeps ac- the cost, time and uncertainty surrounding security curate records of who owns what. Allowing for a simple, enforcement. The new regime should allow all assets to fast and cheap process for transferring land will further be used as collateral and allow for out-of-court and sum- reinforce the security of property rights. mary enforcement proceedings. Getting credit Protecting investors The Maldives ranks 143rd worldwide on the ease of get- The Maldives ranks 60th worldwide on the protecting ting credit indicators, well below all other South Asian investors index, falling in the middle of South Asian countries except for Bhutan and Afghanistan. No change countries along with Nepal and Sri Lanka and slightly has occurred in 2005-06. The poor ranking is driven by below the OECD average. It has slipped from 58th place modest performance in the legal rights index--where the in 2005. Performance across the three sub-indices is Maldives scores 4 out of a possible 10--as well as weak mixed. The Maldives ranks lowest on the disclosure COUNTRY PROFILES 39 index, scoring 0 out of a possible 10. There is no require- What to reform ment that a manager disclose conflicts of interest, and a manager may approve transactions with a conflict of Delays in trading can be cut by creating a single access interest. Scores on the director liability as well as share- point at the customs authority. An entrepreneur could holder suits indices are significantly higher at 8 out of 10, then complete all requirements at customs rather than and better than both the regional and OECD averages. having to visit each agency separately. A single access What to reform point is under discussion in the Maldives. An ongoing project to link different government ministries electroni- The Maldives can encourage equity investment and open cally will help facilitate the single access point, but there additional lines of finance for entrepreneurs by enhanc- are questions on whether the customs authority has ing disclosure provisions in corporate governance laws. the legal authority to forward the document to another Investors need to know what stakes directors have in agency. In the meantime, allowing the trader to file proposed deals so they can stop those deals through a documents electronically would speed the process. vote or sue for damages if shareholder interests would be hurt. In cases where there are conflicts of interest, laws should require immediate public disclosure of transac- Enforcing contracts tions and the conflicts of interest, full disclosure of all The Maldives ranks 83rd on the ease of enforcing con- material facts to the board of directors and regular dis- tracts. The relatively high ranking is attributable to the closure in periodic filings. The Maldives can further in- low cost of enforcing a contract. At 16% of the value of crease shareholder protections by requiring shareholder the claim, the Maldives has the lowest costs in South approval for large transactions involving company in- Asia. But while costs are reasonable in the Maldives, siders and permitting shareholders to sue directors and delays are prohibitive. It takes 665 days to enforce a managers for damage caused by inside dealings. contract, which is less than regional average but almost double that of the OECD (351 days). The bulk of delays Paying taxes are in the time it takes to execute judgments--485 days. The time taken to give a judgment is 165 days. The Maldives ranks 1st worldwide on the ease of paying taxes. Entrepreneurs there are required to make only What to reform 1 payment per year, equivalent to 9.3% of commercial To reduce the time it takes to enforce a contract the gov- profit. In the Maldives a domestic company operating ernment can first and foremost start collecting judicial in the manufacturing sector is exempt from profit, con- statistics, as this will allow for a clearer diagnosis of the sumption and labor taxes. The Maldives is well ahead problems. Secondly, recovery can be sped by allowing of other countries in South Asia, where businesses on competition in enforcing judgments. By scrapping the average must make 30 payments a year and pay 45% of public monopoly on executing judges' rulings, countries commercial profit. like Colombia, Hungary, the Netherlands and Slovakia have cut several months from the time of enforcement. Trading across borders Licensed private enforcement agents quickly moved into the business. This saves time for claimants, and also saves The Maldives ranks 91st globally on the ease of trading money from the judicial budget for the government. across borders. As a small country, delays for inland transportation are rare. Time in customs is saved by al- lowing documents to be prepared and filed in advance anytime before the ship docks. Although the Maldives is considerably ahead of other South Asian countries, there is still room for improvement in the time it takes to export (15 days) and import (21 days). 40 DOINg BUSINESS IN SOUTH ASIA IN 2007 Closing a business Table 2.5 Closing a business in the Maldives-- long delays and low recovery The Maldives ranks 114th on closing a business, broadly Maldives Region OECD in line with the South Asian average. In the Maldives Time(years) 6.7 3.6 1.4 there is no bankruptcy law and the company law does Cost(%ofestate) 4.0 6.3 7.1 not provide for any reorganization procedure. An in- Recoveryrate(centsonthedollar) 18.2 19.5 74.0 solvent company will simply go through a foreclosure Source: Doing Businessdatabase. process, which is the basis for the closing a business figures reported in Doing Business for the Maldives. Foreclosure is slow, taking almost 7 years, but relatively cheap at 4% of the value of the mortgaged asset (table 2.5). At the end of the process only 18.2 cents on the dollar are recovered. Because of the low recovery rates, banks are less likely to lend. What to reform The government can speed the foreclosure process by introducing summary judgment proceedings and pri- vate enforcement. By introducing a bankruptcy law, the government will provide more efficient solutions for complex insolvencies with multiple creditors and other claimants. Bankruptcy procedures should be expeditious and allow creditors the choice between re- organization and liquidation, whichever of the two they value most. Qualified insolvency managers should have incentives to promptly follow the most efficient proce- dure. Regardless of whether a firm enters liquidation or reorganization, the insolvency administrator should be able to sell the business as a going concern so that the new owners keep the intrinsic value of the operating business and not just the assets. COUNTRY PROFILES 41 COUNTRY PROFILE NEPAL The middle-ranking country for most indicators in the South Asia region Ranking UNITED NEW UNITED NEW HONG KONG BEST (1) SINGAPORE CANADA JAPAN STATES ZEALAND KINGDOM ZEALAND MALDIVES CHINA DENMARK JAPAN 1 5 10 25 15 20 25 30 49 35 40 60 45 50 55 60 65 70 75 Nepal 88 80 85 95 90 95 SOUTH 100 101 100 105 ASIA 105 110 115 RANGE 127 120 125 130 136 135 140 145 150 150 155 160 165 Worst (175) 170 175 Ease of Starting a Dealing with Employing Registering Getting Protecting Paying Trading Enforcing Closing a doing business licenses workers property credit investors taxes across contracts business business borders Starting a business ranks lower than most of its South Asian neighbors, Nepal ranks 49th in the world on the ease of starting except India and Bhutan, placing 127th on the ease of a business--a decline from last year's position of 40th. dealing with licenses. There are only 7 procedures needed to start up a busi- ness, which take 31 days. While there is no minimum What to reform capital requirement, the cost of starting a business is Instead of having to visit municipalities and utilities relatively high at $212 or 78.5% of income per capita. separately, an entrepreneur should be able to obtain per- The expense is caused primarily by two procedures-- mits from one window, i.e., from each municipality. This verifying the memorandum and articles of association may require improvements in infrastructure. Although ($136.73) and paying the fee to file the documents with it is significantly easier to set up telephone lines due to the company registrar's office ($61.53). the entry of private sector players, connecting to power, What to reform water and sewerage continues to be time-consuming and costly. The new provision of the amended Companies Or- dinance (amended October 2005) does not require a lawyer or accountant to verify the memorandum and Employing Workers articles of association. If enforced, it will cut costs sig- Nepal ranks 150th globally on the ease of employing nificantly. Using standardized forms will also reduce workers (figure 2.12). The cost of hiring is 10% of salary the need to use a lawyer and pay related fees. There is compared with a South Asia average of 7%. Rules on room for further amendment of the Companies Act to hiring and conditions of work are relatively flexible, with improve the governance, accounting and auditing stan- the exception that term contracts are limited to fixed dards and disclosure requirements. The capacity of the term tasks. Firing workers is difficult and costly with Company Registrar must also be enhanced in terms of severance payment equivalent to 90 weeks of wages--the resources and expertise in order for it to properly carry 3rd most expensive country in which to fire workers in out its functions. South Asia, along with Pakistan. Through an ordinance by the King the Labor Law was amended in March 2006 Dealing with licenses to address some of the rigidities in the previous law. But it was later revoked by the new government. The Dealing with licensing in Nepal continues to be cumber- revoked amendment contained more flexible provisions some, time consuming and costly. It takes 15 procedures, for hiring workers on a contractual basis, increasing the 424 days and $875, or 324% of income per capita, to probationary period, allowing retrenchment during ra- fulfill the permit and licensing requirements for building tionalization of businesses, encouraging a safe working a warehouse. The South Asia average is 16 procedures place, and making it easier for a business to set its own in 227 days, costing 376% of income per capita. Nepal minimum remuneration. 42 DOINg BUSINESS IN SOUTH ASIA IN 2007 FIGURE 2.12 What to reform Employing workers in Nepal Ease of employing workers Nonwage labor cost Reducing the 6% registration fee or setting a nominal flat (rank 0­175) (% of salary) feecanpromotethetruthfuldeclarationofactualproperty BEST India values. Automating the land registry can dispense with Maldives 15 Sri Lanka the need to hire a facilitator and help create an accurate database for expanding access to credit. The land registry Pakistan currently lacks the institutional capacity and resources Afghanistan 10 Nepal to carry out the necessary comprehensive reforms. Bangladesh Sri Lanka India Getting credit Bhutan 5 Pakistan Nepal ranks 101st on the ease of getting credit, and is Nepal significantly behind Bangladesh, India and Pakistan Bhutan Afghanistan WORST 0 Bangladesh (figure 2.13). Access to credit is perceived by Nepalese Maldives firms as one of the greatest barriers to doing business. Source: Doing Business database. The underlying reason--weak legal rights for taking What to reform and enforcing collateral. A new Insolvency Act has been passed but has not yet been enforced due to the absence Since the March 2006 amendment was revoked, Nepal of commercial courts. Similarly, a new Secured Transac- again faces the same issues as before. Nepal's labor law tion Act has been passed but there is no implementing lacks flexibility for employers in terms of hiring and fir- agency to register movable assets as collateral. In the ing workers. There is an urgent need to allow for hiring absence of such a registry, financial institutions have workers on a contractual basis and to permit retrench- developed the practice of recording pledges on movable ment during business rationalization. Minimum sever- assets in the land registry in cases where land is also ance payments are very high. Provisions of the law also mortgaged as collateral. The result of these shortcomings should encourage a safe working place, enable businesses is that lending is more risky and financial institutions are to set their own minimum remuneration and reduce the less willing to extend credit to businesses. number of holidays permitted to carry out union work. Nepal also has a credit bureau--the Credit Informa- The process for filing court appeals in labor disputes tion Center--which in 2004 was transferred from the requires streamlining and the time it takes should be central bank to private ownership. Now 90% of the credit reduced. The capacity of the Labor Department and the bureau is owned by financial institutions, while the central government to adopt much needed reforms needs to be bank has retained 10% ownership. The bureau is mostly enhanced. used to verify whether a potential borrower is a defaulter FIGURE 2.13 Registering property Getting credit--country rankings in South Asia Nepal ranks 25th worldwide and leads South Asia on the Ease of getting credit (rank, 2005, 2006) 2005 2006 ease of registering property. It takes only 3 procedures 174 and 5 days to register property transfers. The process Afghanistan 174 is expensive, however, at 6.4% of the property value. Bangladesh 41 48 And although registration appears efficient, the indica- Bhutan 160 159 tor hides the fact that to get things done, a facilitator India 96 must be recruited and "deputized" to the land registry. 65 143 Hiring the facilitator increases the overall cost some- Maldives 143 what--already steep due to the registration fee of 6% of Nepal 96 101 the property's value. Property disputes are rife, indicat- Pakistan 59 65 ing that the speedy procedures are not providing greater Sri Lanka 96 security of property rights. 101 Source: Doing Business database. COUNTRY PROFILES 43 or on a blacklist without having to check the borrower's What to reform full credit history. It is mandatory for all banks and finance Disclosure requirement in the company's annual report companies to submit credit information on a periodic can be more effective if the threshold is reduced to trans- basis failing which strict penalties may be imposed. The actions greater than 10% of the company's reported value, bureau is functioning relatively well although it is resource ensuring that major transactions receive adequate scru- and capacity constrained. It does not, however, gather in- tiny. A great step in the right direction is the new rule in formation on loan sizes smaller than NPR 1 million. the Companies Act of 2005 that a director of a company What to reform should not derive any personal benefits through the company. The impact of this provision is limited, how- The government needs to quickly identify what is the ever, because directors can escape all liability simply by best institution to host the movable collateral registry. making the necessary disclosures. Other countries, for In addition, the government also needs to (a) ensure example Malaysia, excuse directors from liability only if the allocation of an adequate budget for the Secured the shareholders in a general meeting approve their ac- Transaction Act to be implemented, (b) build the nec- tions. Nepal can encourage equity investment and open essary capacity to implement the act, (c) train the staff additional lines of finance for entrepreneurs by requiring and increase public awareness of the act, (d) ensure that shareholder approval for inside deals. the registry is fully computerized and that staff are fully trained and (e) enact a single law for the creation, regis- tration, and determination of priorities to collateral. Paying taxes Access to credit can be enhanced by improving the Nepal is ranked 88th on the ease of paying taxes. Tax capacity and legal status of the newly privatized credit rates are high--32.8% of commercial profits--although bureau. A special ordinance for credit bureaus can im- lower than the regional average of 45.1%. The compliance prove the quality of information by guaranteeing the requirements are cumbersome and time consuming--a borrower the right to review the bureau's data and have business must make 35 payments per year and spend 408 errors corrected. The credit bureau could also improve hours fulfilling tax requirements. Pakistan is the only the quality of its information by expanding its coverage to country in the region where it takes longer to pay taxes. include utilities, trade creditors and retailers. More than 2 Although corporate tax should be payable on profits, the years of historical credit information and information on tax authorities continue to tax income on sales turnover smaller loans should also be distributed to the lenders. A rather than net profits, as profits are often underreported. new national policy on microfinance is currently under Tax laws have been amended in recent years but lack clar- consideration, which may encourage access to finance. ity and are often subject to various interpretations. What to reform Protecting investors Consolidating various types of taxes and eliminating Nepal ranks 60th worldwide on the protecting investors minor taxes can considerably reduce processing time and indicator, along with Sri Lanka and the Maldives and hassle for businesses. The tax law needs to be simplified ahead of Afghanistan and Bhutan. The Companies Act, and the tax administration needs to build its capacity. The amended in 2005 through an ordinance and recently appeals process can be made significantly more transpar- ratified by parliament, aims to strengthen shareholders' ent, and the tax recovery process can be improved. rights. The new law increases disclosure requirements and restricts personal benefits for company directors. However, the law also includes a provision whereby the Trading across borders new protections for investors do not apply to transac- As a land-locked country, Nepal's trade regime is con- tions that are part of the "company's ordinary course of strained, and the problem is further compounded by business." In practice, directors can avoid all the height- inadequate infrastructure and bureaucratic procedures. ened investor protections of the new law by claiming Exporting requires 7 separate documents and takes 44 the transaction in question is a part of the company's days. Importers need to submit 10 separate documents ordinary course of business. Furthermore, the capacity and wait 37 days before goods are made available (table of regulatory authorities to monitor compliance with the 2.6). Nepal ranks 136th on the ease of trading across law, however, continues to be extremely weak. borders--a further decline from 133rd place last year. 44 DOINg BUSINESS IN SOUTH ASIA IN 2007 Table 2.6 Trading across borders, Nepal Debt Recovery Tribunals is essential to improving their speed and impartiality in resolving disputes. The gov- Nepal Region OECD Documentsforexport(number) 7 8.1 4.8 ernment can help establish a permanent facility for the Timeforexport(days) 44 34.4 10.5 initial and ongoing training of judges and court staff, Costtoexport(US$percontainer) 1,599 1,236 811 such as a national judicial academy. The government Documentsforimport(number) 10 12.5 5.9 can also develop proper library facilities and university Timeforimport(days) 37 41.5 12.2 legal training programs to meet the needs of legal prac- Costtoimport(US$percontainer) 1,800 1,495 883 titioners. The creation of specialized units to handle fast Source: Doing Businessdatabase. track and other civil cases can strengthen the courts' capacity to ensure fair, quality and timely case handling. What to reform Sound and transparent procedures must be established to prevent and fight corruption. Red tape in the form of paperwork and documentation requirements is the major constraint in both import and export trade. Nepal can do away with unnecessary steps Closing a business like the need to obtain a certificate of origin. Simple and Nepal ranks 95th worldwide on closing a business--a standardized paperwork is essential. Electronic filing of decline from its 88th position last year. After a firm be- trade documents can cut delays and corruption. Ongo- comes insolvent in Nepal, it takes almost 5 years to close, ing reforms in dry port facilities such as Birgunj along and costs are 9 percent of estate value. Creditors typically the Indo-Nepalese border should ease the trade and recover only 25 cents on the dollar. transit process. What to reform Enforcing contracts Although a new insolvency law was passed through an ordinance in 2005, it needs to be ratified by the new Nepal ranks 105th on the ease of enforcing contracts, parliament, and is yet to be implemented by the gov- behind Afghanistan, Bangladesh, India and Pakistan. ernment. The new law provides for the administration It takes 28 procedures and 590 days to enforce a simple of companies that have failed to pay the debts due to commercial contract through the courts, at a cost of 24% their creditors and have thus become--or are about to of the value of the claim. become--insolvent. The regulation provides for both What to reform the liquidation and restructuring of companies. It cov- ers limited liability companies as well as banks, financial Nepal can streamline contract enforcement by introduc- institutions and insurance companies (with the approval ing summary judgments. With these, a plaintiff only of the relevant regulator) but does not cover individuals. needs to present the judge with evidence of the transac- Most businesses in Nepal are sole proprietorships and tion and nonpayment. Cutting the number of allowable hence the law needs to be extended to bankruptcy of appeals will also reduce delays. Finally, Nepal can intro- individuals. The government also needs to improve the duce case management, where the same judge follows capacity of insolvency professionals and their regulators, the dispute from start to end. Faster proceedings are also set incentives for insolvency administrators to maximize less costly for litigants, thus providing greater access to the value of the bankruptcy estate, and reduce the num- the courts for the poor. ber of allowed appeals--which is a major cause of delays. Nepal also needs to amend provisions of the Debt A suitable formal out-of-court restructuring process Recovery Act to make possible the efficient implemen- could greatly assist banks to restructure borrowers hav- tation of creditor rights. Enhancing the capacity of the ing financial trouble. COUNTRY PROFILES 45 COUNTRY PROFILE PAKISTAN Ranks 2nd overall in South Asia, in the upper half of countries globally Ranking UNITED NEW UNITED NEW HONG KONG BEST (1) SINGAPORE CANADA JAPAN STATES ZEALAND KINGDOM ZEALAND MALDIVES CHINA DENMARK JAPAN 1 5 19 10 15 20 25 30 35 54 46 40 45 50 Pakistan 55 60 65 70 74 68 65 75 80 SOUTH 89 98 85 90 ASIA 95 100 RANGE 105 110 115 120 126 125 130 135 140 140 145 150 155 163 160 165 Worst (175) 170 175 Ease of Starting a Dealing with Employing Registering Getting Protecting Paying Trading Enforcing Closing a doing business licenses workers property credit investors taxes across contracts business business borders Starting a business equally high number (11). Pakistan's procedures are cumbersome, require considerable documentation and Pakistan ranks relatively well in starting a business-- involve 6 different agencies--the registrar of companies both globally and regionally. Reforms in the early part at the Securities and Exchange Commission, the Central of the decade cut start-up time by half. Start-up now Board of Revenue, the local tax authority, the Employees takes 24 days, 8 days less than the South Asian average Social Security Institution, the Employees Old Age Ben- (32 days) and less than Bhutan (62 days), Sri Lanka (50 efits Institution, and the Inspector in the Department days), Bangladesh (37 days) and India (35 days). The of Labor of the provincial government--and a visit to a cost is 21% of income per capita, well below the South specifically designated bank. Asian average of 47%, and compares favorably to all Costs are 25% higher in Karachi than in other cit- regional averages apart from those of the OECD (5%) ies. By removing the stamp duty requirement in 2004, and Europe and Central Asia (14%). Like all South Asian Faisalabad, Lahore, Sialkot and Peshawar all eliminated 1 countries except for the Maldives, Pakistan does not im- procedure, 1 day and considerable cost--16% of income pose a minimum capital requirement. per capita--from the start-up process. Start-up time does Start-up in Pakistan still requires a high number not vary significantly across cities, with 2 more days of procedures (11)--more than in 116 other countries, required to register with the Registrar of Companies in including Bangladesh (8), Nepal (7) and Sri Lanka Quetta than in Faisalabad, Lahore, Sialkot and Peshawar. (8) (figure 2.14). In the region, only India requires an What to reform FIGURE 2.14 Starting a business--procedures, time and cost Over the last decade Pakistan has undeniably made con- siderable progress--by reducing the number of steps and 70 the cost of starting a business and by increasing access to 11 Pakistan registration offices. But limited gains have been recorded Latin America & Caribbean 60 40 10 in recent years. Although Faisalabad, Lahore, Sialkot and 50 9 30 40 East Asia & the Paci c Table 2.7 South Asia 8 Subnational rankings on the ease of doing business 30 20 Pakistan in Pakistan 7 20 Pakistan 1 Karachi 4 Lahore 10 OECD 6 2 Faisalabad 5 Peshawar 10 3 Sialkot 6 Quetta Note:TherankingsforallcitiesarebenchmarkedtoApril2006andreportedinAppendixIII. Procedures Time Cost Theeaseofdoingbusinessaveragesrankingsacrossthe10topicscoveredinDoing Business. (days) (% of income This excludes variables such as macroeconomic policy, quality of infrastructure, currency per capita) volatility,investorperceptions,orcrimerates. Source: Doing Business database. Source: Doing Businessdatabase. 46 DOINg BUSINESS IN SOUTH ASIA IN 2007 Peshawar lowered costs by eliminating the stamp duty, Peshawar--in part due to earthquake-related require- the number of procedures and days has remained the ments and added environmental protections. same over the past years. A large number of federal and Karachi, Sialkot and Faisalabad remain the more provincial institutions are still involved in start-up, and expensive cities in which to build a warehouse, but for documentation requirements are heavy. different reasons. Obtaining a building permit in Si- As a first step, Karachi and Quetta can follow their alkot costs considerably more than in other cities and neighbors' example and eliminate the stamp duty for accounts for more than half of total licensing costs. registration. Then the system for the different tax and In Faisalabad and Karachi, utility connections are the social security registrations can be simplified. Entrepre- culprit. High costs for electrical connections in both cit- neurs must visit various federal and provincial depart- ies--made worse in Karachi by the high costs of water ments to register for sales tax (6 days), professional taxes and sewage connections--account for almost a fifth of (7 days), social security (11 days) and old age benefits total costs and are estimated at almost 10 times the costs (11 days) and to register with the Department of Labor in other cities. Quetta's relatively high costs derive from and Industries (7 days). A one-stop portal and unique the high cost of the building permits coupled with the company identification number can be introduced to higher than average costs of obtaining connections to further reduce the time and cost of setting up a business. electricity and water. As an intermediate solution, representatives from differ- ent agencies can be located in the same building to create a single access point for entrepreneurs. Over time, the What to reform government can approach international best practices by Reducing the steps, time and cost necessary to develop a introducing online registration. This will require imple- site is a priority for improving the business environment menting the Electronic Signatures Ordinance. But even in Pakistan. A builder can interface with 15 to 20 author- without online registration, time can be cut by simplify- ities--most of which are provincial or local--to obtain ing internal procedures. all necessary development permits and site inspections. Reforms should focus on reducing the costs of building Dealing with licenses permits and utility connections and on minimizing the time needed for inspections. Pakistan ranks 89th in the world on the ease of deal- Pakistan can start by modernizing outdated mu- ing with licenses. Obtaining the necessary construction nicipal bylaws and the process for issuing permits--par- permits, licenses and inspections and securing utility ticularly in the large industrial areas. Road maps of the connections for building a warehouse involves only 12 process can also assist investors, as can creating single procedures, the fewest in the region after the Maldives. windows for submitting applications and documents. The process takes 218 days, fewer than only Nepal (424 This would require, first, clarifying the roles of national, days) and India (270 days) among the South Asian coun- provincial and local authorities, followed by a coordi- tries. More strikingly, the official cost is almost 10 times nated effort to modernize and harmonize zoning and income per capita (973%), more than double the South land development laws and regulations. Mechanisms to Asia average of 375% of income per capita. assist with implementing reforms, such as introducing Site development regulations are governed mainly performance standards and service/complaint centers, by provincial and local authorities. As such, the process could also reduce the licensing burden. for dealing with licenses significantly varies from city to city. In some cases, procedures are different--for exam- ple, Karachi does not require an environmental protec- Employing workers tion approval and Quetta requires a higher than average As in other South Asian countries, labor regulations are number of inspections. In other cases, procedures vary relatively rigid in Pakistan. Pakistan scores 43 on the in length. For example, among the cities with environ- rigidity of employment index, slightly higher than the mental approval requirements, the time it takes to fulfill South Asian average of 35. Unlike most countries in them ranges from 35 days in Lahore to 75 in Quetta. the region, however, Pakistan's labor code imposes rigid The number of procedures and time needed to obtain conditions on hiring while officially allowing flexibility construction licenses have increased in cities outside of in firing. Pakistan scores 78 out of 100--higher than any Karachi--particularly in Faisalabad, Lahore, Sialkot and other South Asian country--on the difficulty of hiring COUNTRY PROFILES 47 FIGURE 2.15 FIGURE 2.16 Employing workers--cost to hire and re Registering property in Pakistan 90 South Asia Europe & Central Asia Pakistan average 25 80 70 Quetta 20 60 Peshawar 15 50 Karachi Pakistan 40 10 Sialkot East Asia & the Paci c 30 South Asia 20 Lahore 5 10 Faisalabad Non wage Firing cost 0 2 4 6 8 labor cost (weeks of wages) Cost to register property (% of salary) (% of property value) Source: Doing Business database. Source: Doing Business database. index, which takes into account rules governing tempo- Registering property rary contracts and minimum wage. Other labor regulation indicators present a mixed Pakistan ranks 68th on the ease of registering prop- picture. The cost of hiring a worker is 12% of salary, erty--the top performing South Asian country after compared to 10% in Nepal, 15% in Sri Lanka and 17% Nepal (25). Registering property is a relatively simple in India. Pakistan's procedures for firing are moderately process requiring 6 procedures. Costs are 4% of the onerous, with a global ranking of 77th on the difficulty property value, higher than Bhutan (0%) but below all of firing index. But an employer must pay the equivalent other countries in the region. The time to register is also of 90 weeks of salary in severance, penalties and notice slightly lower in Pakistan (50 days) than in most South to dismiss a worker (figure 2.15). Only Bhutan and Sri Asian countries, including India (62 days) and Sri Lanka Lanka have higher dismissal costs, with 95 weeks and (63 days), and much lower than in Bangladesh (425 178 weeks, respectively. days). Only in Nepal (5 days) does property registration What to reform take less time than in Pakistan. Land registration is governed by provincial and local Facing competitive pressure and high amounts of in- authorities. The number of steps to register property formality, all levels of Pakistan's government recognize therefore differs significantly across provinces--ranging the importance of modernizing the labor market. At the from 6 in Sindh (Karachi) to 12 in Baluchistan (Quetta) federal level, the government is undertaking an extensive with Punjab (Faisalabad, Lahore, Sialkot) and NWFP reform of the labor code to (i) increase flexibility in the (Peshawar) falling in the middle. The cost to register labor market, particularly in hiring, and (ii) lower the property consists of the stamp duty, registration fees and cost of complying with all labor regulations. transfer taxes. In addition to taking less time, register- Reforms at the federal level seek to increase flex- ing property in Faisalabad, Lahore, Sialkot, Karachi and ibility in hiring by eliminating restrictions on temporary Peshawar is less costly (averaging around 4.5% of total contracts and by streamlining procedures for resolving property value) than in Quetta, where the cost is 8% of labor disputes. At the provincial level, enforcement of the property value (figure 2.16). the new legislation will be enhanced through more pro- fessional inspections. Future changes planned at the fed- What to reform eral level include modernizing the provisions on health Although the time and cost of registering property are and safety protections and reforming labor welfare. To moderate in Pakistan by global and regional standards, further improve labor market flexibility, Pakistan could in some parts of the country--principally Quetta--the also reduce the mandatory severance pay (of 20 months time and cost remain high. Learning from better prac- of wages for an employee with 20 years of seniority) and tices in other countries may provide simple ways to cut ease the requirements for redundancy. procedures, time and costs. For example, most countries have eliminated the requirement to publish a public 48 DOINg BUSINESS IN SOUTH ASIA IN 2007 notice of property transfers. Instead the registry can What to reform make its records accessible to the public. This serves the Coverage by private bureaus is increasing, although same purpose as publication, without the delays and slowly, along with Pakistan's developing corporate sec- cost. Expanding the e-government registration pilot pro- tor. The public registry--currently run by the State Bank gram--currently in Punjab, where Faisalabad, Lahore but which may be privatized in the future--recently ex- and Sialkot are located--to other parts of the country panded its database to include borrowers of smaller loan can also simplify the registration process and cut costs. sizes. Both public and private credit bureaus can expand Beyond property registration, problems with land their coverage to include information from creditors titling and land availability are limiting entry, prevent- other than financial institutions, such as retailers and ing financing and clogging the courts with land dis- utilities. Guaranteeing the legal rights of borrowers to putes. All levels of government need to work to expand inspect their credit data can improve the quality of the access to clearly titled land. A significant effort is also data. This in turn can help improve access to credit. needed to clarify rights of landowners for whom title is The relatively low degree of legal rights for borrow- unclear--which is a majority of them. This will require ers and lenders also constrains access to credit. Although a large-scale land registration reform that will include specialized legislation gives banks strong powers to verifying borders and ownership. After establishing seize collateral, further measures are needed. Reforms clear property rights, property markets can be further to the Company Law are currently being pursued. An boosted by streamlining local zoning, rental and build- opportunity exists to further strengthen creditor rights ing regulations. by (i) creating a unified registry for all security rights in moveable property, (ii) clearly specifying the priority for Getting credit secured creditors to recover their security upon default and in bankruptcy and (iii) permitting out-of-court Pakistan is one of relatively few countries around the enforcement. world with both public and private credit registries. Only 65 countries have public credit registries with greater coverage than Pakistan's. The only other country in Protecting investors South Asia with one is Bangladesh. Four other countries Pakistan provides relatively strong protections for mi- in the region have private credit bureaus. On the credit nority shareholders against the misuse of corporate information index, which measures the depth of avail- assets. It ranks 19th worldwide on protecting investors. able credit information, Pakistan scores 4 out of 6--the In South Asia only Bangladesh ranks higher, at 15th. highest in South Asia. Only 52 countries in the world Pakistan earns consistently high scores for each of the score higher. By comparison India and Sri Lanka score 3, three components of the protecting investors indica- while Bangladesh and Nepal score 2 out of 6. tor: (i) disclosure, (ii) director's liability and (iii) ease of Although the credit information system is relatively shareholder suits. well structured, the coverage is low. The public registry This favorable ranking is a result of recent reforms contains credit information on only 0.3% of adults. The that (i) introduce a code of corporate governance, (ii) private bureau covers only 1.1%. This is in contrast to require insider transactions be approved by the board the 0.6% of adults covered by the public registry in Ban- of directors and (iii) require a range of disclosures be gladesh and the 6.1% and 3.1% coverage of adults by the reported both to the board and in periodic public filings. private bureaus in India and Sri Lanka, respectively. Directors are held accountable with strict penalties if Pakistan's score of 4 out of 10 on the legal rights negligence can be shown. Finally, minority shareholders index indicates weaknesses in collateral and bankruptcy can obtain documents and directly question defendants laws. Pakistan currently ranks 93rd on the index along during lawsuits. with 32 other similarly rated countries--on par with the South Asian average, but lower than Bangladesh (7) and What to reform India (5). More effective enforcement has helped improve compli- ance. But the Securities and Exchange Commission of Pakistan still needs to do more to increase compliance with respect to immediate disclosure of large party- COUNTRY PROFILES 49 related transactions, beneficial ownership and control What to reform by shareholders and companies. Access to information There is an urgent need to further reform tax policy in about specific transactions by minority shareholders Pakistan to widen the tax base and reduce the average prior to filing a lawsuit can also be strengthened. The tax rate. Easing tax administration by lowering the num- burden of proof for holding directors liable is generally ber of taxes and reducing the time to comply is also a high. Finally, Pakistan needs to strengthen compliance priority. The government is taking on both challenges. A with its rules governing annual general shareholder recently launched comprehensive analysis of tax policy meetings. Some companies still do not hold them, or will complement an already strong effort to improve tax hold them in difficult to reach or obscure locations. This administration. Legislative efforts are being driven by the is particularly important because the law does not allow federal government. A number of tax agencies are mod- voting by mail or electronically. ernizing, building capacity and improving the interface between government and business. Archaic complexities Paying taxes in the tax code are being eliminated. Efforts to enable taxpayers to file returns and statements electronically Pakistan ranks 140th on the ease of paying taxes--up are underway. Taxpayers Units and Medium Taxpayers from 143rd last year. Pakistan's tax rate of 43.4% of Units have been established in large cities and so have commercial profit is moderate compared with other Regional Tax Offices and Taxpayer Facilitation Centers. countries in the world and well below India's (81.1%) The effects of the tax reforms have started to show re- and Sri Lanka's (74.9%). But the administration of taxes sults. Pakistan jumped 3 spots in the rankings from last continues to be a principal obstacle to doing business in year--from 143rd to 140th. But further implementation Pakistan. The current tax code is cumbersome, requir- of reforms is needed to continue this rise. ing a standard business to make 47 tax payments per year to various levels of government. Complying with all statutory tax requirements takes an estimated 560 hours Trading across borders per year, placing Pakistan 150th in the world on time Pakistan now ranks 98th on the ease of trading across to comply with taxes (figure 2.17). These numbers are borders--above the South Asian average but some dis- well above the regional average of 30 payments and 304 tance from best practices. Last year Pakistan ranked hours per year. Paying taxes in Pakistan is by far more 117th. Recent reforms have reduced the time to export time consuming than anywhere else in the South Asia (from 33 to 24 days) and import (from 39 to 19 days), region--requiring about 150 more hours to file taxes rivaling or bettering the clearance time recorded in most than Bangladesh (400 hours) and Nepal (408 hours), the other countries in the region (figure 2.18). Pakistan now two South Asian countries that come closest. ranks 91st in the world in time to export and 51st in the world in time to import based on a concerted effort to complement trade liberalization with improved trade FIGURE 2.17 FIGURE 2.18 Paying taxes--number of payments, time Big improvement in the time to import in Pakistan Time (days) Inland Port and terminaltransportation Pakistan 40 handling Europe & Central Asia 50 Customs decrease Pakistan 500 from 14 days to 2 Sub-Saharan Africa 40 Latin America & Caribbean 400 30 South Asia Document 30 300 EastpreparationPaci c Asia & the cut Middle East & North Africa 20 from 18 days to 11 20 200 Total time cut OECD from 39 days to 19 10 100 10 Payments Time 0 (hours) 1 Procedures 4 Source: Doing Business database. Source: Doing Business database. 50 DOINg BUSINESS IN SOUTH ASIA IN 2007 logistics. A similar improvement has been achieved in Enforcing contracts the costs of trade. Sri Lanka ($797 per container), India ($864) and Bangladesh ($902) all have lower export Contract enforcement remains one of the weakest di- costs than Pakistan ($996). mensions of the business environment in Pakistan. Despite these improvements, the number of docu- Pakistan ranks 163rd globally. It takes 880 days--well ments required to import and export remains high by over two years--to enforce a commercial contract. The global standards. Eight documents are needed to export process involves 55 procedures and costs 23% of the from Pakistan, which places the country at 107th in the claim's value. Pakistan compares favorably with India world, while 12 documents are needed for import in (1,420 days) and Bangladesh (1,442 days) on the time Pakistan, putting the country at 120th. needed for a commercial dispute to be resolved through Within Pakistan, Karachi is the cheapest and quick- the courts. However, South Asia as a region does not est city from which to export and import--because of perform well on the enforcing contracts indicator. The the city's proximity to the port and the scale economies smaller countries--Sri, Lanka, Nepal, Bhutan and the from the large volume of trade taking place there. The Maldives--require fewer steps and somewhat less time. slowest and most costly place from which to trade is Pe- The cost of enforcing a contract in Pakistan is on the low shawar, followed by Sialkot and Quetta. Indeed the range end for the region--less than in Nepal (24.4%), India of export times (from 24 days in Karachi to 41 days in (35.7%) and Bangladesh (45.7%). Peshawar) and import times (from 19 days in Karachi Because courts are governed by a national code of to 42 days in Peshawar and Quetta) across the country civil procedure, 55 steps are required to enforce con- is large, reflecting differences in time spent in internal tracts irrespective of the court's location within Pakistan. transport. The same is true of import costs (from $1,005 However, it takes more time and remains costlier to en- in Karachi to $1,786 in Peshawar) and export costs force contracts in large centers such as Karachi, Lahore (from $996 in Karachi to $1,872 in Peshawar). and, increasingly, Faisalabad. Courts in Peshawar and What to reform Quetta resolve disputes more quickly because commu- nity-based councils of tribal elders settle small claims. As Pakistan has focused intensively on reducing the level of a result, those courts can decide other matters--such as trade taxes and administrative burden in recent years. commercial disputes--faster than the courts in Karachi, Quotas have been converted to tariffs, followed by a Lahore and Faisalabad can. Lawyers' fees in Peshawar reduction in the level and number of tariff bands, lower- and Quetta are also lower than in larger cities, which ing average nominal protection levels from 67% to 10% results in a lower overall cost of contract enforcement. over the past decade. Significant gains have been made in reducing the cumbersome procedures for export and What to reform import clearance. In the past the process involved 34 Contract enforcement presents a major challenge to verifications and 62 steps--with an average time of over Pakistan's business environment. Courts are subject to eight days per step and in some cases repeated interven- cumbersome administrative and regulatory require- tions from various public officials. Now, under the pilot ments with the outcome being that a dispute is often project to computerize customs, the clearance process resolved informally rather than in court. Federal and involves only 2 or 3 documents and 2 signatures. provincial governments have been struggling in recent Continued tariff reforms and reforms to trade facili- years to improve the court system, with the support tation are needed to strengthen predictability and stability of large donor projects to support judicial reform. In of trade policy. In particular, a review of documentary re- particular, draft amendments to Pakistan's Code of Civil quirements is needed to build on the gains already made. Procedure aimed at speeding up the litigation process Further improvements in the time to export and import are pending. The amendments seek to (i) make issuing are expected to result from the full implementation of tax summonses faster by issuing them electronically, (ii) and customs reforms currently underway. In addition, limit the number of court adjournments, (iii) impose modernization of harbors, internal transportation cor- fines for bringing frivolous lawsuits and (iv) formalize ridors and the air transportation system--such as those alternative dispute resolution procedures. changes being initiated under the National Trade Corri- Other more fundamental efforts remain under con- dor Project--complement ongoing efforts at the border. sideration. Most importantly, the appointment of judges to fill numerous vacancies at all levels of the court system COUNTRY PROFILES 51 is outstanding. The judiciary decided that attempts to What to reform introduce a federal commercial court were ill-advised, The government has embarked on a comprehensive ef- and the initiative stalled. Specialized administrative and fort to reform corporate legislation by forming the Cor- judicial tribunals to address specific types of cases (e.g., porate Law Reform Commission to rewrite the Com- tax, banking, customs, labor, etc.) at the lower and ap- panies Act, 1984, which governs the insolvency process pellate court levels are being introduced, as are alterna- and reorganization proceedings. Pakistan's approach tive dispute resolution pilot programs for commercial until now was to give banks special powers in insolvency disputes. cases through specialized banking legislation and bank- These and other initiatives reflect the government's ing courts, which has created a creditor-friendly regime. efforts to further its goal of improving market gov- Companies entering insolvency have difficulty reorga- ernance. But there is much to do over the medium nizing as a going concern. term. Improved performance by government officials The "Corporate Rehabilitation Act" has been drafted in implementing regulations will lessen the burden on but it has not yet been presented to parliament. One of the judiciary. Ensuring adequate capacity at the lower the primary purposes of the legislation is to encourage court levels and timely filling of vacancies at the high and facilitate the rehabilitation of viable enterprises court--with dedicated commercial judges--would also and avoid corporate closures through prolonged litiga- contribute to more certainty and predictability in the tion. It is expected that the proposed law will improve enforcement of contract rights. corporate governance, achieve a better balance between creditor and debtor rights, and help prevent unnecessary Closing a business closures. In addition to new legislation, considerable capacity building for supporting professions--including Because of specialized legislation introduced during the accountants, receivers, bankers, judges and other legal banking reform of the late 1990s, Pakistan, on paper, specialists--will be needed to apply the new regime. scores relatively well globally and regionally on the ease of closing a business. Pakistan's 2.8 years to close busi- ness, put it at 69th in the world. It ranks 18th in terms of cost, at 4% of the value of the estate. And with a recovery rate of almost 40%, Pakistan ranks relatively high--46th place globally. Within the South Asia region, the time to close a business in Pakistan is second only to Sri Lanka (2 years) and compares well with India (10 years), Nepal (5 years) and Bangladesh (4 years). Closing a business in Pakistan costs less than anywhere else in the South Asia region-- less than half of the cost in Nepal, India and Bangladesh and less than a quarter of the cost in Sri Lanka. The sys- tem in Pakistan is also highly effective relative to other South Asia countries with the recovery rate much higher than in India (13%), Nepal (25%) Bangladesh (25%) and even Sri Lanka (36%). Although time and recovery rates do not differ dra- matically across cities, the cost to close a business does. It costs 4% of the value of the estate to close a business in Karachi, almost double the cost in Peshawar and Quetta (7%) and more than double in Faisalabad, Lahore and Sialkot (9%). 52 DOINg BUSINESS IN SOUTH ASIA IN 2007 COUNTRY PROFILE SRI LANKA Ranks 4th overall in South Asia Ranking UNITED NEW UNITED NEW HONG KONG BEST (1) SINGAPORE CANADA JAPAN STATES ZEALAND KINGDOM ZEALAND MALDIVES CHINA DENMARK JAPAN 1 5 10 15 20 25 44 30 35 40 60 45 50 55 71 59 60 Sri Lanka 65 70 75 80 85 SOUTH 89 98 90 90 95 ASIA 101 99 100 105 110 RANGE 115 120 125 125 130 135 140 145 150 157 155 160 165 Worst (175) 170 175 Ease of Starting a Dealing with Employing Registering Getting Protecting Paying Trading Enforcing Closing a doing business licenses workers property credit investors taxes across contracts business business borders Sri Lanka ranks 89th on the ease of doing business, the What to reform same as last year. This places Sri Lanka 4th in the South Sri Lanka can encourage more entrepreneurs to register Asia region behind Maldives at 53rd, Pakistan at 74th their businesses formally by simplifying the start-up pro- and Bangladesh at 88th. cess. The final procedure--registering at the Department of Labor-- takes 60% of the total start-up time (figure Starting a business 2.19). These delays could be reduced or even eliminated entirely if the registrar of companies were computerized Sri Lanka ranks 44th in terms of ease of starting a new and connected to the Department of Labor. Similarly, business, down slightly from last year's position of 39th. the registrar of companies could also act as a "single In absolute terms it remains just as easy, or difficult, as window" for tax registration. Start-up could be further it was last year to open a new business in Sri Lanka, but simplified by introducing standardized memoranda and during the past year other countries have improved. articles of association. With these, there would be no Although there is no minimum capital required, a need for pre-approval and notarization of the docu- new start-up still needs to go through 8 separate proce- ments, cutting 2 procedures from the process. dures which takes 50 days and costs approximately $100. Meanwhile, other countries in South Asia have contin- ued to reduce the number of days to start a new business Dealing with licenses from 35 days on average last year to 32.5 days this year. Sri Lanka ranks 71st in the world in terms of dealing with licenses, up from 77th last year. Despite a reduction FIGURE 2.19 Start-up time and cost in Sri Lanka in the number of procedures from 18 to 17, the process remains cumbersome, lengthy (167 days) and costly Time (days) Cost (% of income per capita) 50 10 (151% of income per capita). In South Asia, only Bhutan and India have more procedures. Obtaining the building 40 8 permit alone takes 75 days on average and accounts for Cost Time almost one-third of the cost. 30 6 What to reform 20 4 Reforms should focus on speeding the procedures to issue building permits and ensure conformity, as these 10 2 are the biggest bottlenecks. Reducing the time to process documents for the permit and the certificate of confor- 0 0 1 mity is a start. Cutting costs is the next step. In Colombo, Procedures 8 obtaining the building permit costs more than $400. Source: Doing Business database. Many other countries charge no fees to issue a building COUNTRY PROFILES 53 permit. Finally, reforms can target the cost of connecting to changes in market conditions. But Sri Lanka's rigid to utilities. It costs more than $550 to connect to electric- labor regulations prevent such responses and lead to ity and $220 to get a telephone line in Colombo. Build- several unforeseen outcomes. Firstly, firms recruit more ers should be permitted to install the basic connection staff on a contract basis, implying reduced training and themselves if they choose to. productivity levels. Secondly, employers are driven to pay a lower equilibrium wage-rate than would otherwise Employing workers prevail. Thirdly, since the cost of reducing staff levels is prohibitive, employers that are hit especially hard in Sri Lanka ranks 98th in terms of employing workers, downturns are forced to declare bankruptcy, thereby let- unchanged from last year. Employing workers in Sri ting their entire workforce go. Lanka remains straight forward with the difficulty of But perhaps the two most significant impacts of Sri hiring index at zero. Recent changes in the legislation Lanka's rigid labor laws are to push workers into the in- governing overtime also provide Sri Lanka with a flex- formal sector and stifle new job creation. 62% of jobs in ible and accommodative environment when it comes to Sri Lanka remain in the informal sector. There, workers rigidity of hours. have no health or social benefits and are not protected Although it is easy to hire it is almost impossible by any contracts. Resilient growth in recent years has to fire a worker. Sri Lanka remains at the bottom of the not been matched by more jobs or higher wage rates. rankings in terms of difficulty of firing workers. The cost Young workers are forced to seek opportunities overseas, of firing is higher in only three countries compared to Sri mostly in menial jobs in the Middle East. Lanka, where it costs 178 weeks of wages (table 2.8). Sri Lanka can reverse this trend immediately by On top of the difficulty of firing, Sri Lanka's broader reforming the Termination of Workers Act of 1971. labor regulations are extremely complex and rigid. The Mandated severance payments should be reduced in line country has more than 48 labor laws, many of which with international best practice. The intervention of the date to the 1970s--a period in which Sri Lanka had a Commissioner of Labor should not be required every closed and statist economy. Labor regulations mandate time a company seeks to make an employee redundant. more holidays and leave than almost any other country These are all stroke-of-the-pen reforms that can be ac- in the world. National holidays include every full moon complished quickly if the government has the political and eight other festivals. Workers also receive 21 days will to do so. annual leave and 21 days sick leave, which are often taken as an entitlement rather than a fallback. Registering property What to reform Sri Lanka ranks 125th in terms of the cost of registering Reforming labor law is an urgent priority. The Sri property. Registering property requires 8 different pro- Lankan economy is characterized by repeated shocks in- cedures and takes 63 days, while the registration itself cluding natural disasters and civil conflict and is highly costs around 5% of the property value. Government vulnerable to exogenous factors such as the price of oil stamp duties account for 80% of the cost. No reforms to and trading terms for commodity exports. As such busi- property registration have taken place for several years. nesses in Sri Lanka need to respond regularly and swiftly What to reform Table 2.8 Expensive to fire workers in Sri Lanka The government can encourage formal registration Costtodismissaredundantworker(weeksofwages) of property by reducing the 4% stamp duty. Typically Lowest Highest reductions in fees lead to more revenues, as more prop- NewZealand 0 Argentina 139 erties are registered and there is less underreporting of UnitedStates 0 Mozambique 143 property values. In Pakistan the transfer fee is only 2%; Italy 2 Ghana 178 Romania 3 Sri Lanka 178 in Bhutan, 1%. Procedures can also be simplified by cut- Australia 4 Zambia 178 ting documentation. Currently a business spends at least Singapore 4 Egypt 186 a third of the time to register just obtaining documents Georgia 4 SierraLeone 329 Jordan 4 Zimbabwe 446 from the municipality. Beyond this, the government can focus on increasing the security of property rights by Source: Doing Businessdatabase. 54 DOINg BUSINESS IN SOUTH ASIA IN 2007 improving the way that the registry functions. Potential Protecting investors areas of reform include automating the land registry to improve processing time and the accuracy of records. Sri Lanka ranks 60th in terms of protecting investors, which places it behind India, Bangladesh and Pakistan Getting credit and on a par with Nepal and the Maldives. Afghanistan and Bhutan rank lower than Sri Lanka on the strength of Access to credit is consistently rated by small and me- investor protection. In comparisons to countries outside dium Sri Lankan firms as one of the greatest barriers to the region, Sri Lanka is on a par with Indonesia but still doing business. Although Sri Lanka has not made any behind Thailand and Malaysia. Sri Lanka scores the low- changes in this area over the past year, other countries est in the disclosure measurements, receiving only 4 out have, and so Sri Lanka has slipped from 96th to 101st in of 10 points on the extent of disclosure index. There are the global getting credit ranking. no requirements to immediately disclose transactions Sri Lanka's credit information bureau, a public-pri- with conflicts of interest to shareholders or the general vate partnership between the Central Bank of Sri Lanka public, nor are inside dealings required to be reviewed and several commercial banks, has started to extend its by an outside body. Scores are only modestly higher on reach by increasing the percentage of adults covered the director liability index, showing that investors have from 2.2% of all adults to 3.1% in the past year. little power to hold a director liable for misconduct to- What to reform wards the company. The Sri Lanka's highest score (7 out of 10) is in the shareholder suit index--reflecting the Access to credit can be expanded by reforming secured relative ease with which an investor can have his dispute transaction and bankruptcy laws to provide lenders with resolved in court. clear priority to the proceeds from collateral. Improving the quality of credit information is also important. Banks What to reform currently submit credit information on paper, which is Sri Lanka can improve its investor protections by provid- later entered electronically into a database. This two-step ing greater transparency for company operations. This process can result in errors. The credit bureau needs to will encourage investors to take equity stakes in more require data to be submitted electronically. Moreover, companies, and will lower the premium on holding a 40% of the bureau's records are missing unique national controlling share. The first step toward this could be to identification numbers, which makes it difficult for lend- impose an immediate disclosure requirement for large, ers to use the information and also allows for individu- related-party transactions (between a company and als to be attributed wrong information. Since banks are individual members of its management). Mandating ex- required to see an identification or passport number to ternal audits on suspicious transactions can also reduce issue a loan, banks should be required to include this improper activities within a company. information in credit bureau records. The Sri Lankan authorities are considering request- The board of the Credit Registry Information Bu- ing a Report on Observance of Standards and Codes reau (CRIB) has approved legal amendments in order to (ROSC) for their country. The objective of the ROSC is (i) collect data from various new sources (utility provid- to determine how corporate governance works in prac- ers, retailers, insurers, etc.), (ii) extend CRIB services to tice. The assessment focuses on shareholder rights, equi- such data providers, (iii) provide other services such as table treatment of shareholders, the role of stakeholders, credit scoring and fraud prevention, (iv) provide dispute disclosure and transparency, and duties of the board of settlement and consumer protection, and (v) purchase companies. Completing such a study and publishing its the latest information and communications technology. results in an open and transparent manner as well as These amendments need to be fully implemented. implementing the recommendations will go a long way to improving investor protections. COUNTRY PROFILES 55 Paying taxes with government's bureaucratic and onerous tax regime. It also creates numerous opportunities for rent-seeking Sri Lanka ranks 157th in the world and well below the behavior among domestic and international companies South Asia average on the ease of paying taxes. Busi- vying for Board of Investment status. nesses must make 61 different payments per year and spend an average of 256 hours to comply with tax rules. But perhaps the biggest obstacle is the cumulative ef- Trading across borders fective tax rate which at 74.9% of commercial profits is A recent investment climate study conducted by the exceeded by only 18 countries worldwide. The result is World Bank and the Asian Development Bank found significant tax evasion and avoidance. that Sri Lanka's ports were more efficient than many of In recent years the tax situation has deteriorated its South Asian neighbors. However, that competitive considerably. The corporate tax code is now much more advantage is gradually eroding as its competitors improve burdensome than last year when close to 71.7% of com- efficiency. Sri Lanka dropped to 99th from 90th on the mercial profits were payable in tax. Additional measures ease of trading across borders during the last year. It takes introduced in 2005 include a Social Responsibility Levy 27 days and 13 documents to import goods. Exporting is at 0.25% of profits and a stamp duty made effective in only marginally better taking 25 days and 8 documents. April 2006. Deductible expenses for advertising were While competitors have narrowed the gap, Sri reduced to 50% during the past year. Businesses will Lanka remains at the top of the South Asian league with face even more difficulties paying tax following a budget only the Maldives and Pakistan ahead in terms of port passed in November 2006, which further complicates competitiveness. However as a small island economy de- the tax code, introduces a number of new taxes and pendent on a thriving export sector, it is important that limits exemptions. Sri Lanka continue to improve its trade performance to What to reform world class levels. Singapore takes only 3 days for im- ports and 6 days for exports and its container shipments Several countries have shown that low corporate tax cost less than half those from Sri Lanka. rates can attract potential investors. Two decades ago, Ireland realized that by having a lower corporate tax rate What to reform it could position itself as a gateway to Europe. Sri Lanka In improving port efficiency, Sri Lanka need look no has a similar opportunity to position itself as a gateway further than Colombo for inspiration. The privately built to Asia and reestablish its historical role as a regional and operated South Asia Gateway Terminal (SAGT) has entrepôt. This would require considerable simplification operated alongside the publicly owned Jaya Container of the Sri Lankan tax code. The number of payments can Terminal of the Sri Lanka Port Authority for some years be reduced by consolidating some taxes and eliminating now. The private sector terminal has spurred competi- other minor ones that significantly increase hassle but tion and efficiency within the public sector, while the not revenues. To be competitive in today's environment publicly run terminals remain behind. Most importantly the total tax rate payable should be significantly below difficult labor relations continue to plague the pub- the current rate. lic sector operations. A high profile strike at the Jaya Despite consistent increases in tax rates Sri Lanka's Container Terminal in 2006 threatened Sri Lanka's key total revenue to GDP ratio has dropped from around export sectors. The privately run SAGT mitigated the 22% to as low as 14% in 2005. This is clearly an indica- damage, operating around the clock to ensure that as tion of increased tax avoidance. Larger companies have many shipments as possible went out on time. found ways to avoid paying Sri Lanka's high taxes by Sri Lanka can boost trade and reduce corruption in establishing themselves in one of the island's numerous customs by cutting red tape in the import and export export processing zones, run by the Board of Invest- process. More efficient customs and ports are especially ment, which offer generous tax holidays and conces- important for the garments sector, which depends heav- sions--75% of manufacturing now takes place in the ily on imported textiles. There is much scope to improve. zones. This practice reduces revenues and creates a non- Port tariffs remain high, resulting in burdensome ship- level playing field between large investors in the zones ping costs. Moves per hour could also be significantly and smaller domestic entrepreneurs that are struggling increased. One potential reform is to adopt the landlord 56 DOINg BUSINESS IN SOUTH ASIA IN 2007 port model to sharpen the distinction between the man- Closing a business agement of the port and the operations of the terminals, thereby introducing private sector management without When a firm becomes insolvent in Sri Lanka, the average a transfer of assets to the private sector. Another area creditor receives around 36 cents on the dollar. It takes to improve is customs administration, which remains 2 years and costs about 18% of the estate value to go outdated. Large gains can be made with simple reforms, through bankruptcy. This places Sri Lanka in 59th place such as standardizing paperwork and eliminating un- globally and far ahead of South Asian rivals where credi- necessary documentation requirements. tors can spend on average 4 years and recover only 20 cents on the dollar. India in particular has the most inef- Enforcing contracts ficient bankruptcy practices in the world--it takes over 10 years to recover just 13 cents on the dollar. Figure Sri Lanka ranks 90th in terms of the ease of enforcing a 2.20 shows that although bankruptcy is fairly quick in contract. It takes 837 days and 20 procedures to enforce a Sri Lanka, the cost for failed entrepreneurs to go through contract (table 2.9). Such delays have several perverse ef- bankruptcy is the highest in South Asia. fects on the way business is conducted. First, many busi- nesses will prefer not to resort to the courts even for the What to reform simplest matters. Other businesses are tempted to bring Terminating employees' contracts is the biggest obstacle, frivolous court cases against their competitors, know- both in terms of time and cost, to winding up a com- ing that they can effectively tie up their competition pany in Sri Lanka. The government can significantly cut for years in lengthy and costly disputes. Such practices delays in bankruptcy by amending the Termination of encourage businesses to trade with a narrow group of Employment Act to speed up the dismissal process and known business partners, or simply internalize the risks to reduce the severance package that has to be offered and avoid trade altogether. Either way, growth is seri- at the termination. Reforms that cut opportunities for ously hindered. Lengthy delays in court procedures also frivolous appeals as well as provide incentives for bank- create the opportunity for rent-seeking behavior among ruptcy administrators to maximize the value of the estate the South Asian judiciary. will also increase recovery rates in bankruptcy--and What to reform expand access to finance as a result. FIGURE 2.20 Lengthy procedures and limited capacity of the judiciary Closing a business in Sri Lanka--short time, high cost in commercial law matters are the biggest obstacles to faster contract enforcement in Sri Lanka. The govern- India Sri Lanka ment can start by reforming the appeals process. In Sri 8 Lanka, appeals on procedural matters are allowed at any point during the trial, there is a comprehensive review Maldives 6 upon appeal, and once an appeal is made enforcement Nepal India, Nepal is suspended until the appeal is resolved. Not surpris- Bangladesh 4 Bangladesh ingly, defendants use appeals as a delay tactic. Sri Lanka Pakistan can follow other reformers--most recently Brazil in Sri Lanka 2 Maldives, Pakistan 2005--by removing opportunities for frivolous appeals and allowing cases to continue upon appeal. As a next step, establishing specialized commercial sections of the Time Cost (years) (% of estate) court or training judges to specialize in commercial mat- Source: Doing Business database. ters could also cut delays and cost. Table 2.9 Enforcing a contract in Sri Lanka Numberofprocedures 20 Judgementperiod(days) 595 Time(days) 837 Enforcementperiod 180 Filingperiod(days) 62 Cost(%ofclaim) 21.3 Source: Doing Businessdatabase. 57 Appendix I Indicators for South Asia, including sub-national indicators for Bangladesh, India and Pakistan 58 Doing Business in souTH AsiA in 2007 DOING BUSINESS INDICATORS AFGHANISTAN BANGLADESH BHUTAN INDIA MALDIVES NEPAL PAKISTAN SRI LANKA Ease of doing business (rank) 162 88 138 134 53 100 74 89 Classification by income LOW LOW LOW LOW LOWERMIDDLE LOW LOW LOWERMIDDLE GNI per capita (US$) 270 470 870 720 2,390 270 690 1,160 Population (millions) 24.8 141.8 0.9 1,094.6 0.3 27.1 155.8 19.6 STARTING A BUSINESS Procedures(numbers) 3 8 10 11 5 7 11 8 Time(days) 8 37 62 35 13 31 24 50 Cost(%ofincomepercapita) 67.4 87.6 16.6 73.7 18.1 78.5 21.3 9.2 Minimumcapital(%ofincomepercapita) 0 0 0 0 7 0 0 0 DEAlING wITh lICENSES Procedures(number) .. 13 26 20 10 15 12 17 Time(days) .. 185 204 270 118 424 218 167 Cost(%ofincomepercapita) .. 272.3 263.4 606.0 40.2 324.0 972.9 151.0 EmplOyING wORkERS Difficultyofhiringindex(0-100) 67 11 78 33 0 67 78 0 Rigidityofhoursindex(0-100) 40 40 40 20 0 20 20 20 Difficultyoffiringindex(0-100) 30 40 0 70 0 70 30 60 Rigidityofemploymentindex(0-100) 46 30 39 41 0 52 43 27 Nonwagelaborcost(%ofsalary) 0 0 1 17 0 10 12 15 Firingcost(weeksofwages) 4 51 95 56 9 90 90 178 REGISTERING pROpERTy Procedures(number) 11 8 5 6 NOPRACTICE 3 6 8 Time(days) 252 425 93 62 NOPRACTICE 5 50 63 Cost(%ofpropertyvalue) 9.5 10.5 0 7.8 NOPRACTICE 6.4 4.4 5.1 GETTING CREDIT CreditInformationIndex 0 2 0 3 0 2 4 3 LegalRightsIndex 0 7 3 5 4 4 4 3 Publicregistrycoverage(%adults) 0 0.6 0 0 0 0 0.3 0 Privatebureaucoverage(%adults) 0 0 0 6.1 0 0 1 3.1 pROTECTING INvESTORS DisclosureIndex(0-10) 0 6 6 7 0 6 6 4 DirectorLiabilityIndex(0-10) 0 7 3 4 8 1 6 5 ShareholderSuitsIndex(0-10) 2 7 4 7 8 9 7 7 InvestorProtectionIndex(0-10) 0.7 6.7 4.3 6.0 5.3 5.3 6.3 5.3 pAyING TAxES Payments(number) 2 17 19 59 1 35 47 61 Time(hours) 275 400 274 264 0 408 560 256 Totaltaxrate(%ofprofit) 36.3 40.3 43.0 81.1 9.3 32.8 43.4 74.9 TRADING ACROSS BORDERS Documentsforexport(number) 7 7 10 10 8 7 8 8 Timeforexport(days) 66 35 39 27 15 44 24 25 Costtoexport(US$percontainer) 2,500 902 1,230 864 1,000 1,599 996 797 Documentsforimport(number) 11 16 14 15 9 10 12 13 Timeforimport(days) 88 57 42 41 21 37 19 27 Costtoimport(US$percontainer) 2,100 1,287 1,950 1,244 1,784 1,800 1,005 789 ENfORCING A CONTRACT Procedures(number) .. 50 34 56 28 28 55 20 Time(days) 1,642 1,442 275 1,420 665 590 880 837 Cost(%ofclaim) 25 45.7 20.2 35.7 16.2 24.4 22.6 21.3 ClOSING A BUSINESS Time(years) NOPRACTICE 4 NOPRACTICE 10.0 6.7 5.0 2.8 2.2 Cost(%ofestate) NOPRACTICE 8 NOPRACTICE 9 4 9 4 18 Recoveryrate(centsonthedollar) 0 24.9 0 13 18.2 24.5 39.9 35.6 APPenDiX i inDicATor TABles · 59 BANGlADESh SUBNATIONAL INDICATORS BOGRA CHITTAGONG DHAKA KHULNA STARTING A BUSINESS Procedures(numbers) 8 8 8 8 Time(days) 30 37 37 30 Cost(%ofincomepercapita) 61.9 61.9 87.6 61.9 Minimumcapital(%ofincomepercapita) 0 0 0 0 DEAlING wITh lICENSES Procedures(number) 14 15 13 13 Time(days) 146 150 185 189 Cost(%ofincomepercapita) 114.7 128.5 272.3 103.7 EmplOyING wORkERS Difficultyofhiringindex(0-100) 11 11 11 11 Rigidityofhoursindex(0-100) 40 40 40 40 Difficultyoffiringindex(0-100) 40 40 40 40 Rigidityofemploymentindex(0-100) 30 30 30 30 Nonwagelaborcost(%ofsalary) 0 0 0 0 Firingcost(weeksofwages) 51 51 51 51 REGISTERING pROpERTy Procedures(number) 7 7 8 7 Time(days) 391 391 425 373 Cost(%ofpropertyvalue) 9.7 9.7 10.5 9.9 GETTING CREDIT CreditInformationIndex 2 2 2 2 LegalRightsIndex 7 7 7 7 Publicregistrycoverage(%adults) 0.6 0.6 0.6 0.6 Privatebureaucoverage(%adults) 0.0 0.0 0.0 0.0 pROTECTING INvESTORS DisclosureIndex(0-10) 6 6 6 6 DirectorLiabilityIndex(0-10) 7 7 7 7 ShareholderSuitsIndex(0-10) 7 7 7 7 InvestorProtectionIndex(0-10) 6.7 6.7 6.7 6.7 pAyING TAxES Payments(number) 17 17 17 17 Time(hours) 400 400 400 400 Totaltaxrate(%ofprofit) 40.3 40.3 40.3 40.3 TRADING ACROSS BORDERS Documentsforexport(number) 11 11 7 11 Timeforexport(days) 43 25 35 37 Costtoexport(US$percontainer) 582 553 902 555 Documentsforimport(number) 11 12 16 11 Timeforimport(days) 46 24 57 40 Costtoimport(US$percontainer) 979 885 1,287 872 ENfORCING A CONTRACT Procedures(number) 50 50 50 50 Time(days) 1,790 1,400 1,442 1,373 Cost(%ofclaim) 40.4 43.6 45.7 40.2 ClOSING A BUSINESS Time(years) NOPRACTICE NOPRACTICE 4 NOPRACTICE Cost(%ofestate) NOPRACTICE NOPRACTICE 8 NOPRACTICE Recoveryrate(centsonthedollar) NOPRACTICE NOPRACTICE 24.9 NOPRACTICE 60 Doing Business in souTH AsiA in 2007 INDIA BANGALORE BHUBANESHWAR CALCUTTA CHANDIGARH CHENNAI HYDERABAD JAIPUR LUCKNOW MUMBAI SUBNATIONAL INDICATORS Karnataka Orissa West Bengal Punjab Tamil Nadu Andhra Pradesh Rajasthan Uttar Pradesh Maharashtra STARTING A BUSINESS Procedures(numbers) 11 11 11 10 11 12 10 11 11 Time(days) 45 52 51 45 41 43 42 42 35 Cost(%ofincomepercapita) 55.6 41.3 48.5 48.8 44.0 44.0 50.1 43.5 73.7 Minimumcapital(%ofincomepercapita) 0 0 0 0 0 0 0 0 0 DEAlING wITh lICENSES Procedures(number) 20 16 24 22 21 24 20 22 20 Time(days) 165 159 386 195 219 168 240 231 270 Cost(%ofincomepercapita) 1,363 413.5 1,999 646.5 483.0 500.1 515.0 470.8 606.0 EmplOyING wORkERS Difficultyofhiringindex(0-100) 33 33 33 33 33 33 33 33 33 Rigidityofhoursindex(0-100) 20 20 20 20 20 20 20 20 20 Difficultyoffiringindex(0-100) 70 70 70 70 70 70 70 70 70 Rigidityofemploymentindex(0-100) 41 41 41 41 41 41 41 41 41 Nonwagelaborcost(%ofsalary) 17 17 17 17 17 17 17 17 17 Firingcost(weeksofwages) 56 56 56 56 56 56 56 56 56 REGISTERING pROpERTy Procedures(number) 6 7 5 6 8 5 5 5 6 Time(days) 35 123 155 132 63 35 56 43 62 Cost(%ofpropertyvalue) 11 13.5 12.3 9.8 10.6 10.6 9.9 11.6 7.8 GETTING CREDIT CreditInformationIndex 3 3 3 3 3 3 3 3 3 LegalRightsIndex 5 5 5 5 5 5 5 5 5 Publicregistrycoverage(%adults) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Privatebureaucoverage(%adults) 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 pROTECTING INvESTORS DisclosureIndex(0-10) 7 7 7 7 7 7 7 7 7 DirectorLiabilityIndex(0-10) 4 4 4 4 4 4 4 4 4 ShareholderSuitsIndex(0-10) 7 7 7 7 7 7 7 7 7 InvestorProtectionIndex(0-10) 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 pAyING TAxES Payments(number) 60 59 60 59 63 60 60 59 59 Time(hours) 264 264 264 264 264 264 264 264 264 Totaltaxrate(%ofprofit) 81.0 79.6 80.8 79.6 81.1 82.0 83.4 81.7 81.1 TRADING ACROSS BORDERS Documentsforexport(number) 9 11 11 10 7 9 10 9 10 Timeforexport(days) 22 20 18 27 17 20 21 27 27 Costtoexport(US$percontainer) 755 996 505 1,029 580 706 950 875 864 Documentsforimport(number) 9 11 11 10 5 9 10 6 15 Timeforimport(days) 23 28 22 27 22 24 28 29 41 Costtoimport(US$percontainer) 962 1,166 1,000 1,154 892 850 1,163 1,035 1,244 ENfORCING A CONTRACT Procedures(number) 56 56 56 56 56 56 56 56 56 Time(days) 800 610 942 915 683 770 754 950 1,420 Cost(%ofclaim) 16.5 14.5 18.6 25.1 25.4 21 16.3 18.4 35.7 ClOSING A BUSINESS Time(years) 7.3 10.2 19.6 8 9.5 8 9.3 15.2 10 Cost(%ofestate) 4 4 4 4 4 4 4 4 9 Recoveryrate(centsonthedollar) 19.5 14.5 5.5 18.1 15.5 18.1 15.9 8.7 13 APPenDiX i inDicATor TABles · 61 INDIA pAkISTAN NEWDELHI PATNA RANCHI FAISALABAD KARACHI LAHORE PESHAWAR QUETTA SIALKOT SUBNATIONAL INDICATORS Delhi Bihar Jharkhand Punjab Sindh Punjab NWFP Baluchistan Punjab STARTING A BUSINESS Procedures(numbers) 11 11 11 10 11 10 10 11 10 Time(days) 52 41 46 23 24 23 23 25 23 Cost(%ofincomepercapita) 43.6 44.1 59.3 16.2 21.3 16.2 16.2 16.9 16.2 Minimumcapital(%ofincomepercapita) 0 0 0 0 0 0 0 0 0 DEAlING wITh lICENSES Procedures(number) 21 25 25 13 12 13 13 18 14 Time(days) 208 377 522 200 218 231 163 245 211 Cost(%ofincomepercapita) 331.4 277.0 354.5 795.7 972.9 661.8 657.5 768.4 970.0 EmplOyING wORkERS Difficultyofhiringindex(0-100) 33 33 33 78 78 78 67 78 78 Rigidityofhoursindex(0-100) 20 20 20 20 20 20 20 20 20 Difficultyoffiringindex(0-100) 70 70 70 30 30 30 30 30 30 Rigidityofemploymentindex(0-100) 41 41 41 43 43 43 39 43 43 Nonwagelaborcost(%ofsalary 17 17 17 12 12 12 12 12 12 Firingcost(weeksofwages) 56 56 56 90 90 90 90 90 90 REGISTERING pROpERTy Procedures(number) 6 5 6 9 6 8 9 12 7 Time(days) 138 119 86 38 50 41 46 93 43 Cost(%ofpropertyvalue) 10.1 12.8 5.6 4.1 4.4 4.1 5.5 8.1 4.1 GETTING CREDIT CreditInformationIndex 3 3 3 4 4 4 4 4 4 LegalRightsIndex 5 5 5 4 4 4 4 4 4 Publicregistrycoverage(%adults) 0.0 0.0 0.0 0.3 0.3 0.3 0.3 0.3 0.3 Privatebureaucoverage(%adults) 6.1 6.1 6.1 1.0 1.0 1.0 1.0 1.0 1.0 pROTECTING INvESTORS DisclosureIndex(0-10) 7 7 7 6 6 6 6 6 6 DirectorLiabilityIndex(0-10) 4 4 4 6 6 6 6 6 6 ShareholderSuitsIndex(0-10) 7 7 7 7 7 7 7 7 7 InvestorProtectionIndex(0-10) 6.0 6.0 6.0 6.3 6.3 6.3 6.3 6.3 6.3 pAyING TAxES Payments(number) 60 63 60 47 47 47 47 48 47 Time(hours) 264 264 264 560 560 560 560 560 560 Totaltaxrate(%ofprofit) 82.0 83.3 87.7 44.8 43.4 44.8 43.5 44.5 44.8 TRADING ACROSS BORDERS Documentsforexport(number) 11 11 11 8 8 8 9 8 8 Timeforexport(days) 22 21 26 25 24 26 41 27 34 Costtoexport(US$percontainer) 1,030 875 827 1,105 996 1,250 1,872 1,566 1,680 Documentsforimport(number) 11 11 11 8 12 8 12 11 8 Timeforimport(days) 24 25 28 31 19 29 42 42 39 Costtoimport(US$percontainer) 1,135 1,175 1,105 1,105 1,005 1,250 1,786 1,566 1,680 ENfORCING A CONTRACT Procedures(number) 56 56 56 55 55 55 55 55 55 Time(days) 900 792 1,165 870 880 875 730 755 735 Cost(%ofclaim) 33.7 22.1 23.5 16.8 22.6 21.9 12.3 13.8 14.6 ClOSING A BUSINESS Time(years) 7.9 9.3 8.5 3 2.8 3 3 3 3 Cost(%ofestate) 4 4 4 9 9 9 7 7 9 Recoveryrate(centsonthedollar) 18.3 15.9 17.2 34.4 34.4 34.4 35.9 35.9 34.4 63 Appendix II Data details 64 Doing Business in south asia 2007 Starting a BuSineSS Procedure 2. Two lawyers verify the Memorandum and Articles of Association Afghanistan Time to complete: 1day Standardized Company Legal Form: Private Limited Liability Company Cost to complete: USD100(mayvary) Minimum Capital Requirement: 0 City: Kabul Procedure 3. Buy Adhesive Stamp from Treasury for Memoran- dum and Articles of Association. Procedure 1. Obtain Business License (AISA) Time to complete: 1day Time to complete: 6days Cost to complete: BDT5000 Cost to complete: USD132 Comment: SpecialadhesivestampofTk.500/-(fivehundred)forMemorandum Comment: Requireddocumentation: ofAssociationandTk.4,500forArticlesofAssociationwillhavetobeaffixed -basicinformationonthebusinesssuchassectorsofoperationandnumberof whilesubmissionforincorporation/registration.Specialadhesivestampsare employees availablefromtheTreasuryproductionofreceiptofpaymenttotheBangladesh -personaldataontheownersofthebusiness,suchasnationalidentification Bank.ThecompanycanbuynonjudicialstampsfromtheGeneralPostOffice cardnumbers (GPO)oralternativelyfromthestampvendorsinthecourtpremises. -Signatureofthelandlordandaddressoftheproperty -2passportphotos Procedure 4. File documents with the Registrar of Joint Stock AISAisaone-stopshop,createdinlate2003.Itsstaffisresponsiblefor: Companies and Firms for registration -cross-checkingforanyexistingcompanynames -backgroundcheckonoutstandingfinancialobligationsofthefounders Time to complete: 14days -obtainingthecriminalrecordofthedirectorattheMinistryofInterior Cost to complete: BDT4800 -obtainingthecompanytaxidentificationnumber(TIN)fromtheMinistryof Comment: Fordomesticcompaniestheregistrationfeesdependonthecapital Finance ofthecompany:upto1crore(10milliontakas):5800takas;Next1crore-1500 -registrationwithCommercialCourtofMinistryofJustice takas.Ifthecompanyisregisteredasaforeigncompany,governmentregistra- -publicationinreputableAfghannewspaper tionfeesamounttoTk.795. Costs:1500Afghanisforpublicationofnewspaperannouncement Govt.Registration Licensefees:US$100(uptoUS$10,000),US$700(US$10,001to1,000,000), FeesofTk795(registryprovidedthisfigure-isittrue?)1095(dependenton US$1,000(US$1,000,001andup) theauthorizedcapitalofthecompany)ispaidintheRegistraralongwiththe PaymentismadeinpersonatAISAatthetimeoflicenseapplication followingdocuments:(1)NameClearanceCertificate;(ii)3copiesofMemoran- dumofAssociation;(iii)3copiesofArticlesofAssociation(iv)FormNos.I,VI,IX, Procedure 2. Pick up business license XandXII;(v)EncashmentCertificate(ifsubscribersarenon-residents);(vi)Tax IdentificationNo.(ofresidentsubscribers Time to complete: 1day Cost to complete: includedinprocedure1 Procedure 5. Make a company seal. Comment: Afterthelicensehasbeenissued,thecompanypersonallypicksit upatAISA. Time to complete: 1day Cost to complete: USD1 Procedure 3. Obtain operational license (AISA) Procedure 6. Register with the tax authority Time to complete: 1day Cost to complete: USD50 Time to complete: 9days Comment: Thissecondlicenseisrequiredoncethecompanyhasbecome Cost to complete: BDT2000(incidentalcharges) operational.Toobtainthelicense,thecompanywillhavetoshowproofofits Comment: Everycompanyinordertocommencebusinessmustregistraritself equipmentandactivities. withtheconcernedtaxationauthority(DeputyCommissionofTaxesofCom- Note:Proceduressometimestakeplacesimultaneously.Instancesofthisare panyCircle,ZonalTaxationDepartment)undertheNationalBoardofRevenue markedwithanasterisk(*). (NBR)andprocureaTINNo.(TaxInformationNo.)forthenewcompany. starting a Business Procedure 7*. Register for VAT Bangladesh Time to complete: 7days(simultaneouswithprocedure6) Standardized Company Legal Form: Private Limited Liability Company Cost to complete: nocharge Minimum Capital Requirement: 0 Comment: SeparateregistrationforthepurposeValueAddedTaxmaybe City: Dhaka obtainedfromtheCustoms,ExciseandVATCommissionunderNBR.Thevarious ValueAddedTaxes(VAT)incurredwhileoperatingwillberegulatedbythezonal Procedure 1. Verify with the Registrar of Joint Stock Companies "Customs,ExciseandVATCommission". and Firms the uniqueness of the proposed company name; Procedure 8. Obtain a trade license. Time to complete: 5days Time to complete: 6days Cost to complete: BDT305 Cost to complete: BDT5,000(2,000governementfee) Comment: AnapplicationinplainpaperalongwiththeResolutionapprovedby thepromoters/sponsorsoftheproposedcompanyregardingproposednames Comment: TheTradeLicenseisobtainedfromtheCityCorporation.Theap- ofthecompanytobeformed,authorizedsharecapitaloftheproposedcom- plicationforatradelicensewouldhavetobeaccompaniedwiththefollowing panyandthenamesoftheproposedchairman/director(s)/shareholderswho documents:acertifiedcopyoftheArticlesandMemorandumofAssociationof haveagreedtosubscribesharesoftheproposedcompanyistobesubmitted theCompany,acopyofthecertificateofincorporation,statementofbanksol- byanypersonauthorizedbythepromoters/sponsorsoftheproposedcompany vencyofthecompany,TINCertificateofthecompany,acopyofthehouserent totheRegistraroftheJointStockCompaniesforverificationandavailabilityof agreementoftheofficeofthecompany,threecopiesofphotographofperson theproposednamefornewregistration.Thesearchforthecompanynamewas inchargeofthemainfunctionsofthecompanywithhisparticulars. computerizedin2003.TheRegistrarpublishesonadailybasisreservedand/or rejectednamesofcompanies.Applicationformscanbedownloadedfromthe Note: Procedures sometimes take place simultaneously. Instances of Registrar'swebsite(http://roc.gov.bd),whichalsoprovidesfeeschedulesand this are marked with an asterisk (*). modelformsformemorandumandarticlesofassociation. appenDix ii · Data Details 65 starting a Business IftheArticlesofAssociationIncorporationaresatisfactory,theRegistrarof Bhutan Companieswillrecordallinformationinitscomputerdatabase-CREGandprint Standardized Company Legal Form: Limited Liability Company twocopiesoftheCertificateofIncorporation.Apaperfileisalsoopenedforthe Minimum Capital Requirement: 0 newcompany. RegistrationIncorporationfeescheduleassetinscheduleIVoftheCompanies City: Thimphu ActofKingdomofBhutan,2000 AuthorizedsharecapitalnotexceedingNu.1,000,000. . . . . Nu.1000 Procedure 1. Obtain a clearance from the Royal Bhutan Police ExceedingNu1,000,000,butlessthanNu2,000,000. . . . . . Nu.1500 Time to complete: 1dayto30days(1dayifitisainvestorfromThimpuinvest- ExceedingNu.2,000,000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nu.2000 inginThimpu) Cost to complete: nocharge Procedure 5. Obtain a location clearance from the City Council or Comment: RoyalBhutanPoliceverifiestheadverserecordwiththecriminal the District Administrators branchandtherespectivedistrictwheretheapplicantoriginallylived.Thisclear- Time to complete: 3days ancecanbesoughtuptoayearinadvance. Cost to complete: BTN50+BTN10(legalstamp) Procedure 2. The company submits project proposal to Depart- Comment: Oncethecompanyisincorporated,itmustobtainatrade/industry licensetobeabletooperate.Inordertoobtainthelicense,abusinessmustget ment of Industry, Project Development Services Division clearancefromtheCityCouncil(knownasCityCorporation)intheurbanareas Time to complete: 4daysforactivitiesrequiringnosector/environmental andfromtheDistrictAdministratorsintheDistricts.CityCorporationwillverify clearance;upto6monthsforactivitiesrequiringsectorclearance thesiteswhetherthelocationofthebusinessisincommercialareaandalsothe Cost to complete: nocharge siteislegallyowned.OneformispresentedtotheCityCouncil/OfficeoftheDis- Comment: TheProjectDivisionServicesDivisionreviewstheprojectproposal. trictAdministratoraswellastheRegionalTrade&IndustryOffice.Thisformcan Atthesametime,whererequired,theDepartmentofIndustrysendsaletter beobtainedfromtheOfficeoftheRegionalDirector,RegionalTrade&Industry withacopyoftheprojectproposaltotheNationalEnvironmentCommission Office(Thimphu,Pheuntsholing,Gelephu,SamdrupJongkhar,Traongsaand forEnvironmentClearance(maximum3months)andothersectorsforsector Trashigang).TheformcostonlyNu.50;nofeeischargedontheclearancebythe clearance.Wheresectorclearanceisrequired,thepromoterthenusuallywaits CityCouncilnortheDistrictAdministrator. for2-3monthstohearbackfromPDSD,afterwhichadetailedreporthastobe filed.Thepromotermaytake1to2monthstopreparethereport. Procedure 6. Apply for a trade/industrial license at the Regional On24thAugust2005,theRegionalTradeandIndustryOfficehasbeen Trade and Industrial Office (under Ministry of Trade) empoweredtoissueenvironmentalclearancesfor17listedsectors(insteadof Time to complete: 2days EnvironmentalUnit). Cost to complete: Registrationfee,licensefee,bookletcharge(seecomment) Since26thSeptember2005,RTIOcanalsoapprovesmallandcottagescale projectswithfixedinvestmentofuptoNu10millionforthesame17listedsec- Comment: RTIO.Nobusinessactivitycanbecarriedoutbeforeobtaininga tors(insteadofPDSD). tradeoranindustriallicense.Sectoralpermissions/approvals(ifrequired)must However,companiestoberegisteredbytheRoCstillwillhavetoobtainthe bepresented.BusinesseswithmorethanNu.1millionarerequiredtopresenta EnvironmentClearancefromtheNECbeforeregistrationattheRoC,where projectreportaspertheguidelineissuedbyMinistryofTrade&Industry. applicable. Feeschedule Investment Registration License License Total Procedure 3. Obtain approval of the company name by the Intel- (Numillion) fees fees booklet LargeMorethan100 8,000 4,000 100 12,100 lectual Property Division (Ministry of Trade) MediumBetween10-100 4,000 2,000 100 6,100 Time to complete: 1day SmallBetween1-10 2,000 1,000 100 3,100 Cost to complete: nocharge CottageLessthan1 1,000 500 100 1,600 Comment: Theentrepreneurcandownloadthe"nameavailability"application Since1stJuly2005,applicationsformsfortradeandindustriallicensescanbe formfromwww.rocmti.gov.bt downloadedofftheMinistryofTradeandIndustry'swebsite(www.mti.gov.bt) Theentrepreneurcompletestheformandprovides3alternativenames.Once andphotocopiesofapplicationformsareacceptedbythe thenameisapprovedbyIPD,theentrepreneurcanseekthenameapproval fromtheRegistrarofCompaniesimmediatelyoratalaterstageatthetimeof Procedure 7. Apply for tax payer identification number and regis- submittingtheArticlesofIncorporation.. ter the company for specific taxes Time to complete: 1-3days Procedure 4. Register with the Registrar of Companies Cost to complete: nocharge Time to complete: 1-30days Comment: Everycompanyisrequiredtoregisterforbusinessincometaxfor Cost to complete: BTN2000 whichabusinessidentificationcode(BIC)isgiven.ThisBICnumbermustbe Comment: Thefollowingdocumentsarerequiredwillbeattachedwiththe presentedforobtainingabusinesslicenseaswellasforparticipatinginpublic ArticlesofIncorporation: tendersandworks.Inpractice,companiesmayregisteratthetimeofthefirst 1.Nameavailabilityform taxpayment. 2.Consenttoactasdirectordulyfilledbyalldirectors 3.SecurityclearancefromRoyalBhutanPoliceforallthedirectors Procedure 8. Make a company seal 4.CopyofcitizenshipIDcardofalldirectors Time to complete: 5days 5.DeclarationofComplianceFormsignedanyoftheDirectors Cost to complete: USD20 6.Projectapprovalfrom"ProjectDevelopmentServicesDivision",Ministryof Industry Comment: Companiesarerequiredtohaveasealwithinoneyearofincorpora- (Ifrequiredandultimatelyifeveryformalityisfulfilledinabout30daystime, tion.ThisisverifiedbytheRegistrarduringtheannualinspection. theRegistrarwillissueletterofRegistration.Atpresent,onlylocalCompanies couldberegistered.Advertisementisoptional.Companymaychoosetopublish Procedure 9*. Open a bank account anoticeintheweeklynewspaper"Kuensel".Ithastobebookedatleast1week Time to complete: 1day(simultaneouswithprocedure8) inadvance. Cost to complete: nocharge Comment: UnderCompanyAct2000,abankaccountundercompany'sname hastobeopenedwithinonemonthofincorporation. 66 Doing Business in south asia 2007 Procedure 10*. File the evidence of operating a bank account Procedure 3. Present the required documents along with the reg- with the ROC istration fee to the Registrar of Companies to get the certificate Time to complete: 1day(simultaneouswithprocedure8) of incorporation Cost to complete: nocharge Time to complete: 9days Comment: Evidenceofoperatingabankaccounthastopresented/filedwith Cost to complete: seecomments theROConcetheCertificateisissuedanduponobtainingthelicense. Comment: PresentthefollowingdocumentsalongwithROCwithfilingfeeand Note: Procedures sometimes take place simultaneously. Instances of registrationfee: this are marked with an asterisk (*). -ThestampedandsignedcopiesofMemorandumandArticlesofAssociation (3copies). -StampedForm-1(Declarationofcompliance),18(Noticeofsituationof starting a Business registeredofficeofthecompany)&32(ParticularsofDirector,Manageror India Secretary)induplicate. Standardized Company Legal Form: Perseroan Terbatas (PT) -AnyagreementifreferredtoinTheMOA&AOAformingpartoftheMemoran- Minimum Capital Requirement: 0 dumofAssociation. City: Mumbai -AnyagreementproposedtobeenteredintowithAnyindividualforappoint- mentasManagingorwholetimeDirector. Procedure 1. Present name of company for approval to the Reg- -NameavailabilityletterissuedbyROC. -PowerofAttorneyfromthesubscribersinfavorofanypersonformaking istrar of Companies (ROC); Get the Memorandum and Articles of correctionsontheirbehalfinthedocumentsandpapersfiledforregistration. Association vetted by the ROC and printed Thismustbeonnon-judicialstamppaperofRs.100/-. Time to complete: 7days -Passportcopiesofallfirstdirectors(certifiedbyadvocates,charteredac- Cost to complete: INR500 countants,etc) Comment: Nameavailabilityapplication(Form1A):Selectintheorderofprefer- FillupFormNo.1printedonRs.20non-judicialstamppaperwhichrelatesto enceafewnamesproposedforthenewcompany,whichshouldindicatethe "declarationofcompliancewiththerequirementsoftheCompaniesAct1956 mainobjectsofthecompanytobeincorporated.Thenameschosenshouldnot onapplicationfortheregistrationofacompanyandallthemattersprecedent violatetheprovisionsofEmblemsandNames(PreventionofimproperUse)Act, andincidentalthereto."TheFormhastobesignedbyanadvocate,Company 1950andshouldnotphoneticallyorvisuallyresemblethenameofanyexisting SecretaryorCharteredaccountantanditispreferabletohaveitwitnessedby company.OncethenameofthecompanyhasbeenfinalizedanApplicationin thepromoters. Form1AprescribedintheCompanies(GeneralRulesandForms)1956along ThefeespaidtotheRegistrarforregistrationarescaledaccordingtotheamount withthefilingfeesofRs.500/-willhavetobemadeintheofficeoftheROC.Itis oftheauthorizedsharecapitalofacompanyasstatedinitsmemorandum.The veryimportanttofillupForm1Acarefullyasnochangewillbemadeoncethe scheduleisasfollowing: Formisfiled.WiththecomputerizationintheROC'soffice,thenameavailability Forregistrationofacompanywhosenominalsharecapitaldoesnotexceed applicationsaredisposedoffwithin3workingdaysaftertheirreceipt., Rs.100,000:Rs.4,000. ItisacommonpracticetohavethedraftMemorandumandArticlesofAssocia- ForregistrationofacompanywhosenominalsharecapitalexceedsRs.100,000, tionvettedbytheRegistrarofCompaniesbeforeoneformallyregistersthe theabovefeeofRs.4,000withthefollowingadditionalfeesregulatedaccording company.TheprocedureisthattheMOA&AOAaresubmittedtotheofficeof totheamountofnominalcapital:- theROC,therelevantofficialmay,aftertakingadetailedlookintotheMOA& (a)Rs.300foreveryRs.10,000ofnominalsharecapitalorpartofRs.10,000 AOA,bringoutcertainobjections,whichneedtobesuitablyaddressed.Once afterthefirstRs.1,00,000uptoRs.5,00,000; theobjectionsareaddressed,thedocumentsarefinallyacceptedforregistra- (b)Rs.200foreveryRs.10,000ofnominalsharecapitalorpartofRs.10,000 tion.Theprocessmaytake7-8days. afterthefirstRs.5,00,000uptoRs.50,00,000; (c)Rs.100foreveryRs.10,000ofnominalsharecapitalorpartofRs.10,000 Procedure 2. Make an application to the Superintendent of afterthefirstRs.50,00,000uptoRs.1crore; (d)Rs.50foreveryRs.10,000ofnominalsharecapitalorpartofRs.10,000after Stamps or an authorized bank requesting for stamping of the thefirstRs.1crore. Memorandum of Association and Articles of Association. TheabovestatedfeesisrequiredtobepaidintheofficeoftheROCbywayofa Time to complete: 1day DemandDraft/TreasuryChallan. Cost to complete: INR200(forMOA)+INR1000(forAOA)foreachslabofINR TheDDhastobedrawninfavorofeithertheofficeoftheconcernedROCorin 500,000/-orpartthereof+INR100(stamppaperfordeclarationForm1) favorofthePayandAccountsOfficer,DepartmentofCompanyAffairs,Mumbai. Comment: Theapplicationshouldbeaccompaniednecessarilybythefollowing: Inthepresentcasethetotalamountoffees(includingthefilingfeesofthe (i)TwoBlankCopiesOneunsignedcopyoftheMemorandumofAssociationand formsfiled)tobepaidintheofficeoftheROCforgettingthecompanyregis- ArticlesofAssociation. teredwithanauthorizedsharecapitalofRs.1,00,000approximatelywouldbe (ii)Paymentreceipt. Rs.4,800/-ScheduleofRoCfilingfeesfortheArticlesandfortheotherformsl, EnsurethatthecopyiessubmittedtotheSuperintendentofStampsortothe 18and32: bankforstampingareisunsignedandnopromoterorsubscriberhaswritten (i)Rs.200InrespectofacompanyhavinganominalsharecapitalofRs. anythingonitbyhand.TheSuperintendentreturnsthecopyiesoneofwhichis 100,000ormorebutlessthanRs.500,000; dulystamped,signedandembossedevidencingthepaymentoftherequisite (ii)Rs.300InrespectofacompanyhavinganominalsharecapitalofRs. stampduty.. 500,000ormorebutlessthanRs.2,500,000; TherateofstampdutyvariesfromStatetoState. (iii)Rs.500InrespectofacompanyhavinganominalsharecapitalofRs. Stampdutypayableonmemorandumofassociationandarticlesofassociation 2,500,000ormore.TheROCwillthenscrutinizethedocumentsfiledbythe foracompanytobeincorporatedinMumbai,Maharashtrais: Companyandifnecessarytheauthorizedpersonwillonintimationmake AOA:Rs.1000/-foreveryRs.500,000/-capitalorpartthereof. thenecessarycorrectionsunderhisinitials.Theauthorizedpersonwillbe OncetheMemorandumandtheArticlesofAssociationofthecCompanyhave providedtheObtaintheCertificateofIncorporationofthecompanyfrom beenstamped,thesameisrequiredtobesignedbythePromotersofthe theofficeoftheROC.Thecompanycancommenceitsbusinessongetting Companyincludingcommencingwiththefather'sname,address,occupation incorporationcertificatefromRoC.Theotherproceduresgivenbelowcanbe andthenumberofsharessubscribedforintheirownhandwritingwhichisduly doneafterthebusinessisstarted. witnessed. Aftersigningthedocumentsaretobedated.MOA:IfalongwithAOA:Rs200. Procedure 4. Obtain a company seal Declarationform1:OnRs100stamppaper Time to complete: 3days Cost to complete: INR350 appenDix ii · Data Details 67 Procedure 5. Visit the UTI Investors Services Limited to obtain a Procedure 9*. Register for Profession tax Permanent Account Number Time to complete: 2days(simultaneouswithprocedure8) Time to complete: 7days Cost to complete: nocharge Cost to complete: INR71(INR66/-forFeeandINR5/-forApplicationForm) Comment: Applicationhastobesubmittedtotheinspector.Registrationhas Comment: UndertheIncome-taxAct,1961,eachpersonisrequiredtoquotehis tobeobtainedforeachofthedirectorsofthecompany.Thecompanyhasto PermanentAccountNumber(PAN)fortaxpaymentandTaxdeductionAccount obtainatwo-foldregistration;oneinitscapacityasanemployerandsecondin Number(TAN)fordepositingtaxdeductedatsource.TheCentralBoardofDirect itscapacityasacompany.ProfessionTaxisleviedbythestateauthorityandthe Taxes(CBDT)hasinstructedbanksnottoacceptanyformfortaxpayments(chal- registrationhastobeobtainedpost-incorporationofthecompany. lan)withoutthePANorTAN,asthecasemaybe. ThePermanentAccountNumber(PAN)isa10-digitalphanumericnumber, Procedure 10*. Register with Employees' Provident Fund Organi- issuedintheformofalaminatedcard,byanAssessingOfficeroftheIncomeTax zation Department. TheIncomeTaxDepartmenthasoutsourcedPANallotmenttoUTIInvestors Time to complete: 2days(simultaneouswithprocedure7) ServicesLimited.TheapplicationforPANhastobemadeinForm49Aalong Cost to complete: nocharge withacertifiedcopyofthecertificateofregistration,issuedbytheROC.Form18 Comment: ProvidentCommission(partoflocallaborauthority).Procedure:Fill (statinglocationofregisteredoffice)hastobefiledwiththeROOCatthetimeof inapplication.ProvidentFundRegistrationisoptionalifemployeestrengthis incorporation.Form49Ahastobefilledinblackink.Theoutsourcingwasdone notmorethan20. asameanstospeeduptheallotmentPAN. Procedure 11*. Register with ESIC (medical insurance) Procedure 6*. Obtain a Tax Account Number for income taxes de- Time to complete: 1day(simultaneouswithprocedure7) ducted at source from the Assessing Office in the Mumbai Income Cost to complete: nocharge Tax Department Comment: RegisterwiththeESICdepartment(whichisapartoflocallabor Time to complete: 7days(simultaneouswithprocedure5) authority). Cost to complete: INR55 ESICRegistrationisoptionalifemployeestrengthislessthan10. Comment: TANisrequiredtobeobtainedbyalldeductorsunderSection203A Note: Procedures sometimes take place simultaneously. Instances of oftheI-TAct.Itisa10-digitalpha-numericnumberandiscompulsorytoquote this are marked with an asterisk (*). TANinTDSreturns(includinge-TDS).Allthosepersonswhoarerequiredto deducttaxatsourcearerequiredtoapplyandobtainTANthroughform49B.. starting a Business Incometaxisleviedbythenationalgovernment.ThereisalsoMODVATwhich appliesonlytomanufacturersandisthereforenotincludedinthisanalysis. Maldives Standardized Company Legal Form: Société à Responsabilité Limitée (SARL) - Lim- Procedure 7*. Register with Mumbai Shops and Establishment ited Liability Company Act, 1948 Minimum Capital Requirement: 2,000 Time to complete: 2days(simultaneouswithprocedure6) City: Malé Cost to complete: INR5000 Comment: Registrationhastobecompletedwithinthirtydaysfromthedateon Procedure 1. Search for a unique company name and pick up whichtheestablishmentcommencesitswork.FortheStateofMahashtra(where standard application forms for incorporation Mumbaiislocated),Schedule1oftheMaharashtraShopsandEstablishments Time to complete: 1day Rulesprescribethefeesforregistrationandrenewalofregistration,whichvary Cost to complete: MVR200 dependingonthenumberofemployeesintheestablishment.Cost:Rs.100toa Comment: TheCompaniesAct1996regulatestherulesgoverningaccept- maximumofRs.6,000peryear,dependingonthenumberofemployees.Inaddi- ablecompanynames.Tofacilitatetheprocessofcompanyincorporation,the tion,asumthree(3)timestheregistrationandrenewalfeeperyearischargedas RegistrarofCompaniesprovides"standard-form"MemorandumandArticlesof TradeRefuseCharges(TRC)undertheprovisionsofMumbaiMunicipalCorpora- Associationofincorporationofanewcompany. tionAct,1888. Procedure 2. Have lawyer certify company statutes Procedure 8*. Register for value added tax (VAT) before the Sales Tax Officer of the ward in which the company is located Time to complete: 5days Cost to complete: MVR2000 Time to complete: 12days(simultaneouswithpreviousprocedure) Comment: Theprocessisquickandeasy. Cost to complete: INR5025 Comment: VATtaxregistrationwillbeeffectivefromthedateofapplication. Procedure 3. Make a company seal IntheStateofMaharashtra,fromApril1,2005,SalesTaxhasbeenreplacedby VATandforVATregistrationForm101isfiled.Further,theauthorizedrepresenta- Time to complete: 1day tivesigningthesaidapplicationisrequiredtobeavailableattheSalesTaxoffice Cost to complete: MVR200 onthedayofverificationoftheapplication.Accompanyingdocumentation Comment: TheCompaniesAct1996requiresallcompaniestohaveacompany included,certifiedtruecopyoftheMoAandAoAofthecompany,registered seal,andacopyofthesealmustberegisteredwiththeRegistrarofCompanies officeaddressproofofthecompany,antecedentsofDirectorscopyoftheoffice Office. premisesagreementasproofoftheplaceofbusiness(inMumbai),copyofreg- istrationcertificateunderMumbaiShopsandEstablishmentsAct,1948,copyof Procedure 4. Pay registration fees IncomeTaxorder,ifanyandPANcard,bankcurrentA/c.number,originalchallan ofpaymentofregistrationfees,twopassportsizephotographoftheauthorized Time to complete: 1day signatory,andboardresolutionauthorizingthesignatorytosigntheapplication Cost to complete: nocharge form,appearbeforetheSalesTaxOfficerandtocompletetheformalitiesrelated Comment: CompanyregistrationfeesarecollectedbytheInlandRevenueon toregistration behalfoftheRegistrarofCompanies. 68 Doing Business in south asia 2007 Procedure 5. Register with the Registrar of Companies Procedure 4. File documents with the Company Registrar's Office, Time to complete: 5days Department of Industry, His Majesty's Government of Nepal. Cost to complete: MVR2,000annualcompanyfee+registrationfee(seethe Time to complete: 15days comment)+MVR100notarizationfee Cost to complete: NPR4500 Comment: TheScheduletotheCompaniesAct1996providesalistofallthe Comment: TheformatofregistrationapplicationisprescribedbytheMinistry feesthatshouldbepaidforcompanyregistrations.Thefeesarebasicallyas ofIndustry,CommerceandSupplies.Companynameisverifiedalongwiththe follows:- mainapplicationforregistration.Thefeescheduleisasfollows: (a)Slidingscalebasedonthesharecapital:iftheauthorizedcapitalofthe AuthorizedCapitalOfficialfee companyisMRf.10,000orlessthanMRf.10,000,thenthefeeisMRf.1,000.Ifthe UptoRs,100,000Rs.1,000 authorizedcapitalofthecompanyismorethanMRf.10,000,theninaddition Rs.100,001toRs.500,000.00. . . . . . . . . . . Rs.4,500 totheMRf.1,000statedearlier,afeecalculatedonthefollowingbasisonthe Rs.500,001toRs.2,500,000.00 . . . . . . . . . Rs.9,500 authorizedcapitalofthecompanymustbepaid: Rs.2,500,001toRs.10,000,000 . . . . . . . . . Rs.16,000 -ForeveryMRf.4,000/-orpartthereofoftheauthorizedcapitalbetweenMRf. Rs.10,000,001toRs.20,000,000. . . . . . . . Rs.19,000 10,000/-andMRf.500,000/-afeeofMRf.10/-shallbepaid. Rs.20,000,001toRs.30,000,000. . . . . . . . Rs.22,000 -ForeveryMRf.4,000/-orpartthereofoftheauthorizedcapitalbetweenMRf. Rs.30,000,001toRs.40,000,000. . . . . . . . Rs.25,000 Thenewcompanydoesnothavetoapplyforataxidentificationnumberas Rs.40,000,001toRs.50,000,000. . . . . . . . Rs.28,000 thereisnosystemyetintheMaldivesforrevenuebasedcorporatetaxation.It Rs.50,000,001toRs.60,000,000. . . . . . . . Rs.31,000 isadvisedthattheMinistryofFinanceandTreasuryisintheprocessofdrafting Rs.60,000,001toRs.70,000,000. . . . . . . . Rs.34,000 asystemforimposingcorporatetaxation,butthisislikelytotakeseveralyears Rs.70,000,001toRs.80,000,000. . . . . . . . Rs.37,000 beforeitisimplemented. Rs.80,000,001toRs.90,000,000. . . . . . . . Rs.40,000 500,000/-andMRf.4,000,000/-afeeofMRf.4/-shallbepaid. Rs.90,000,001toRs.100,000,000.......Rs.43,000 -ForeveryMRf.4,000/-orpartthereofoftheauthorizedcapitalbetweenMRf. MorethanRs.100,000,000. . . . . . . . . . . . . . Rs.43,000plusRs.30.00 4,000,000/-andMRf.8,000,000/-afeeofMRf.2/-shallbepaid. foreachadditionalRs.100,000. -ForeveryMRf.4,000/-orpartthereofoftheauthorizedcapitalaboveMRf. 8,000,000/-afeeofMRf.1/-shallbepaid. Procedure 5. Make a company seal/rubber stamp. (b)AnannualcompanyfeeforpubliccompaniesofMRf.10,000andforprivate companiesofMRF2,000payablebeforetheendofMarcheveryyear. Time to complete: 3days Cost to complete: NPR1000 Note: Procedures sometimes take place simultaneously. Instances of this are marked with an asterisk (*). Procedure 6. Register with the Inland Revenue Office, the Minis- try of Finance. starting a Business Time to complete: 5days Nepal Cost to complete: nocharge Standardized Company Legal Form: Close Limited Liability Company Comment: Companyshallmustdisclosetheofficeaddressandwithhold15% Minimum Capital Requirement: 0 taxofactualrentalforatleastthreemonthsasataxanddepositittothetax City: Kathmandu office.Iftheobjectiveofthecompanyincludesgoods/servicessubjectedtoVAT, bothregistrations(VAT/IncomeTax)shouldbeobtainedsimultaneously. Procedure 1. Verify the uniqueness of the proposed company name Procedure 7. Enroll the employees in the Provident Fund. Time to complete: 1day Time to complete: 1day Cost to complete: NPR5 Cost to complete: nocharge Comment: AnapplicationneedtobesubmittedbeforetheOfficeoftheRegis- Comment: Tenpercentisdeductedeachmonthfromthebasicsalaryofeach trarofCompanieswhethertheproposednameofthecompanyisavailableand employeeandamatchingcontributionismadebyemployer.Thecontributionis acceptablebytheOfficeoftheRegistrarofCompanies. madetotheprovidentfundandreleasedupontheretirementoftheemployee. Inadditiontothistheemployeralsohastopaygratuityattherateprescribed Procedure 2. A professional verifies and certifies the memoran- bylaborregulationuponretirementofanemployee.Bothofaboverulesare applicableonlyifthecompanyappoints10ormoreemployees. dum and articles of association. Note: Procedures sometimes take place simultaneously. Instances of Time to complete: 5days this are marked with an asterisk (*). Cost to complete: NPR10,000dependingontheprofessional'scharges. Procedure 3. Buy a stamp to be attached to registration form. Time to complete: 1day Cost to complete: NPR5 appenDix ii · Data Details 69 starting a Business otherofficers. Pakistan 2.Form-21(identifyingthelocationoftheoffice) Standardized Company Legal Form: Share Corporation 3.Form-29(ParticularsofDirectors,Secretary,ChiefAccountant,Auditors,etc). Minimum Capital Requirement: 0 ThecopyoftheNationalIdentityCardofthesubscriberisrequiredtosubmit City: Karachi alongwiththedocuments. Alsoattached:ThreecopiesofMemorandum&ArticlesofAssociation,signedby Procedure 1. Seek the availability of a name proposed for the eachmemberinpresenceofawitness,andwithspecialstamppasted. Itisnotmandatorytohirealawyeroraccountanttogetacompanyincorporat- company from the Registrar of Companies. edbutitisgenerallypreferredforeaseofaccomplishment.Anyoftheinitialsub- Time to complete: 1day scribertotheMemorandumofAssociationhastodeclarethatalltheformalities Cost to complete: PKR200 inconnectionwiththeincorporationofthecompanystandcompletedbefore Comment: Thecompanymayproposeoneormorenamesaccordingtotheir thecertificateofincorporationisissued. priority.Thenameshouldnotbeinappropriate,deceptiveordesignedtoexploit Thefeeofincorporationisreducedrecently.Theschedulefortheregistration oroffendanyreligion.Itshouldneitherbeidenticalnorhaveanycloseresem- feeis: blancewiththenameofanyexistingcompanies. AuthorizedCapitalFees Theavailabilityofthenamecanbecheckedonlinebysearchingthenames Forregistrationofacompanywhosenominalsharecapitaldoesnotexceed oftheexistingcompanies.Besidestherearecertainguidelinesexplainingthe 100,000rupees2,500 prohibitionoftheuseofthenameindicatingthestatesponsorshiporassocia- Forregistrationofacompanywhosenominalsharecapitalexceeds100,000 tionwiththenationalleadersetc.Theofficialconfirmationoftheavailabilityof rupees, thenameorotherwiseisreceivedbyemailwithin24hours.Thisconfirmation afeeof2,500rupees,alongwithanadditionalfeetobedeterminedaccording isenoughprovidedthenamesearchingfeeofRs.200ispaidintothebankac- tothe countoftheregulatoryauthority. amountofnominalsharecapitalasfollows,namely:- (i)Forevery100,000rupeesofnominalsharecapitalorpartof100,000rupees, Procedure 2. Pay the fee for procedures 1, 3 and 4, and obtain afterthefirst100,000rupees,upto5,000,000rupees,afeeof.500 bank receipt/ copy of treasury challans (ii)Forevery100,000rupeesofnominalsharecapitalorpartof100,000rupees, afterthefirst5,000,000rupees,afeeof250 Time to complete: 1day Providedthatforregistrationofacompanythetotalamountoffeetobepaid Cost to complete: nocharge shallnotexceedtenmillionrupees. Comment: StampdutyispaidtotheSindhProvincialGovernment. Acopyoftheoriginaltreasurychallanoftheamountoftheregistrationand Procedure 5. Make a company seal filingfeearetobedepositedintheHabibBankLtdortheStateBankofPakistan. Time to complete: 2days Theamountispayableunderthefollowingheadingsandaccountnumbersat Cost to complete: PKR1000 thestatedbanks: Comment: Commonsealispreparedaftercertificateofincorporationis -1200000ReceiptsfromCivilAdministrationandotherFunctions obtained.Itisaffixedonthedocumentsofsignificantnatureinaccordancewith -1210000ReceiptsfromGeneralAdministration theprovisionoftheArticlesofAssociation. -1213400EconomicRegulations(ReceiptsundertheCompaniesOrdinance) Pickuptreasurychallanformsatthecounterofthebankandfilloutthepurpose ofthepayment;paytheamountduetotheofficialaccountsandobtainacopy Procedure 6. Apply for a National Tax Number (NTN) and register oftheform.Thebanksendsanothercopytotherelevantdepartments. for the income tax. Time to complete: 2days Procedure 3. Have the Memorandum and Articles of Association Cost to complete: PKR50 stamped at the Treasury and obtain stamp paper on which the Comment: CompaniescangototheInternettofindoutthestatusofthe Declaration of Compliance will be drafted processingwithin24hoursoftheapplication.Meanwhile,since2002,NTNare Time to complete: 1day issuedwithacontinuousvalidterm.Companiesnolongneedtorenewtheir Cost to complete: 0.1%ofauthorizedcapital+PKR200+PKR2,000 NTN. Theincometaxispaidatthetimeofthefillingofthereturnwhichiswithinsix Comment: TheoriginalcopyoftheMemorandumandArticlesofAssocia- monthfromtheendofthefinancialyearofthecompanywhichisgenerallythe tionhastobestampedaccordingtotheStampActoftherelevantprovinceof Juneending.Besides,theworkerswelfarefundat2.5%ischargedatthetimeof Pakistaninwhichthecompanyisproposedtoberegistered.ThereisaStamp theincometaxassessmentbytheincometaxdepartment.Thecompanyisalso Actprescribingtheadhesivestampstobeaffixedonthefirstpageofthe supposedtoactasaTaxWithholdingAgentforthestateanddeductanddeposit documentsbeforetheyareexecuted.TheunsignedcopyoftheMemorandum taxonmostofthepaymentsmadebyitinconnectionwiththeactivitiesofits andArticlesofAssociationissubmittedtotheStampOfficeoftheprovincial business.Forthispurposes,itisalsorequiredtofilemonthlyreturnstothetax governmentdealingwiththestampalongwiththeproofofpaymentinthe authorities. bankaccountoftheTreasuryandthedocumentsarereturneddulystampedthe EverycompanyisrequiredtohavetheNationalTaxNumberbyprovidingthe sameafternoon. proofofregistration,theMemorandumandArticlesofAssociationoftheCom- StampfeesinSindharepaidatthefollowingrates: pany,bankaccountnumber,NTNofitsdirectorsandtheproofofrelationship Memorandumofassociation:Rs.2,000ifnotaccompaniedbyarticlesofassocia- withtheregisteredbusinessaddress.Alldocumentsrequireddueatastationby tion;Rs1,000ifaccompaniedbyArticlesofAssociation aClass-IofGazetteOfficeroranOfficerofaBank.Acompanycanstartitsbusi- ArticlesofAssociationwithanauthorizedcapitalnotexceedingRs.500,000Rs. nessactivitieswithoutevenfirstobtainingtheNTNbutitisgenerallyrequired 1,000/-.exceedingRs.500,000,Rs.2,000 byalltheregisteringauthoritieslikeChambersofCommerce,ImportExport RegulatoryAuthority,utilityauthorityetc.ThereisauniformnumberoftheNTN Procedure 4. Register the company at the Registrar of Compa- allottedbytheNTNBranch(centralizedforthewholeofPakistan)atIslamabad. nies. Thenecessaryformalongwithdocumentsanddulyverifiedaresubmittedto Time to complete: 3days thesameNTNCenterafterobtainingtheincorporationofthecompany.The Cost to complete: registrationfee+PKR200,filingfeeperdocument,4docu- centerquicklyprocessestheapplicationandissuestheNTNwithinoneweek. ments+PKR50fortheCertificateofRegistration Thecertificateissenttotheregisteredaddressoftheapplicant.Incaseitisnot Comment: Thefollowingdocumentsarerequiredforincorporatingaprivate deliveredatthepostaladdress,thesamecanbeenquiredfromtheNTNcenter overthephoneanditsstatusiscommunicatedinstantly.TheundeliveredNTN company: certificatecanbecollectedformthespecifiedofficeoftheCBRdistinctfromthe 1.Form-1(DeclarationofCompliance),signedby:(1)Anadvocatethatis NTNcenter. entitledtoappearbeforeanyHighCourtinPakistanortheSupremeCourt;or (2)AqualifiedCharteredAccountant(MemberofICAPorICMAP)practicingin Pakistan;or(3)ApersonnamedintheArticlesofAssociationasaDirectoror 70 Doing Business in south asia 2007 Procedure 7. Register for sales tax WorkersChildren(Education)Ordinance,1972.Everyemployerofanestablish- mentinwhichthenumberofworkersemployedatanytimeduringayearis Time to complete: 14days tenormoreshallpaytotheProvincialGovernmentaneducationcessatthe Cost to complete: nocharge rateofonehundredrupeesperworkerperannum.Thelevyisusedforprovid- Comment: Theregistrationiswiththenationaltaxauthority,butadifferent ingeducationfreeofcoststwo(2)childrenofeveryworkeremployedinthe divisionfromtheincometax.Theapplicationisfiledwiththeregisteringwingof establishment. thesalestaxdirectorate.Thedocumentsarefiledandscrutinized,andanofficial visitfollowsonthepremisesoftheapplicationforthepurposesoftheverifica- Procedure 10*. Register for old age benefits with Employees Old- tionoftheaddressandparticularsoftheprospectivetaxpayer.Thistakesalong Age Benefits Institution (EOBI). timeandiscumbersome. Thefollowingdocuments(dulyattestedbyChamberofCommerce&Industries, Time to complete: 11days(simultaneouswithpreviousprocedure) President/ChairmanoftheConcernedAssociation,AnyAssistantCollectorof Cost to complete: nocharge SalesTaxorSuperintendentofRegistration)arerequiredtofiletotheauthority Comment: TheprovisionsofEmployees'Old-AgeBenefitsAct,1976automati- forregistration: callyapplytoeveryindustryorestablishmentwhereintenormorepersonsare (i)FillingoftheForm,singedbyanyonedirector&rubberstamp. employedbytheemployerdirectlyorthroughanyotherperson,orwereso (ii)NICofthedirector,whoissigningtheapplicationform. employedonanydayduringtheprecedingtwelvemonthsandshallcontinue (iii)NTNCertificateorphotocopy&originalofIncomeTaxAssessmentOrderfor toapplytoeverysuchindustryorestablishmentevenifthenumbersofpersons thelastyear. employedthereinis,atanytimeaftertheActbecomesapplicabletoitis (iv)CertificateofappointmentasDistributor. reducedtolessthanten. (v)LatestBankCertificatealongwithfinancialworth. From1stdayofJuly2001,aninsuredpersonisrequiredtopayhispersonal (vi)Declarationofhomeaddressanddetailsofallpropertiesowned. contributionattherateofRs.20onlypermonthandnotRs.50asprinted. (vii)AttesteddocumentsofownershiporleaseorCertificateofthebusiness/ manufacturingpremises.Incaseofleased/rentedpremisesNOCfromlandlord. Procedure 11*. Register with Pakistan Shops & Establishment (viii)MemorandumandArticlesofAssociationandCertificateofIncorporation Ordinance, 1969 andorbusinesscommencementcertificate. (ix)Photocopiesofutilitybillsofthepremisesinthenameofapplicantor Time to complete: 7days landlord. Cost to complete: PKR38758 (x)Proofofanyletterreceivedonthedeclaredaddressintheapplicationform. Comment: Everyestablishmentandfactoriesemployingclericalstaffwithinthe ListofMachinery(ifmanufacturer).TheCentralBoardofRevenue(CBR)has factorypremisesotherthanaone-manshopshallberegisteredwiththeDeputy madeitincumbentuponalltheregisteredpersonsfallinginthejurisdictionof ChiefInspectorfortheareawithinwhichsuchestablishmentissituated. theLargeTaxpayersUnits,KarachiandLahore;andprivateandpubliclimited Anyapplicationforregistrationofanestablishmentundersection24ofWest companiesregisteredintheCollectoratesofSalesTaxpersonstofiletheElec- PakistanShops&EstablishmentOrdinance,1969shallbemadebytheemployer tronicSalesTaxReturninaccordancewithS.R.O.1184(I)/2005.Theregistered inform"A"andshallbeaccompaniedbyaTreasurychallanReceiptsunderthe personsshallobtainaDigitalCertificatefromNationalInstitutionalFacilitation WestPakistanShopsandEstablishmentsOrdinance,1969. Technologies(Pvt.)Ltd(NIFT)throughwebsitewww.nift.com.pkonthepayment Anapplicationforregistrationofanestablishmentshallbemadewithintwo ofprescribedfeesofrupees5,000.Theregisteredpersonshallfilltheinformation monthsofthesettingupoftheestablishment. aboutthepurchasesandsuppliesmadeduringataxperiod,thetaxdueand Onreceiptofapplicationandthefees,theDeputyChiefInspectorshall,onbeing paidandotherapplicableinformationasstatedinthefilinginstructions.The satisfiedaboutthecorrectnessoftheapplication,registertheestablishment dulyfilledElectronicSalesTaxReturnincludinga'Nilreturn'shallbetransmitted intheRegisterofEstablishmenttobemaintainedinForm"B"andshallissue totheCetralBoardofRevenue'se-mailadressi-e(salestax.returns@cbr.gov.pk), RegistrationCertificatetotheemployerinForm"C". throughadigitallysignede-mailandsameshallbeacknowledgedbytheCBR Registrationofestablishmentandfeeforregistration.--(1)Everyestablishment, throughadigitalsignedreceipt otherthanaonemanshop,ashereinafterdefined,andfactoriesemploying clericalstaffwithinthefactorypremises,shallberegisteredwiththeDeputy Procedure 8*. Register for the Professional Tax with the local tax ChiefInspectorfortheareawithinwhichsuchestablishmentissituated. authority (2)Anapplicationforregistrationofanestablishmentshallbemadebythe employerinForm`A'andshallbeaccompaniedbyaTreasuryChallanunderHead Time to complete: 7days(simultaneouswithpreviousprocedure) [9][XXXVI-MiscellaneousDepartments-G-Miscellaneous-(S)-Receiptsunderthe Cost to complete: nocharge WestPakistanShopsandEstablishmentsOrdinance,1969]foranamountof-- Comment: Inpractice,taxpayersusuallydonotregisterforthetaxvoluntarily Rs.2.00inthecaseofanestablishmentemploying1to5workers. unlessthetaxauthoritychasesthemtodoso. Rs.3.00inthecaseofanestablishmentemploying6to10workers. Nolocaltaxesexceptforprofessionaltaxarechargedfromacompany.A Rs.5.00inthecaseofanestablishmentemploying11to20workers. manufacturingunitowningfixedassetsmayhavetopaycertainlocallevieson Rs.10.00inthecaseofanestablishmentemployingmorethan20workers. itsfixedassets.Thereisnoregistrationforthelatter. Explanation--Forthepurposesofthissection,"onemanshop"meansashop Professionaltaxisayearlytaxandispaidjustforexistenceirrespectiveofpaid runbyanemployerorbyanymemberofhisfamilywithoutengagingan upcapitalorturnoverinsmallercompanies.Thescalegoesupwiththeincrease employee. inthesetwo.ItmayrangefromRs.5,000/-to100,000/-dependingontheprov- (3)Anapplicationforregistrationofanestablishmentshallbemade-- inceofregistrationandothercriteria.Thedepartmentgenerallyobtainsthelist (a)inthecaseofanestablishmentexistingatthetimethisOrdinancecomesinto fromtheRegistrarforthepurposesoftheissuingthepaymentchallans.Before force,withinthreemonthsthereof;and achallanisissued,aproformaisservedonthecompanyaskingforcertain (b)inthecaseofanestablishmentsetupafterthecomingintoforceofthisOr- detailswhichareusedfortheassessment.Therearenoregistrationfeesetcfor dinanceortowhichtheprovisionsofthisOrdinancearesubsequentlyapplied, theprofessionaltax.Theprofessionaltaxisnotdeductedatsourceratheritis withintwomonthsofthesettingupoftheestablishmentortheapplicationof paidintothebankaccountoftheconcerneddepartmentafterassessmentand thisOrdinancethereto,asthecasemaybe. issuanceofthechallan. (4)Onreceiptoftheapplicationandthefeesspecifiedinsub-section(2),the DeputyChiefInspectorshall,onbeingsatisfiedaboutthecorrectnessofthe Procedure 9*. Register with the Employee Social Security Institu- applicationregistertheestablishmentintheRegisterofEstablishmentstobe tion maintainedinForm`B'andshallissuearegistrationcertificatetotheemployer inForm`C'. Time to complete: 11days(simultaneouswithpreviousprocedure) (5)Theregistrationcertificateshallbeprominentlydisplayedbytheemployerat Cost to complete: nocharge theestablishmentandshallberenewedaftereverytwoyearsondepositingfee Comment: Theemploymenttaxorsocialsecurityregistrationisnotmandatory, asprescribedinsub-section(2). butsubjecttonotificationintheOfficialGazette.TheSocialSecurityInstitute (SSI)ismanagedbytheprovincialgovernmentsandchargesareleviedonthe Note: Procedures sometimes take place simultaneously. Instances of employers,whetherincorporatedornot,at7%ofwagesuptoRs.3,000per this are marked with an asterisk (*). month. appenDix ii · Data Details 71 starting a Business Procedure 7. Register with tax authorities to obtain a TIN Sri Lanka Time to complete: 2days Standardized Company Legal Form: Aktiebolag Privat; AB privat Cost to complete: nocharge Minimum Capital Requirement: 0 Comment: ApplicanthastobephysicallypresentattheInlandRevenueDepart- City: Colombo menttopickupandfillintheform.TINnumberandVATregistrationnumber (temporary)canbeobtainedwithinoneday.ToobtainpermanentVATregistra- Procedure 1. Verify company name with the Registrar of Compa- tion,applicanthastosubmitdocumentsprovingturnoverofRs.500,000forthe nies consequent3months.Thisisdonealongwithincometaxregistration. Theproceduretakesfrom1to3days. Time to complete: 2days Cost to complete: LKR265 Procedure 8. Register with Department of Labor to obtain EPF Comment: Thereservationisvalidforaperiodof3months. and ETF registration Procedure 2. Submit draft Memorandum and Articles of Associa- Time to complete: 1daytofileandmorethanonemonthfortheETFandEPF tion for approval of the Registrar numberstobeissued Cost to complete: nocharge Time to complete: 5days Comment: Companiesneedtoregisterfortwofunds:EmployeesProvident Cost to complete: nocharge fundandEmployeesTrustFund.Botharegovernmentownedandmaintained Comment: Registrarmakeshisobservationsonthedraftwhichdraftmustbe bytheCentralBank.Procedure:VisittheofficeoftheMinistryofLaborandfill submittedwiththedocumentstoincorporatethecompany. intheforms.CompaniesarealsoliabletopayGratuitytoemployeesthathave Theproceduretakesfrom2to7days. beeninemploymentforaperiodinexcessoffiveyears.Theprovisionsrelating toGratuitydonotapplytocompaniesthathavelessthan15employees.There Procedure 3. A notary public witnesses Memorandum and Ar- isnopensionschemeforpeopleintheprivatesector.Businessesofdangerous ticles of Association natureshouldgetspecialFactoriesOrdinancecheckups. TheETFandEPFnumbersmaytakesometimetobeissued-sometimesas Time to complete: 3days muchas4-6months.However,anumberisallocatedtothecompanyatthetime Cost to complete: LKR1000 theapplicationsaremadeandaccordingly,thecompanyhasfulfilleditsobliga- Comment: TableAoftheCompaniesActNo.17of1982ofSriLankacontainsa tionandmayremitmoniestotheDepartmentinrespectofETFandEPFwith standardsetofArticlesofAssociationwhichcanbeadoptedastheArticlesofAs- referencetotheallocatednumber. sociationofacompany.ArticlesofAssociationcanalsobedrafted.Professional chargesarehigherfordraftingnewArticlesofAssociationthanadoptingthe Note: Procedures sometimes take place simultaneously. Instances of standardArticlesofAssociationcontainedinTableA. this are marked with an asterisk (*). Anotarypublicmustwitnessthesignatureofeachsignatoryandaffixhisseal ontheMemorandumandArticlesofthecompany.FourTwocopiesofeachare required. Theproceduretakesfrom1to5days. Procedure 4. Register at the Companies Registry Time to complete: 2days Cost to complete: dependingontheamountoftheauthorizedcapital Comment: Thefollowingformsarefiled: a).Form5-Statutorydeclaration. b)Form36A-Noticeoftheintendedsituationoftheregisteredoffice. c)Form46A-ConsenttoactasthefirstDirector/Directors/Secretary. d)Form47-AlistofpersonswhohaveconsentedtobeDirectors. TheregistrationfeesareRs3,250ifnominalcapital<=250,000,Rs.365foreach 50,000uptoRs.500,000,andRs.190foreach50KuptoRs.1,000,000.Addition- ally,Rs.540ispayablefortheregistrationofCompaniesForms(Rs.135perform) andafurtherRs.205fortheregistrationofArticles.Stampshavetobeaffixedto theM&A-thevalueoftheseisunderUS$1,.TheCertificateofIncorporationwill bereceivedwithinapproximatelythreedays. Theproceduretakesfrom1to3days. Procedure 5. Make a company seal Time to complete: 3days Cost to complete: LKR800-1200 Procedure 6. File Forms with the Registrar of Companies Time to complete: 3days Cost to complete: LKR270(135each) Comment: TheRegistrarofCompaniesrequiresthatCompaniesForms36 (NoticeoftheactualsituationoftheReregisteredoffice)and48(Particularsof thecompany'sDirectorsandofitsSecretary)arefiledbytheCompanyafterthe CertificateofIncorporationhasbeenreceived. Theproceduretakesfrom2to4days. 72 Doing Business in south asia 2007 dealing with licenSeS Procedure 6. Receive excavation work inspection by a City Devel- opment Official Bangladesh Time to complete: 15days Data as of: January 2006 Cost to complete: nocharge City: Dhaka Procedure 7. Receive foundations inspection by a City Develop- Procedure 1. Obtain a set of design condition and plot map from ment Official the Rajuk (City Development Authority) Time to complete: 1day Time to complete: 10days Cost to complete: nocharge Cost to complete: USD25 Procedure 8. Receive electrical inspection by a City Development Procedure 2. Obtain project clearance from the local authority Official (Ward Commissioner, Dhaka City Corporation) Time to complete: 1day Time to complete: 3days Cost to complete: nocharge Cost to complete: nocharge Comment: Applicationalongwiththeproposeddesign Procedure 9. Obtain final approval upon completion of project from the Municipality or City Development Authority (Rajuk) Procedure 3. Obtain Cadastral Survey Map from Land Records Department Time to complete: 7days Cost to complete: nocharge Time to complete: 3days Cost to complete: USD25 Procedure 10. Obtain electrical power connection from state Comment: Applicationassigningreasons company Procedure 4. Obtain project clearance from Department of Envi- Time to complete: 40days ronment Cost to complete: USD550 Comment: Electrical(Authority:DESCO/DESA):costvariesfromUS$100- Time to complete: 30days US$1000dependingontheprojectscale Cost to complete: USD400 Comment: Therearethreecategoriesofclearance: Procedure 11*. Obtain water and sewage connection from state ·Green(Non-Polluting), company ·Orange(LowPolluting)and ·Red(HighPolluting). Time to complete: 10days ForGreencategoryofestablishmentsclearancecanbeobtainedwithinaweek Cost to complete: USD60 withUS$400fee.Forothercategories,thepaymentandtimetogiveclearance Comment: Agency:WASA arehigher.Requiresthefollowingdocumentsdependingonthecategory: ·ApprovalfromtheWardCommissioner,DCC Procedure 12*. Obtain telephone connection from state company ·ProjectProfile,FeasibilityreportandDrawings Time to complete: 30days ·Landownershipdocuments ·CadastralSurveyMapandlocationmap Cost to complete: USD150 ·CopyofTradeLicenseandRegistrationoftheBoardofInvestment Comment: Thetimeusuallydependsontheavailabilityofthelinesinthatarea. ·EIA/IEE/EMPReport MobileCellulartelephonesmaybeobtainedwithinadayfromanyofthe5 ·FeespayabletoDOE(US$) companies(4privateandonegovernmentowned)foraroundUS$150 Totalproject Fees Renewal Totalproject Fees Renewal cost(millions) fees cost(millions) fees Procedure 13*. Telephone inspector checks the connection 0-0.08 25 5 1.6-32 400 125 Time to complete: 1day 0.08-0.16 50 12 32-80 800 250 0.16-0.8 80 20 >80 1600 400 Cost to complete: nocharge 0.8-1.6 160 40 Note: Procedures sometimes take place simultaneously. Instances of this are marked with an asterisk (*). Procedure 5. Obtain project clearance and building permit from the City Development Authority (RAJUK) Dealing with licenses Time to complete: 75days Bhutan Cost to complete: USD70 Data as of: January 2006 Comment: Thenecessarydrawings(showingtheset-backclearances,approach City: Thimphu road,orientationetc.)aretobesubmittedalongwith ·ThecategorizationbytheDOE(Green/Orange/Red) Procedure 1. Obtain ownership certificate ·TheapprovalfromtheDepartmentofEnvironment ·Landownershipdocuments, Time to complete: 1day ·CadastralSurveyMapand Cost to complete: BTN75Comment: ·ThefeespayabletoRAJUK: LandownershipcertificateisobtainedfromRevenueSectionofCityCorporation Totalarea Fees Totalarea Fees Totalarea Fees afterpayingfee. m2 US$ m2 US$ m2 US$ 0-50 2 1,001-1,500 70 10,001-15,000 1000 Procedure 2. Obtain official site plan 51-100 4 1,501-2,000 100 15,001-20,000 1250 101-200 6 2,001-3,000 250 20,001-30,000 2000 Time to complete: 5days 201-300 8 3,001-4,000 400 30,001+ 3500 Cost to complete: BTN400 301-500 12 4,001-5,000 600 Comment: OfficialsiteplanisobtainedfromsurveysectionofCityCorporation 501-1,000 35 5,001-10,000 800 afterpayingfee. AsonAugust,20051US$=65Taka Requiredtimedependsontheleveloffollowup. appenDix ii · Data Details 73 Procedure 3. Purchase building construction application form Procedure 10. Notify the City Corporation about beginning of Time to complete: 1day construction Cost to complete: BTN100 Time to complete: 1day Comment: Thecompanymustpurchasethebuildingconstructionapplication Cost to complete: nocharge formfromrevenuesectionoftheCityCorporation.CostofBTN100forformand Comment: CityCorporationmustbeservedwithawrittennoticeaboutbegin- 500asservicefeesoflawyers,ifused. ningofconstruction Procedure 4. Submit form to architectural section Procedure 11. Receive excavation work inspection Time to complete: 90days Time to complete: 1day Cost to complete: nocharge Cost to complete: nocharge Comment: ThecompanymustsubmitdulycompletedformtoArchitectural Comment: Thisinspectionisperformedaround3weeksaftertheprevious sectionoftheCityCorporation,alongwithDrawing,ownershipcertificateand inspection.Therefore,thecompanydoesnothavetorequestfortheinspection. officialsiteplan.Thisisstage1oftheapproval.Duringstage2theArchitectural sectionshallundergoplanningcheckwithstructural,Electrical,watersupply Procedure 12. Receive foundations work inspection andseweragesection.Thisisaninternalstepwherethecompanydoesnothave anyrole,however,onemustfollowuptoensurethingsaredoneintime.During Time to complete: 1day stage3theArchitecturalsectionsubmitstheproposaltotheChief(Thrompon) Cost to complete: nocharge ofCitycorporationwithrecommendationandfindingstograntfinalapproval. Comment: Thisinspectionisperformedaround3weeksaftertheprevious Thisisinternal,howeveronemustfollowuptoensuretheworkisnotignored. inspection.Therefore,thecompanydoesnothavetorequestfortheinspection Procedure 5. Obtain building permit and request pre-construc- Procedure 13. Receive concrete work inspection tion inspection from City Corporation Time to complete: 1day Time to complete: 1day Cost to complete: nocharge Cost to complete: BTN3000 Comment: Thisinspectionisperformedaround3weeksaftertheprevious Comment: Companymustcollectbuildingpermitorpre-arrangetoreceiveby inspection.Therefore,thecompanydoesnothavetorequestfortheinspection. post.Awrittenrequestmustbemadetohavepre-inspectionofthesite. Therearetwotypesoffeeinvolvedsuchasscrutinyfeeandamenitiesfee.Ame- Procedure 14. Receive drainage inspection nityfees=BTN30persq.mforresidentialandinstitutionalbuildings.BTN50per Time to complete: 1day sqmforcommercialandindustrialuses Scrutinyfee=BTN3000orBTN16.14persqmwhicheverismore. Cost to complete: nocharge Comment: Thisinspectionisperformedaround3weeksaftertheprevious Procedure 6. Receive pre-construction inspection inspection.Therefore,thecompanydoesnothavetorequestfortheinspection. Time to complete: 2days Procedure 15. Receive timber scaffolding inspection Cost to complete: nocharge Time to complete: 1day Comment: Whencompanyinformsbuildingsectionofcitycorporation,build- inginspectorvisitsthesiteforinspection.Thereafter,hevisitsregularlyinevery Cost to complete: nocharge afterthreeweeksforroutineinspection.Iftheworkisnotaccordingtoplan,the Comment: Thisinspectionisperformedaround3weeksaftertheprevious citycorporationissuesnoticetorectifyit.Ifthecompanydoesnotlistentothe inspection.Therefore,thecompanydoesnothavetorequestfortheinspection firstnotice,utilityservicesaredisconnected.Ifthecompanydoesnotlistento 3rdnoticealso,thestructureshallbedemolishedinthepresenceofbuilding Procedure 16. Receive sanitary inspection inspector,engineer,architect,surveyorandpolicepersonnel. Time to complete: 1day Cost to complete: nocharge Procedure 7. Obtain electricity connection Comment: Thisinspectionisperformedaround3weeksaftertheprevious Time to complete: 20days inspection.Therefore,thecompanydoesnothavetorequestfortheinspection. Cost to complete: BTN4000 Comment: FirstofallplainapplicationmustbesubmittedtoRevenueSectionof Procedure 17. Receive fire inspection BhutanPowerCorporationrequestingforpowerconnection.In3daystime,the Time to complete: 1day companymustsignundertakingwiththesection,anddocumentssuchasTest Cost to complete: nocharge reportofinternalwiring,landownershipcertificate,design/architectclearance Comment: Thisinspectionisperformedaround3weeksaftertheprevious fromCityCorporationmustbeenclosed.Inanother2weeksmeterandpower inspection.Therefore,thecompanydoesnothavetorequestfortheinspection connectionisprovided. Procedure 8*. Obtain water connection Procedure 18. Receive structure inspection Time to complete: 1day Time to complete: 11days Cost to complete: nocharge Cost to complete: BTN4700 Comment: ThecompanyshouldfillupapplicationFormandsubmittobuilding Procedure 19. Receive inspection of the building surroundings sectionofCityCorporation,requestingwaterconnection.Thenpayconnection feeofBTN3,200toRevenuesection. Time to complete: 1day itrequirespre-verificationtocheckwhetheralltheconnectionsareasperthe Cost to complete: nocharge waterandsanitationrulesinforce. Procedure 9*. Receive inspection of water connections Time to complete: 1day Cost to complete: nocharge Comment: Itrequirespre-verificationtocheckwhetheralltheconnectionsare asperthewaterandsanitationrulesinforce. 74 Doing Business in south asia 2007 Procedure 20. Convert temporary power connection into perma- Dealing with licenses nent connection India Time to complete: 1day Data as of: January 2006 Cost to complete: nocharge City: Mumbai Comment: Toobtainthepermanentconnection,thecompanyneedstoobtain aclearanceletterfromCityCorporation,whichisobtainedafterthefinal Procedure 1. The Municipal Corporation of Greater Bombay inspectionisdoneabove.Withthetestreportofinternalwiring,landownership (BMC) examines the construction drawing plan and issues ap- certificate,design/architectclearancefromCityCorporation,permanentconnec- proval for construction tioncanbeobtainedinaday. Time to complete: 145days Procedure 21. Receive inspection of power Cost to complete: INR37729 Comment: Theapprovalincludesplumbing;electrical;sanitation;foundation; Time to complete: 1day structural;sewerage,welldrilling&infrastructure(suchaswayouts,lifts,set Cost to complete: nocharge backs,etc)drawingsandIODcharges. Comment: Powersupplyingcompanyusuallyverifiesthesitetochecktheload TheMunicipalCorporationexaminesthemasterplanwithoutvisitingthe oftheexistingcapacityinordertoknowthatanadditionalloadcanbeprovided constructionsite. ornot. Procedure 2*. Obtain approval of construction from the Area De- Procedure 22*. Obtain water and sewage connection velopment Authorities Time to complete: 15days Time to complete: 30days Cost to complete: BTN3,000 Cost to complete: nocharge Comment: Thecompanyshouldsubmitplainapplicationtoseweragesection Comment: TheAreaDevelopmentisundertheBombayTownPlanningCommit- ofcitycorporationforsewageconnection,enclosingacopyoftheplan.Paycon- tee,whichisadivisionintheMunicipalCorporation.Thebuilderfilestheappli- nectionfeeofBTN3000.Connectionisprovidedinabout2-weekstime. cationwiththeAreaDevelopmentAuthoritiesseparatelyandfilestheapproval totheMunicipalCorporationinordertogetthebuildingpermit. Procedure 23*. Obtain phone connection Time to complete: 10days Procedure 3. Notify the Municipal Corporation of the foundation Cost to complete: BTN600 of the construction Comment: Thecompanyshouldsubmittheprescribedapplicationformduly Time to complete: 7days filledandsigned.FeasibilitystudyisconductedbyservicesectionofBhutan Cost to complete: nocharge Telecom.Iffeasible,companywouldbeaskedtopayconnectionchargesand Comment: Theprotocolbeingthatforinitiationofthebuildingconstruc- linemendeputedforconnection. tionaformalpermit/approvalhastobetakenfromtheappropriateauthority (MunicipalCorporation).Oncetheapprovalisobtained,theplinthinspectionis Procedure 24. Notify building controller of building completion apartoftheproceduralinspectionconductedbytheauthorizedEngineerofthe and request final inspection MunicipalCorporationforBuildingandPlanning.Aftertheconstructionofthe Time to complete: 15days Plinth(foundation)iscompletetheMunicipalCorporationhastobeintimated regardingthesameandsubsequentlytheMunicipalcorporationactwithina Cost to complete: nocharge weekbysendingtheirAuthorizedEngineerfortheinspection.Theinspectionof Comment: Awrittenconfirmationisissuedtothebuildingcontrollerthatthe thefoundationiffoundappropriatebytheEngineerwouldnottakemorethan buildingiscompleted 1day. Theconstructionisinitiatedonlyafteraformalapprovalofconstructionplanof Procedure 25. Receive final inspection for construction, water theMunicipalAuthorities.Hence,theAuthoritiesareawareofthedevelopments and sewerage and electricity oftheconstruction.NormallythedevelopernotifiestheAppropriateAuthorities Time to complete: 30days regardingtheinspection.Butthepracticeandthemodusoperandiisthatthe Cost to complete: BTN6,000 Engineershavetomakeinspectionoftheconstructionsiteaccordingtothe protocolandevenifthedeveloperdoesnotintimatetheEngineer,theEngineer Comment: Whentheconstructionincludingutilitiesconnectionsarecom- mayvoluntaryinspectthesiteasitisamandatorypartofhisjob. pleted,companymustreporttoCityCorporation.Inspectionteamconsisting ofarchitect,engineer,surveyor,representativesofelectrical,plumbing,and sanitationagencies,andbuildinginspectorofcitycorporationgotothesite Procedure 4*. Executive/Superintendent Engineer (Building and forinspection.Environmentalcommissionandtelephonecompanyarealso Planning) of the Municipal Corporation inspects the site informedandaskedtojointheteamiftheywish.Whentheteamissatisfiedwith Time to complete: 1day theconstructionaccordingtoplan,theywouldrecommendfortheprocessof Cost to complete: nocharge occupancycertificate.Iftheconstructionisnottotheirsatisfaction,theywould Comment: Theconstructionisonlyapprovedafterinspectionsfromtheauthori- askthecompanytorectifywhereverrequired. tiesverifyingthenormsforconstruction,whichishazardfreefortheparticular areawheretheconstructedisproposed. Procedure 26. Obtain Occupancy permit Time to complete: 1day Procedure 5. Receive inspection on the plinth of the building Cost to complete: nocharge Time to complete: 1day Note: Procedures sometimes take place simultaneously. Instances of Cost to complete: nocharge this are marked with an asterisk (*). Comment: TheconcernedSubEngineerofthebuildingproposalsection inspectsthesiteatleastoncein3months,onceinsixmonthsbyAssistantEngi- neer(BuildingandPlanning)andonceinayearbyExecutiveEngineer(Building andPlanning).Theconcernedofficialwillmakehisobservationsinwritingon thesheetofinspectionreport.TheDeputyChiefEngineer(BuildingandPlan- ning)approvesalltheproposalsoflayout,sub-division,andamalgamation.The approvaloflayoutspecificallyadmeasuringmorethantwohectorsaregivenby himonlyafterapersonalinspectionoftheconcernedsite. appenDix ii · Data Details 75 Procedure 6. Request inspection in the mid way during the con- Procedure 13*. Water supplier inspects the construction and sets struction up connection (1) Time to complete: 7days Time to complete: 1day Cost to complete: nocharge Cost to complete: nocharge Comment: TheMunicipalCorporationisintimatedregardingtheinspection Comment: AnapplicationforwaterconnectionismadetotheAsst.Engineer oftheconstructedbuildingandforfurtherinspectionandsubsequentlythe oftheMunicipalcorporation.TheAsst.EngineeroftheMunicipalcorporation MunicipalcorporationactwithinaweekbysendingtheirAuthorizedEngineer. makestheinspection.TherearetwoinspectionsbytheAsst.Engineer-before Theinspectionofthepartlyconstructedbuildingiffoundappropriatebythe initiationofthewaterconnectionandanotherafterthewaterconnectionis Engineerwouldnottakemorethan1day. concluded.Theaforementionedinspectionwouldnottakemorethanaday. TheconcernedofficerofthewaterdepartmentoftheMunicipalCorporation Procedure 7*. Receive inspection in the mid way during the con- inspectsthepremisesandpreparesareportforreleaseofconnection struction Time to complete: 1day Procedure 14*. Water supplier inspects the construction and sets Cost to complete: nocharge up connection (2) Comment: TheinspectionbytheFireDepartmentorbytheMunicipalCorpora- Time to complete: 1day tionisgenerallyconductedintwotothreestagesdependingupontheregula- Cost to complete: nocharge tionsofthesaidDepartmentortheAuthority. Procedure 15. Apply for permanent power connection Procedure 8. Apply for completion certificate Time to complete: 40days Time to complete: 14days Cost to complete: INR25,000 Cost to complete: nocharge Comment: Anapplicationismadetothepowerutilitycompanyanewelectric- Comment: OnreceivingtheBuildingcompletioncertificatefromtheArchitect, ityconnection.ThisapplicationistobemadethroughLicensedElectricityCon- theconcernedAuthorityintheplanningdepartmenttheninspectsthesite tractor.Thefunctionsofsuchacontractorincludeinspectionandsubsequently andsubmitsthecompliancereporttotheDeputyChiefEngineerBuildingand decidethenecessaryelectricityconsumption,whichismeasuredinHorsePower Planning,forgrantingtheoccupationpermissionalongwithaletterstating (HP) thereinthattheIODconditionshavebeencompliedwith.Theapplicationforthe occupancypermitshouldincludetheearthquakeresistancecertificatewhichis Procedure 16*. Power supplier inspects the construction and sets issuedbyoneofBuildCo'semployees. up connection Procedure 9*. Final inspection of the construction by the Munici- Time to complete: 1day pal Corporation Cost to complete: nocharge Time to complete: 1day Procedure 17*. Apply for telephone connection Cost to complete: nocharge Time to complete: 14days Procedure 10*. Apply for approval of completed construction Cost to complete: nocharge from the fire department Comment: Anapplicationforthetelephoneconnectionissubmittedtothe utilitycompanyalongwithsecuritydeposit. Time to complete: 14days Cost to complete: INR70,000 Procedure 18*. Telephone supplier inspects the construction and Comment: Beforetheissuanceofanoccupancypermit,anapplicationismade sets up connection tothefiredepartmentfortheirclearance.Forawarehousethereisacapitation fee,whichisINR5persquaremeter. Time to complete: 1day Cost to complete: nocharge Procedure 11*. The fire department inspects the completed con- struction and issues the fire certificate Procedure 19*. Obtain occupancy permit Time to complete: 1day Time to complete: 30days Cost to complete: nocharge Cost to complete: INR10,000 Comment: TheFireDepartmentchecksthefiresafetyequipmentssuchasfire Procedure 20*. Receive inspection for obtaining occupancy per- extinguishers,smokedetectors,firealarms,sprinklers,hose-reels,firebuckets andreservewaterstoragetankforfire,etc.andissuesanoobjectioncertificate mit afterconductinganartificialdrillinthewarehouse. Time to complete: 1day Cost to complete: nocharge Procedure 12*. Apply for permanent water and sewerage connec- tion Note: Procedures sometimes take place simultaneously. Instances of this are marked with an asterisk (*). Time to complete: 65days Cost to complete: INR50,000 Comment: Anapplicationismadetothemunicipalcorporationfortheapproval ofthepermanentwaterandsewerageconnection. 76 Doing Business in south asia 2007 Dealing with licenses Dealing with licenses Maldives Nepal Data as of: January 2006 Data as of: January 2006 City: Malé City: Kathmandu Procedure 1. Apply for a digging permit from road office Procedure 1. Obtain Location Permit and Approval of Design Time to complete: 7days Time to complete: 30days Cost to complete: MRF50 Cost to complete: nocharge Comment: Aconstructioncompanymustobtainalocationpermitandapproval Procedure 2. Request approval from municipality depending on ofdesigninordertomeetthezoningregulation.Ifanexternalprescribedengi- road width neerpreparestheplan,hecanchargebetween10000to15000rupees. Time to complete: 3days Cost to complete: nocharge Procedure 2. Submit of drawing together with copy of title cer- tificate Procedure 3. Apply for building permit Time to complete: 35days Time to complete: 56days Cost to complete: NPR15,300 Cost to complete: MRF1,500 Comment: The35daysaredividedasfollows:day1,BuildCosubmitsofdrawing Comment: ThecompanymustsubmitanapplicationtotheMaldivesHousing togetherwithcopyoftitlecertificatetotheMunicipality.Day2,themunicipal- andUrbanDevelopmentboardforapprovaltocarryouttheproposedbuilding ityforwardsthefiletomunicipalitywardofficewherethelandissituated.Day worksbasedonthearchitecturalplansforconstructionofthewarehouse. 4,thewardofficedoesthefieldcheckingandserviceofnoticetobordering DrawingsarepreparedbyaregisteredarchitectandcertifiedbyaMinisterof neighbors.Day8,startsthematurationofnoticeperiod.Day23startsthelocal Housing/Development.Ittakesawhileasthereisnotadequatestaffinthede- inquirydonebythewardoffice.Day27,thewardofficesendsbackthefileto partmentandtheMunicipalitywillwritetoMinistryofConstructionandPublic municipality.Day29,themunicipalitystarttheprocessofissuanceoftemporary InfrastructuretowaitforapprovalandalsototheFireDepartment. approvalofdrawing.Theneighborsmustgivetheirconsentfortheprojecttobe approved.Thiscandelaytheapprovalprocesstoaround2months. Procedure 4*. Housing and Urban Development inspects Procedure 3*. A first inspection is conducted by the municipality Time to complete: 7days Time to complete: 7days Cost to complete: nocharge Cost to complete: nocharge Procedure 5*. Apply for water and sewage connection from Malé Water and Sewage Company Procedure 4. Apply for permanent building permit Time to complete: 30days Time to complete: 21days Cost to complete: nocharge Cost to complete: MRF4000 Comment: Thecompanyshouldapplyforthepermanentbuildingpermitafter Comment: TheCompanymustsubmitanapplicationforapprovalforconnect- theconstructionisuptoplinthlevel ingthewarehousetothemaindrinkingwaterandsewagesystems,basedon theservicesplansforthewarehouse. Procedure 5*. Receive on-site inspection prior to issuing building Procedure 6*. Obtain inspection for water/sewerage connection permit Time to complete: 3days Time to complete: 5days Cost to complete: nocharge Cost to complete: nocharge Comment: Anon-siteinspectionisdonebytheofficeroftheMunicipality Procedure 7. Request for electricity installation to site from State orTownDevelopmentCommitteetoascertainwhethertheconstructionup Electricity Company (STELCO) toplinthlevelisaccordingtoapproveddrawingbeforeissuingconstruction permit. Time to complete: 21days Cost to complete: MYR5,000 Procedure 6*. Receive building permit Comment: MRF1,500foreachof2electricitymeters+variableinstallation Time to complete: includedinpreviousprocedure chargearoundMRF2,000. Cost to complete: nocharge Procedure 8*. Obtain telephone connection from Dhiraagu Ltd Comment: Thisfollowstheon-siteinspectiondonebytheofficeroftheMunici- palityorTownDevelopmentCommitteetoascertainwhethertheconstruction Time to complete: 15days uptoplinthlevelisaccordingtoapproveddrawingbeforeissuingconstruction Cost to complete: MYR1,680 permit. Comment: TheCompanymustsubmitanapplicationforapprovalforinstalla- tionofatelephoneline,basedontheservicesplansforthewarehouse. Procedure 7. Apply for Completion Certificate Time to complete: 21days Procedure 9. Request permit to occupy Cost to complete: nocharge Time to complete: 30days Cost to complete: nocharge Procedure 8*. Receive on-site inspection before issuing Comple- Comment: Afterbuildingcompletionthecompanyrequeststhepermittooc- tion Certificate cupywhichisfollowedbyaninspectionofthebuilding. Time to complete: 7days Cost to complete: nocharge Procedure 10*. Receive final inspection and building approval Comment: Beforeissuingthecompletioncertificatethemunicipalityconducts Time to complete: 15days anon-siteinspectiontoascertainwhethertheconstructionisaccordingto Cost to complete: nocharge approveddrawing. Note: Procedures sometimes take place simultaneously. Instances of this are marked with an asterisk (*). appenDix ii · Data Details 77 Procedure 9. Receive Completion Certificate Procedure 2. Obtain a building permit Time to complete: 4days Time to complete: 60days Cost to complete: nocharge Cost to complete: PKR78,680 Comment: Thisfollowsanon-siteinspectiontoascertainwhethertheconstruc- Comment: AnapplicationintheprescribedFormisrequiredtobesubmitted tionisaccordingtoapproveddrawing. totheconcernedKarachiBuildingControlAuthority(KBCA)togetherwiththe followinginformation/documents: Procedure 10. Apply for Water and Sewerage connections (i)Buildingplan(initiallythreecopiesandthereaftersixcopies)togetherwith: Time to complete: 25days (a)Fullparticularsoftheplot,includingstatus(whetherresidential,com- mercial,etc.)onwhichthebuildingisproposedtobeconstructedaccording Cost to complete: NPR8,000 tothebuildingplans. Comment: BuildCosubmitstheapplicationforwaterandsewertothedrinking (b)Twosetsofalldocumentsrelatingtotheplottogetherwithaletterfrom officeandsewerageoffice.Thedrinkingandsewerageofficessendarecom- theconcernedauthorityconfirmingthetitle/landusephysicallyfreshdemar- mendationtodepartmentofroadtograntpermissiontodigtheroadforthe cated/dimensionsoftheplotalongwiththeexistenceofanyroadwidening/ connectiontobebuilt.TheDepartmentofroadgrantspermissiontodigthe cutline/reservation. road.Thetapandsewerconnectionstartsbeingimplemented. (ii)Descriptionoftheplan: (a)Proposed,revised,addition/alteration. Procedure 11*. Receive inspection (b)Previousapproval(ifany) Time to complete: 7days (c)Detailsofanylitigationrelatingtotheplot Cost to complete: nocharge Note:Thedrawingsshouldshowplans,sectionsandelevationstogetherwith othernecessarydetailspertainingtoRCCelements,joineryworkandcovered Procedure 12*. Apply for Power Connection areaetc.,ofeveryfloor,includingbasement,ifany,ofthebuildingintendedto beerected,alongwithablockplanofthesite,drawntoascaleofnotlessthan Time to complete: 15days 1:500(1":8').Suchplanandsectionsshouldshowthepurposeforwhichthe Cost to complete: NPR35,000 buildingorpartsthereofareintendedtobeused;theaccesstoandfromthe Comment: ThisapplicationshouldbemadebeforetheNepalElectricityAuthor- severalpartsofthebuilding;thepositiondimensions,meansofventilation, ity. theproposedheightoftheplinthandsuperstructureatthelevelofeachfloor, togetherwiththedimensionsanddescriptionsofallthewalls,floors,roofs, Procedure 13*. Receive wiring inspection before obtaining Elec- staircasesandelevator,etc. tricity Connection (iii)Descriptionofproposedconstruction: (a)TypeofBuilding. Time to complete: 7days (b)Totalfloorarea. Cost to complete: nocharge (c)No.offloors. Comment: ThisinspectionisconductedbytheNepalElectricityAuthority. (d)No.ofunits(forpublicsaleprojectsonly). (e)Carparkingspace. Procedure 14*. Obtain Telecommunication Connection (f)Areaofamenityspace. (iv)Particularsoflicensedprofessionalsemployedtopreparetheplanand Time to complete: 300days supervisework: Cost to complete: NPR5675 (a)Name: Comment: ThecompanyshouldcontacttheNepalTelecommunicationCorpora- (b)LicenseNo./ProfessionalRegistrationNo.fromthePEC. tion.AdepositofRs5000ispaidand13.5%taxisapplicableontheconnection (c)NICNo. fee. (d)Mailingandpermanentaddress/telephoneNo. (e)Officeaddress&telephoneNo. Procedure 15*. Receive telecommunications inspection (v)Whethertheprojectisintendedforpublicsale? Time to complete: 7days Yes/No. Cost to complete: nocharge (vi)Listofotherdocumentstobeattachedtotheapplication(photocopies shouldbedulyattestedbytheprofessional): Comment: Thereisahugebacklogof300,000requests.After5years,the (a)Leasedeed/saledeed,allotmentorder,mutation/transferorder/extract. applicantmaygetacallfromtheNepalTelecommunications.Hewillthentake (b)Possessionorder. inspectorfromhisoffice,takeataxi,within7daysofthecall,theinspectionis (c)Acknowledgementofpossession. done,Within3daysafterinspection,hesubmitstheinspectionreport.Then,he (d)Siteplan. givesreceiptinvoicetoconstructorandpaysdepositandexpenses. (e)Noobjectioncertificate(NOC)fromsociety/lessor(whereapplicable). Note: Procedures sometimes take place simultaneously. Instances of (f)NIC this are marked with an asterisk (*). (g)Aletterbytheowner(s)orattorney(s)oftheowner(s)authorizinganamed professional(whoseLicenseNo./RegistrationNo.shouldalsobeprovided) Dealing with licenses tocomplete/complywiththerelevantrequirementsoftheSindhBuilding Pakistan ControlOrdinance,1979asamendedfromtimetotime,andoftheregula- tionsframedthereunderforandonbehalfoftheowner(s);andundertak- Data as of: January 2006 ingtoprovideplinthcertificatenoticeatthestageofcompletionofplinth City: Karachi asrequiredundersection3-2.10oftheKarachiBuilding&TownPlanning Regulations,2002(2002Regulations)andfurthertoabidebyalltherulesand Procedure 1. Obtain letter from concerned authority confirming regulationsasaforementioned.Thislettershouldbesignedbytheowner(s)of the land title theirattorney(s)andshouldcontaintheirNICNo.,e-mailaddress,mailingand permanentaddressandtelephoneNo.aswellasthesignatureandparticulars Time to complete: 30days ofthearchitectandstructuralengineer Cost to complete: PKR0 (vii)Anundertakingfromthearchitectandstructuralengineerintheprescribed Comment: Thecompanymustobtainaletterfromtheconcernedauthority form. confirmingthetitle/landusephysicallyfreshdemarcated/dimensionsoftheplot alongwiththeexistenceofanyroadwidening/cutline/reservation.InKarachi thelandsareownedbyvariousauthoritiesforexampleKarachiDevelopment Authority,KarachiMunicipalCorporationetc.Forexampleifthelandboughtby thecompanybelongstotheKarachiMunicipalCorporationthentherequired letter/certificatewillhavetobeobtainedfromthesaidauthority 78 Doing Business in south asia 2007 TheKBCA,whichoperatesundertheSindhLocalGovernmentOrdinance,2002 (ii)CertificateofIncorporation(issuedbytheSecurities&ExchangeCommission andfallsunderthecontroloftheKarachiCityDistrictGovernmentofwhichthe ofPakistan)iftheapplicantisacompany. Nazim(electedheadofKarachicitylocalcouncil)isthechiefexecutive. (iii)Aletterofthecompanyauthorizinganamedpersontosigntheapplication Ifthepropertyi forthenewtelephoneconnection. Agency: Allthedocumentsdescribedabovearealreadyinthecompany'spossession 1)Afterreceiptofanapplicationforpermissiontocarryoutbuildingworks, theKBCAisrequiredto: Procedure 7*. Obtain copy property tax valuation and copy of the (a)Passordersgrantingpermissiontocarryoutsuchbuildingworkswithin60 certificate from the tax authorities calendardays. (b)Inthecaseofrefusal/objections,theKBCAissuesconsolidatedobjections/ Time to complete: 30days observations,specifyingtheprovisionsofthe2002Regulationsunderwhich Cost to complete: nocharge theyaremadetotheprofessionalwithin30days. Comment: ThecompanymustobtainacopyofthePropertyTaxvaluationand Ifnoorderispassedonanapplicationwithin60calendardaysofitsreceipt, acopyofthecertificatefromthetaxauthoritiesconfirmingthatthereareno itshallbedeemedtohavebeensanctionedtotheextenttowhichitdoes amountsduetothem.Thesedocumentswillbesubmittedalongwiththewater notcontravenetheprovisionsofthe2002Regulationsorthemasterplanor connectionapplication. sanctionedsitedevelopmentscheme,ifany.Uponexpiryofthesaid60day TheExciseandTaxationdepartmentoftheGovernmentofSindhprovides period,theapplicantmay,aftergivingnoticetotheKBCA,proceedtocarry thepropertytaxvaluationafterthebuildingiscompleted.Thedepartment outthesaidbuildingworksatanytimewithinone(1)yearfromthedateof inspectsthebuildingandissuesacertificate,totheownerofthebuilding,which submissionofthebuildingplansprovidedthetitletothelandisclearfrom providesanassessmentofthevalueofthebuildingconsideringthecovered anydisputesandobjections. areaofthebuilding,forprovidingobjections,ifany,totheassessment.Thecom- 2)Presentlythescrutinizingfeefortheware-houseprojectoranybuilding pany/ownerofthebuildingisrequiredtoprovideitsobjectionswithin14days constructionprojectisRs.5.62persquarefeet,i.e.,Rs.78,680intheinstant ifthesamearenotprovidedwithin14daysthedepartmentissuesaFormPT-1 case. acertificatewhichprovidestheassessedvalueofthepropertyandtheresultant propertytaxtobechargedonthepropertyisalsoprovidedinthecertificate. Procedure 3. Request foundation work inspection from KBCA Thedocumentsthatareneededtobeprovidedare. Time to complete: 1day 1.Anapplicationprovidinginformationrelatingtothebuilding 1.Tiledocuments/documentsevidencingtitleoftheproperty. Cost to complete: nocharge 2.Approvedbuildingplan Comment: Everypersonwhocommencesbuildingworksisrequiredtogive 3.NationalIdentityCardoftheApplicant noticetotheKBCAuponcompletionofplinthlevelinordertoenabletheKBCA toverifythebuildinglines. Procedure 8. Receive inspection from the Excise and Taxation Procedure 4. Receive foundations work inspection from KBCA department Time to complete: 1day Time to complete: 15days Cost to complete: nocharge Cost to complete: nocharge Comment: WiththeexceptionofanyCategory1buildingwork,RegulationNo. Procedure 9*. Request water and sewerage connection 3-2.10ofthe2002Regulationsrequirethateverypersonwhocommencesbuild- ingworksshallgivenoticetotheKBCAintheprescribedformuponcompletion Time to complete: 60days ofplinthandinthecaseofbasements,uponthecompletionoffoundations, Cost to complete: PKR90,000 inordertoenabletheKBCAtoverifythebuildinglines.RegulationNo.3-2.10 Comment: Anapplicationintheprescribedformwillberequiredtobesubmit- furtherprovidesthatnofurtherworkshallbecarriedoutforaperiodof15days tedtotheKarachiwater&sewerageboardalongwiththefollowingdocuments fromthedateofreceiptbytheKBCAofsuchnotice. foranewwaterandsewerageconnection: Withinthesaid15dayperiodtheKBCAshalleitherapprovethebuildinglinesor (i)Acopyoftheapprovedbuildingplanalongwithacopyoftheletterunder informtheownerorhisrepresentativeofanyerrorwhichmaybefoundinthe coverofwhichtheapprovedbuildingplanwasissuedbytheKBCA. buildingline. (ii)Evidenceofownershipof,or,incaseofatenancy,acopyoftheleaseagree- IfnointimationisreceivedfromtheKBCAwithinthesaid15-dayperiod,the mentinrespectoftheplotwherethewaterconnectionistobeprovided. ownerwillbeentitledtoproceedwiththebuildingworks,afternoticetothe (iii)AcopyofthePropertyTaxvaluation. KBCA,providedtheconstructionisinaccordancewiththeapprovedbuilding (iv)Acopyofthecertificatefromthetaxauthoritiesconfirmingthatthereareno plan. amountsduetothem (v)AcopyoftheapplicantsNIC. Procedure 5. Request electricity connection Time to complete: 75days Procedure 10. Apply for occupancy permit and request final in- Cost to complete: PKR228,000 spection Comment: Anapplicationintheprescribedformwillberequiredtobesubmit- Time to complete: 30days tedtotheKarachiElectricSupplyCorporationLimitedalongwiththefollowing Cost to complete: nocharge documentsforanewelectricityconnection: Comment: Afterthebuildingiscompleteda"noticeofcompletionandpermis- (i)Anapplicationformdulyverifiedbyalicensedelectricalcontractor. sionforoccupation"alongwiththeArchitectsCertificateintheprescribedForm (ii)Acopyoftheapplicant'sNICcard. isrequiretobegiven.AfterreceiptofthisnoticeTheKBCAinspectsthebuilding (iii)Copyofapprovedbuildingplan. toverifythatitismadeaccordingtotheplansalreadyapprovedbytheKBCA. (iv)Acopyoftheletterundercoverofwhichtheapprovedbuildingplanwas issued. Procedure 11*. Receive final inspection Procedure 6*. Request telephone connection Time to complete: 15days Cost to complete: nocharge Time to complete: 45days Cost to complete: PKR4,150 Procedure 12. Receive completion certificate from KBCA Comment: Anapplicationintheprescribedformwillberequiredtobesubmit- tedtothePakistanTelecommunicationCompanyLimitedalongwiththefollow- Time to complete: 7days ingdocumentsforanewtelephoneconnection: Cost to complete: nocharge (i)Evidenceofownershipof,or,incaseofatenancy,acopyoftheleaseagree- Note: Procedures sometimes take place simultaneously. Instances of mentinrespectoftheplotwherethetelephoneistobeinstalledORacopyof this are marked with an asterisk (*). theutilitybillinthenameoftheprospectivecustomer. appenDix ii · Data Details 79 Dealing with licenses Procedure 7. Obtain drainage certificate from Water and Drain- Sri Lanka age Department of the CMC Data as of: January 2006 Time to complete: 7days City: Colombo Cost to complete: LKR24,380 Comment: Thefollowingdocumentsmustbesubmitted Procedure 1. Obtain non-vesting certificate from the Municipal a.Theprescribedapplicationformsignedinduplicate Treasurer b.Sixcopiesoftheapprovedbuildingplan Time to complete: 1day c.Thewateranddrainageplans Cost to complete: LKR4,025 d.TwocopiesoftheDevelopmentPermit Comment: Anapplicationfortheissueofapermittoengageindevelopment e.Acopyofthewatersanction. activityisnotprocesseduntilalloutstandingratesasdulyassessedbytheCo- AllapplicationsforDrainageCertificatesmustbesubmittedbyaregisteredcon- lomboMunicipalCouncilhavebeensettledandaclearancehasbeenobtained tractorwiththelocalauthorityandthedrainageconnectionshouldbecarried tothateffect. outbysuchcontractor. Procedure 2. Obtain development permit (building permit) from Procedure 8*. Receive sewage inspection Municipal Council of Colombo (CMC) Time to complete: 1day Time to complete: 75days Cost to complete: LKR496 Cost to complete: LKR43,700 Procedure 9. Obtain certificate of conformity from Municipal Comment: ABuildingapplicationforapermitmustbesubmittedwithsixcop- iesoftheBuildingPlan. Council of Colombo ThefollowingaretheinternalstepsinvolveduptotheissuingoftheDevelop- Time to complete: 42days mentpermit. Cost to complete: LKR575 ·WaterSupplyandDrainageDepartmentoftheCMCmarksthedrainageand Comment: Anapplicationmustbesubmittedwiththefollowingdocuments waterlinesontheproposedplanandissuethewateranddrainageclearance. a.DrainageCertificate. ·TheFireServiceDepartmentoftheCMCissuesthefirereportwithorwithout b.ApprovedBuildingPlan conditions. ·On-siteinspectionbyanAreaInspectorofthePlanningDepartmentofthe ·TheBuildingDepartmentoftheCMCissuesthestreetlineconfirmation.On- CMCtoensurethatconstructionhasbeencompletedaccordingtotheap- siteinspectionbyanAreaInspectoroftheCMCandareportispreparedbased provedplan. ontheinvestigations. ·On-siteinspectionbyaFireinspector. ·Inspector'sReportisthanassessedbyaTechnicalStaffAssistantandthenbya ·Inspectors'ReportisthenassessedbyaTechnicalStaffAssistantandthen PlanningOfficerorEngineerBuildingandpresentedtothePlanningCommittee byaPlanningOfficerorEngineer,BuildingandpresentedtothePlanning withtheircommentsandrecommendations. Committee. ·PlanningCommitteemayapprovethebuildingplanandgranttheDevelop- ·PlanningCommitteemayissuetheCertificateofConformityiftheconstruc- mentPermitwithorwithoutconditions. tionisaspertheapprovedplan. ·MustensurethatStreetlines/BuildingLinesaredemarcatedongroundpriorto commencementofconstruction. Procedure 10*. Receive on-site inspection by area inspector of ThebuildingapplicationformcostsSLR135.Ifthefloorareaisabove3,500 the planning department of the CMC squarefeet,theapplicationshouldbecertifiedbyanArchitectandaChartered Engineer. Time to complete: 1day Cost to complete: LKR496 Procedure 3*. Receive on-site inspection from CMC Time to complete: 1day Procedure 11*. Receive on-site inspection by fire inspector Cost to complete: LKR496 Time to complete: 1day Comment: Theapplicantnormallyprovidesvehicleoftransportationorbe Cost to complete: LKR496 responsibleforthecostofataxi/trishaw.Thecostdependsonthelocationin ColombobutnormallynomorethanUS$10. Procedure 12*. Obtain electricity connection Time to complete: 35days Procedure 4*. Receive on-site inspection from fire department Cost to complete: LKR58,287.50 Time to complete: 1day Comment: Toobtaintheelectricityconnectionthecompanymustcompletethe Cost to complete: LKR496 followingprocess: 1.Applyforelectricityconnection,whichcostsSLR287.50 Procedure 5. Obtain water sanction from Water and Drainage 2.Receivesiteinspectionanestimationoftheelectricityinstallationcosts Department of the CMC 3.Payelectricityinstallationcosts 4.Submitthetitleofdeedandthecertificateofownershiptotheelectricity Time to complete: 7days board Cost to complete: nocharge 5.Obtainconfirmationofthewiringofthebuildingbyachartedengineer Comment: Watersanctionmustbeobtainedpriortoinstallationofpermanent fromapanelofengineersnominatedbytheelectricityboardafterasitevisit fittings.Thefollowingdocumentsmustbesubmitted 6.Signabondwiththeelectricityboard a.Theprescribedapplicationform Thecompanymustalsoobtainaroadpermitifthereisanydamagetotheroad b.Acopyoftheapprovedbuildingplan ingettingtheelectricityconnectionthroughunderground.Thispermitisissued c.AcopyoftheDevelopmentPermit bytheMunicipalCouncilofColombo.Ittakes2daystoobtainandthecost d.Acopyofanypreviouswaterbills(ifapplicable) dependsonthedamagecausetotheroad. e.Anyreceipt/noticeissuedbythelocalauthoritytoconfirmtheassessment number. Procedure 13*. Receive on-site inspection by inspector from elec- tricity board Procedure 6*. Receive water inspection Time to complete: 1day Time to complete: 5days Cost to complete: LKR496 Cost to complete: LKR496 80 Doing Business in south asia 2007 Procedure 14*. Receive on-site inspection by Charted engineer Time to complete: 1day Cost to complete: LKR4,000 Procedure 15*. Obtain water connection Time to complete: 32days Cost to complete: LKR18,000 Comment: Toobtainthewaterconnectionthecompanymustsubmitanap- plicationtotheNationalWaterSupplyandDrainageBoard,receiveanon-site inspection,paywaterinstallationcosts,andsignanagreementwiththeboard. Thecompanymustalsoobtainaroadpermitifthereisanydamagetotheroad ingettingthewaterconnection.ThispermitisissuedbytheMunicipalCouncil ofColombo.Ittakes2daystoobtainandthecostsdependonthedamage causetotheroad. Procedure 16*. Receive on-site inspection by inspector from Na- tional Water Supply and Drainage Board Time to complete: 1day Cost to complete: nocharge Procedure 17*. Obtain phone connection Time to complete: 14days Cost to complete: LKR23,000 Comment: Toobtainthephoneconnectionthecompanymustsubmitan applicationtoSriLankaTelecom,receiveanon-siteinspection,andpaywater installationcosts. Note: Procedures sometimes take place simultaneously. Instances of this are marked with an asterisk (*). appenDix ii · Data Details 81 EMPLOyING WORKERS Afghanistan Bangladesh Bhutan India Answer Score Answer Score Answer Score Answer Score Difficulty of Hiring Index 67 11 78 33 Cantermcontractsbeusedonlyfortermtasks? Yes 1 No 0 Yes 1 Yes 1 Whatisthemaximumdurationoftermcontracts?(inmonths) 12 1 NoLimit 0.00 12 1.00 NoLimit 0.00 Whatistheratioofmandatedminimumwagetotheaverage 0 0 0.37 0.33 0.26 0.33 0.19 0.00 valueaddedperworker? Rigidity of Hours Index 40 40 40 20 Cantheworkweekextendto50hours(includingovertime)for2 Yes 0 Yes 0 Yes 0 Yes 0 monthsperyear? Whatisthemaximumnumberofworkingdaysperweek? 6 0 6 0 6 0 6 0 Arethererestrictionsonnightwork? Yes 1 No 0 Yes 1 No 0 Arethererestrictionson"weeklyholiday"work? Yes 1 Yes 1 No 0 Yes 1 Whatisthepaidannualvacation(inworkingdays)foranem- 20 0 22 1 30 1 12 0 ployeewith20yearsofservice? Difficulty of Firing Index 30 40 0 70 Istheterminationofworkersduetoredundancylegallyautho- Yes 0 Yes 0 Yes 0 Yes 0 rized? Musttheemployernotifyathirdpartybeforeterminatingone No 0 Yes 1 No 0 Yes 1 redundantworker? Doestheemployerneedtheapprovalofathirdpartytotermi- No 0 No 0 No 0 Yes 1 nateoneredundantworker? Musttheemployernotifyathirdpartybeforeterminatinga No 0 Yes 1 No 0 Yes 1 groupofredundantworkers? Doestheemployerneedtheapprovalofathirdpartytotermi- No 0 No 0 No 0 Yes 1 nateagroupofredundantworkers? Musttheemployerconsiderreassignmentorretrainingoptions Yes 1 No 0 No 0 No 0 beforeredundancytermination? Aretherepriorityrulesapplyingtoredundancies? Yes 1 Yes 1 No 0 Yes 1 Aretherepriorityrulesapplyingtore-employment? Yes 1 Yes 1 No 0 Yes 1 Rigidity of Employment Index 46 30 39 41 Nonwagelaborcost(%ofsalary) 0 0.0 1.0 16.8 Whatisthenoticeperiodforredundancydismissalafter20years 4.3 4.3 8.0 13.0 ofcontinuousemployment?(weeksofsalary) Whatisseverancepayforredundancydismissalafter20yearsof 0 10.8 20.0 9.9 employment?(monthsofsalary) Whatislegallymandatedpenaltyforredundancydismissal? 0 0.0 0.0 0.0 (weeksofsalary) Firing costs (weeks of wages) 4.3 51.0 94.7 55.9 82 Doing Business in south asia 2007 EMPLOyING WORKERS Maldives Nepal Pakistan Sri Lanka Answer Score Answer Score Answer Score Answer Score Difficulty of Hiring Index 0 67 78 0 Cantermcontractsbeusedonlyfortermtasks? No 0 Yes 1 Yes 1 No 0 Whatisthemaximumdurationoftermcontracts?(inmonths) NoLimit 0.00 NoLimit 0.00 9 1.00 NoLimit 0.00 Whatistheratioofmandatedminimumwagetotheaverage 0.00 0.00 0.81 1.00 0.25 0.33 0.21 0.00 valueaddedperworker? Rigidity of Hours Index 0 20 20 20 Cantheworkweekextendto50hours(includingovertime)for2 Yes 0 Yes 0 Yes 0 Yes 0 monthsperyear? Whatisthemaximumnumberofworkingdaysperweek? 7 0 6 0 6 0 6 0 Arethererestrictionsonnightwork? No 0 No 0 No 0 No 0 Arethererestrictionson"weeklyholiday"work? No 0 Yes 1 Yes 1 Yes 1 Whatisthepaidannualvacation(inworkingdays)foranem- 20 0 13 0 14 0 14 0 ployeewith20yearsofservice? Difficulty of Firing Index 0 70 30 60 Istheterminationofworkersduetoredundancylegallyautho- Yes 0 Yes 0 Yes 0 Yes 0 rized? Musttheemployernotifyathirdpartybeforeterminatingone No 0 Yes 1 No 0 Yes 1 redundantworker? Doestheemployerneedtheapprovalofathirdpartytotermi- No 0 Yes 1 No 0 Yes 1 nateoneredundantworker? Musttheemployernotifyathirdpartybeforeterminatinga No 0 Yes 1 No 0 Yes 1 groupofredundantworkers? Doestheemployerneedtheapprovalofathirdpartytotermi- No 0 Yes 1 No 0 Yes 1 nateagroupofredundantworkers? Musttheemployerconsiderreassignmentorretrainingoptions No 0 No 0 Yes 1 No 0 beforeredundancytermination? Aretherepriorityrulesapplyingtoredundancies? No 0 Yes 1 Yes 1 Yes 1 Aretherepriorityrulesapplyingtore-employment? No 0 Yes 1 Yes 1 No 0 Rigidity of Employment Index 0 52 43 27 Nonwagelaborcost(%ofsalary) 0.0 10.0 12.0 15.0 Whatisthenoticeperiodforredundancydismissalafter20years 8.7 4.3 4.3 8.7 ofcontinuousemployment?(weeksofsalary) Whatisseverancepayforredundancydismissalafter20yearsof 0.0 19.8 19.8 39.0 employment?(monthsofsalary) Whatislegallymandatedpenaltyforredundancydismissal? 0.0 0.0 0.0 0.0 (weeksofsalary) Firing costs (weeks of wages) 8.7 90.0 90.0 177.7 appenDix ii · Data Details 83 regiStering PrOPertY Procedure 8. The completed Circular Form is submitted back to the Primary Court judge Afghanistan Time to complete: 1day Property value: 693,483 Cost to complete:nocost City: Kabul Comment: ThecompletedCircularFormissubmittedbacktothePrimaryCourt judgewhowillauthorizethepaymentofpropertytaxes. Procedure 1. Submit two signed copies of Circular Form to the Head of Makhzan (judge) Procedure 9. Seller pays property taxes at a designated bank Time to complete: 3days Time to complete: 1day Cost to complete:nocost Cost to complete:7%ofpropertyvalue Comment: TheapplicantsubmitstwosignedcopiesoftheCircularFormtothe Comment: Thesellerneedstopaysthepropertytaxes,indicatedintheCircular HeadofMakhzan(ajudge)forsignatureapprovalinordertoinstantiateasearch Form,atadesignatedbank. ofMakhzanrecords. Procedure 10. Submit the completed Circular Form, with pay- Procedure 2. The signed Circular Form is then submitted to the ment receipts, to the Primary Court Chief of Makhzan to initiate the search of registered deeds Time to complete: 31days Time to complete: 8days Cost to complete:2.5%(StampDuty) Cost to complete:nocost Comment: TheapplicantreturnstothePrimaryCourtwiththecompletedCircu- Comment: OncesignedbytheHeadofMakhzan,theCircularformissubmitted larForm,thatwillhavepaymentreceiptsobtainedinProcedure9attached. bytheapplicanttotheChiefofMakhzan,whowillsigntoinitiatethesearchof Thejudgewillordertheclerktoprepareanewdeedintwocopies.Thenew theMakhzanhistoricalrecordsofregistereddeeds. deedischeckedforcorrectnessbythePrimaryCourtJudge,whowillsignboth TheMakhzankeepersearchesfordeedsinarchivesbasedonthedetails copies. providedbytheapplicant(registrynumberandphotos).Thekeeperwillgive TheKondo(stubcopy)ismaintainedinthePrimaryCourtuntilthefullrecord thedeedbookandtheowner'spropertydeedtotheChiefofMakhzan,whowill bookispassedontoMakhzanforstorage.Thistakesplaceattheendofevery checkforthecorrectnessofownershipandsignagaintheCircularForm. financialyear. TheHeadofMakhzanalsochecksforcorrectnessandsignsagaintheCircular Form Procedure 11. The buyer obtains a copy of the deed Procedure 3. Circular Form sent to Imlak (Municipal Land Office) Time to complete: 1to365days for certification of location of property Cost to complete:nocost Comment: Asecondcopyofthenewdeedisgiventothenewpropertyowner. Time to complete: 8days Time to complete: dependsonwheninthefinancialyearStep10isconducted. Cost to complete:nocost Comment: TheapplicanttakestheCircularFormtoImlakforcertificationofthe Note: Procedures sometimes take place simultaneously. Instances of propertylocation(bothforagriculturalandmunicipalland). this are marked with an asterisk (*). Procedure 4. An Imlak committee establishes the value of the registering propertY land Bangladesh Time to complete: 8days Property value: 1,370,110 Cost to complete:nocost City: Dhaka Comment: AnappropriateImlakcommitteeestablishesthevalueoftheland afteraninspectionoftheproperty.ThevalueisenteredontheCircularForm. Procedure 1*. Verify the record of rights from the Land Office (also known as Land Revenue Office) Procedure 5. The Circular Form is submitted to the local Tax Col- Time to complete: 15-60days lection Office Cost to complete:BDT2,000 Time to complete: 3days Comment: Atthesametime,itischeckedthatlandrentreceiptsareuptodate. Cost to complete:nocost Thereisthe: Comment: TheapplicanttakestheCircularFormtotheTaxCollectionOfficeof a.LandRecordsOfficeforlandrecords,surveys,publicationandmaintenanceof thefinancialdepartmentofthelocalMustofiatforcertificationofpropertytaxes recordsunderthedirectorateoflandrecordsandsurvey(MinistryofLand). owed. b.LandOfficeorLandRevenueOfficeunderMinistryofLand.Thereare11 administrativeofficesineachupajela(subdistricts) Procedure 6. The Circular Form is submitted to the provincial Tax c.Thereare64districtsinBangladeshbut61registrationdistricts.3hilldistricts Collection Office donothaveregistrationcentres.InDhaka,thedistrictlandregistrationofficehas 11subregistrarofficesunderMinistryofLaw. Time to complete: 3days Cost to complete:nocost Procedure 2*. Obtain a copy of the 1913 cadastral survey from Comment: TheapplicanttakestheCircularFormtotheTaxCollectionOfficeof the land records office thefinancialdepartmentoftheprovincialMustofiatforcertificationofproperty taxesowed. Time to complete: 7days Cost to complete:BDT2000 Procedure 7. Submit the Circular Form to the Human Resource Directorate for certification of signatures Procedure 3*. Obtain Permission from the RAJUK to transfer own- ership of the property Time to complete: 3days Cost to complete:nocost Time to complete: 60days Comment: TheCircularFormissubmittedtotheHumanResourcesDirectorate Cost to complete:BDT3,500 forcertificationsofthesignaturesofthelocalandprovincial(regional)Mustofiat Comment: Thepermissionisonlymandatorywhenthepropertyisunderthe staffcollectedinProcedures5and6. controlofeithertheMinistryofWorks(NationalHousingAuthority)orRAJUK (DhakaImprovementTrustsince1952untilitwasrenamedRajdhaniUnnayan 84 Doing Business in south asia 2007 Kartripakkh-RAJUKin1982).Suchlandissubjectto99yearleases.Therestis registering propertY subjecttoprivateownership,governmentownershiporunderoccupationby Bhutan theBangladeshiarmy. Althoughthepermissionisusuallyalwaysgranted,unofficialpaymentsarestill Property value: 1,994,564 paidinordertoexpeditetheprocessandguaranteeapproval,whichamountto City: Thimphu BDT10,000to15,000. Thebuyeralsochecksthatthepropertyisuptodatewithpaymentstothe Procedure 1. File at the District Court of Thimphu for verdict date Municipality,gasutilityservice,electricityutilityservice,andthewaterutility hearing, enclosing sale deed drawn between the parties servicetomakesurethatthereisnooutstandingduespayablesothatthethose Time to complete: 30days liabilitiesdonottransfertohim.EachofthesecheckswillcostaroundBDT 625.ThesearestandardstepscustomaryinBangladeshandnotmandatoryfor Cost to complete: :BTN100(forms)+BTN75(legalstamps) registration. Comment: Purchasetheprescribedlegalform,fillit,signandfileitatthe DistrictCourtofThimphuforverdictdatehearing,enclosingsaledeeddrawn Procedure 4. Obtain the non-encumbrance certificate from the betweentheparties. relevant Sub-registry office TheformmaybeboughtattheDistrictOfficeortheagentssomedaysbefore Time to complete: 2-3days filing. Cost to complete:BDT500-700 Thesaledeeddrawnupbythepartiesisenclosed,withnoneedofnotaryor Comment: Thebuyerchecksthelegalpositionoftheland(mortgagedorleased witnessofofficialforthedeed. MiscellaneoushearingisconductedbytheChiefJudgetofindoutwhetherthe orownership)attherelevantSub-registry. documentsareinorderandthetransactionisaccordingtoLandActandGovt. Procedure 5. Prepare deed of transfer and pay stamp duty Policy.ThecasefileishandedovertotheconcernedBenchClerkforfurther verification.Boththepartiesareaskedtoreportagaininaboutamonth'stime Time to complete: 1day andthedeadlineisannounced.Since2006,ifpartiesdonotshowupwithina Cost to complete:5%ofpropertyvalue(Stampduty) month,thecaseiscancelledandthepartieshavetostarttheprocessagain. Comment: Alawyerusuallypreparesthetransferdeed,butitcanbeprepared Intheinterimperiod,theCourtwouldconductinvestigationwiththevillage bythepartiesthemselves.Ifalawyerdoesit,thefeeswillbearoundBDT6,000. headmanofthearea,relevantministry,CensusDivisionandlandrecordDivision. Thedeedmustbepreparedinstampedpaperthatwillcost5%oftheproperty *Until2005,itwascommonpracticetohiretheservicesofalegalconsultant valuetogetit.Thisrepresentsthestampduty. or`jabmi'toconducttheprocessonbehalfoftheparties.However,in2005the professionallicensesofalljabmiswererevokedandtheywerenotallowedto Procedure 6. Pay capital gains tax, registration fee, VAT and other practice.Hencetheprocesscannolongerbeconductedwiththeirassistance taxes at a designated bank andthecostsnotedhereareonlytheofficialfees,minusthewould-belegalfees. Time to complete: 1day Procedure 2. Another hearing is conducted with the parties at Cost to complete:CapitalGainsTax(5%)+VAT(1.5%)+localgovernmenttax the court (2%)+registrationfee(2.5%) Comment: Time to complete: 30days StampDuty=5% Cost to complete:nocost VAT=1.5% Comment: Onanotherhearingdate,theoutcomesoftheinvestigationwiththe (Applicableonlyformunicipalcorporationareapayablebyprivatehousingand relevantpeopleareannounced.Iftheoutcomeispositive,anotherhearingdate flatdevelopersandcommercialbusinesses) inabout1month'stimeisannouncedtoreceiveverdict.Within2monthsof Registrationfee=2.5% filingthecase,thefinaljudgmentisdelivered. LocalGovernmentTax=2% CapitalGainsTax=5% Procedure 3. Final hearing is conducted with the parties at the (Notapplicableinruralareasforagriculture.Applicabletolandabove court 100000Takas,irrespectiveofwhenthetransferwasmade) Time to complete: 1day Taxesatsourceforlanddevelopers Cost to complete:nocost 2.5%forlandand175perm2foraflat The2.5%registrationfeeispayabletotheBankinfavorofthesub-registryoffice Comment: Finalhearingisconducted,verdictreadbetweenthepartiesand andthereceiptistobepresentedatthemomentofapplyingforregistration. individualcopiesgiven. Procedure 7*. Apply for registration at the relevant Sub-registry Procedure 4. The buyer applies to the Department of Survey & Land Records for the transfer of the names in the Registry and is- Time to complete: 180-540days suance of ownership certificate/documents Cost to complete:AlreadypaidinProcedure9 Comment: ThebuyerappliesforregistrationattheMunicipalDeedRegistry Time to complete: 2days Office,presentingthereceiptsofpaymentfortheregistrationfeesobtainedin Cost to complete:BTN30(registrationfee) Procedure9. Comment: Aftertheverdictisreceived,thebuyerisrequiredtofileapetition Acertifiedregistrationdocumentisobtainedwithinaweekforthebuyer's totheDepartmentofSurvey&LandRecordsalongwiththecopyoftheCourt record.Theoriginalsaledeed/certificatemayrequireabout6monthstooneand verdictfortransferofthenamesintheRegistryandissuanceofownership ahalfyearstobeobtained,orevenuptotwoyearsinsomecases. certificate/documents.TheDepartmentofSurvey&LandRecordsverifiesthe censusrecordofthebuyerattheCensusdepartmenttofindwhetherheisgenu- Procedure 8*. Register the change in ownership at the Land Rev- ineBhutaneseornot. enue Office Procedure 5. Land ownership certificate is received from the De- Time to complete: 45-60days partment of Survey and Land Record Cost to complete:BDT5,000 Comment: ThechangeofownershipmustberegisteredintheLandRevenue Time to complete: 30days Office. Cost to complete:(alreadypaidinProcedure4) Thepropertyisrecordedunderthenameofthenewowner,whoisresponsible Comment: Theownershipcertificateguaranteesalllegalrightstotheowner. topaythelandrevenuefromthedayitistransferred. Note: Procedures sometimes take place simultaneously. Instances of Note: Procedures sometimes take place simultaneously. Instances of this are marked with an asterisk (*). this are marked with an asterisk (*). appenDix ii · Data Details 85 registering propertY RegistrationAct,1908.Normally,asperpracticetheSellerhandsoverthepeace- India fulvacantandphysicalpossessionofthepropertytotheBuyersimultaneousto theDeedbeingpresentedforRegistration. Property value: 1,590,262 Uponpaymentoftherequiredregistrationfeesandcomputerservicechargesin City: Mumbai cash,asperthereceipt,thedocumentisreturnedwithin30minutesofgetting thereceipt. Procedure 1. A search has to be taken in the office of Sub-Regis- Thedocumentationshallinclude: trar of Assurance to verify whether there is any encumbrance Documentswhicharerequiredtobepresentedare: Time to complete: 5days 1.Documentrequiredtoberegistered(induplicate) Cost to complete:Rs.10,000 2.TwoPassportsizephotographsoftheauthorizedsignatoriesofbothparties. 3.Photo-identificationofeachpartyandwitnessesi.e.Voters'IdentityCard, Comment: ThepurchasershouldconductasearchofthepropertyintheRegis- Passport,identityCardissuedbyGovt.ofIndia,SemiGovt.andAutonomous tryandtheRevenueOffice,notingthelocationdetailsofthepropertyandthe bodiesoridentificationbyaGazetteOfficer. timeperiodtobechecked.Whileinvestigatingthetitleitshouldbeverified(1) 4.CertifiedTruecopyoftheResolutionoftheBoardofDirectors'ofbothSeller thatthelegalownershipdocumentisinthenameoftheOwner,issuedbythe andPurchaser. RevenueRecordDepartmentundertheSealoftheTahsildar,(2)thatonthedate 5.CertifiedTruecopiesofCertificateofincorporationofbothSellerandPur- ofpurchasethetitleoftheownerforthepreceding30years(preferably)shows chaser. nomortgageorotherencumbranceasstillexistingonthedateofpurchase, (3)thepropertyistransferableandheritable,(4)thetransferoriscompetent and/orauthorizedtotransfertheproperty,(5)thetransfereeisqualifiedtobe Procedure 6. Apply to Municipality for mutation of the title of the atransferee,(6)theobjectorconsiderationforthetransferislawful,(7)the property transferhasbeenmadeandcompletedinthemannerprescribedbylaw,(8)the Time to complete: 30-40days propertybeingsoldisfreeofrestrictionsforsaleundertheUrbanLand(Ceiling Cost to complete:INR400-5000 &Regulation)Act,1976andaClearanceCertificateforthepropertyhasbeen Comment: Afterreceiptoftheregisteredtitledeed,anapplicationismadeby issuedbytheU.L.C.(UrbanLandCeiling)Authorities.Also,allpaperswithregard thePurchasertotheMunicipalAuthorityseekingmutationofthetitleofthe topaymentoftaxes,theelectricitybillsandwaterbillsneedtobechecked. propertyinitsfavour.Theauthorisedsignatoryhastosubmitthedulysigned IfthesellerisaCompanyincorporatedundertheprovisionsoftheCompanies applicationalongwithaffidavit,indemnitybond,andacertified/notarisedcopy Act,1956thenitisadvisabletotakesearchintheofficeoftheRegistrarofCom- oftheregisteredtitledeed. paniestoverifywhetherthereisanychargeonthepropertyregisteredunder Aftertheassessmentoftherequestformutation,theMunicipalAuthoritysettles theprovisionsofSection125oftheCompaniesAct,1956. therateablevalueforlevyingtaxonpropertyandthenissuesaletterofmuta- tioninfavourofthepurchasercertifyingthefactthatthepropertyhassince Procedure 2. Preparation and execution of Agreement and Mem- beenmutatedinthePurchaser'sname. orandum at the Stamp Duty Office Note: Procedures sometimes take place simultaneously. Instances of Time to complete: 7days this are marked with an asterisk (*). Cost to complete:Rs.100 Comment: Thepropertyisnothandedoveratthisstage. registering propertY Procedure 3. The Final Sale Deed is prepared by the purchaser or Nepal his advocate Property value: 987,320 Time to complete: 7days City: Kathmandu Cost to complete:1%ofpropertyvalue Comment: Normally,theSaleDeedandTransferDeedaredraftedbyLawyer Procedure 1. Obtain tax clearance and road clearance certificate andtheprintoutofthesameistakenoutonGreenpaperonwhichtheAdhe- from the Municipality (relevant ward committee) sivestampforstampdutyistobeaffixed. Time to complete: 1-2days Cost to complete:Rs100 Procedure 4. Get the Final Sale Deed stamped, executed and reg- Comment: Sellermustgotothelocalgovernmenttocertifythetypeorroad istered in the presence of two witnesses thatadjoinstheproperty.Kathmandumunicipalityisdividedinto35wards. Time to complete: 2days Sellerhastogotowardcommitteetotakethecertificateinonedayanditcosts Cost to complete:5%ofthemarketvalueoftheproperty(stampduty) Rs100.Atthesametime,hecanobtainataxclearanceletter. Comment: Incasetheagreementforsaleisalreadystampedasaconveyance AtaxclearancecertificatemustbeobtainedfromtheMunicipalityregarding andregistered,stampdutyandregistrationchargesneednotbepaidatthe thepaymentofthepropertytax.Ifthepropertyisnotyetregisteredinthe prescribedratesandonlynominalchargesneedbepaid. Municipalityfortaxpurposesthenitmighttakeafewdaystocollecttheneces- sarypapersofbuildingpermit,landdeed,landrevenuepapers,fieldvisitof Procedure 5. Submit documents with the office of the Sub Reg- municipalengineerstoverifyandassesstheproperty,etc.Inanycaseitshould nottakemorethansevendays. istrar of Assurances within whose jurisdiction the property is Manypeopledonotregularlypaythepropertytaxuntiltheyhavetodisposeof located theproperty.Thetaxcollectionsystemisquiteinefficient.Itisthennormalthat Time to complete: 1day theyhavetopaypropertytaxwhentransferringtheproperty. Cost to complete:1%ofmarketvalueoftheproperty(registrationfee)uptoRs. 30,000maximum Procedure 2. Hire lekhandas or a junior lawyer Comment: TheDocumentsaresubmittedwiththeofficeoftheSubRegistrar Time to complete: 1day ofAssuranceswithinwhosejurisdictionthepropertyislocated.Therespective Cost to complete:Rs2000-Rs6000 authorizedsignatoriesoftheSellerandPurchaserarerequiredtobepresent alongwithtwowitnesses Procedure 3. Registration of the deed and issuance of a new title ThedocumentsaresubmittedtotheReaderoftheSub-Registrar,Assurancesfor certificate scrutiny.Afterscrutiny,theReaderindicatestheRegistrationfeerequired,which is1%ofthetransactionvalueorRs.30,000/-whicheverislessonthedocument Time to complete: 1-2days itself.ThedueregistrationfeeistobedepositedwiththeCashieragainsta Cost to complete:6%ofpropertyprice(registrationfee) receipt.Afterdepositingthefees,thedocumentsarerequiredtobepresented Comment: ThetransferdeedissubmittedforregistrationtotheLandRevenue beforetheSub-RegistrarbythepartiesinaccordancewithSection32ofthe Office. 86 Doing Business in south asia 2007 Legally,thepartiescanpreparethetransferdeedbythemselves.Butnormallyit Procedure 5. Receipt of payment is taken to Stamp Office isdonebytheLEKHANDASwhichliterallymeansWriter. TheauthenticityofthesellerischeckedbytheLandRevenueOfficeagainstthe Time to complete: 1day CitizenshipCertificate.Theexistenceofliensorencumbrancesonthepropertyis Cost to complete:Noadditionalcost alsocheckedonthesamedaybytheLandRevenueOffice. Comment: ThereceiptofpaymentobtainedinProcedure3istakentothe Theregistrationfee(6%ofthepropertyvalueincaseofmunicipalareasand3% StampOfficeoftheGovernment. incaseofvillages)ispaidattheLandRevenueOfficeatthemomentofapplying TheStampofficewill,uponproductionofreceipt,issueastamppaperofthe forregistration value(moneydeposited)ontheSaleDeed.Suchtypedstamppaperwillbe PartiesmustsignandthumbprintontheTransferDeed. presentedlaterbeforetheRegistrar,whoregistersthechangeofownership. Aftertheverificationsofalldocumentsbytheofficer,theTransferDeedwillbe registeredandthetitlecertificatewillusuallybeissuedonthesameday.An Procedure 6. Execution and registration of the deed before the additionalProcedureappliesifthelandispartitionedandonlyonepartissold registration authority off.Thesellergoestothecadastraloffice(NapiViva).Itisadifferententityfrom theLandRegistrar'sOffice.Hegoesthereonday3rightaftersubmittingthe Time to complete: 38days documentsattheregistry.Hecanusuallyobtainthenewpartitionnumberon Cost to complete:Nocost thesameday.Usually,therearenoonsiteinspections.Itmightthentake2to4 Comment: Theconveyancedeedmustbeexecutedbeforetheregistering daysifinspectionisdoneinabout10%ofcases. authority. Thedocumentationshallinclude: ExecutionofdeedisdonebeforetheSub-RegistrarofConveyance/Assurancesof LandOwnershipCertificate(alreadyinpossessionoftheseller) thearea,officialresponsibleundertheRegistrationAct. CitizenshipCertificateofsellerandbuyeror/IncorporationCertificateof RegistrationofDeedautomaticallyfollowstheexecutionofSaleDeed.Areceipt CompanyTaxclearancecertificatefromtheMunicipality/VillageDevelopment isissuedimmediately,buttheDeedisdeliveredafewweekslater. Committee(obtainedinProcedure1) Thenameofthebuyerisrecordedinthenewdeed,showingthechangein Note: Procedures sometimes take place simultaneously. Instances of ownership this are marked with an asterisk (*). Thedocumentationshallinclude: Conveyance/SaleDeed(stampedafterpaymentinProcedure4) IDofparties registering propertY Originaltitledeedofseller Pakistan Ifthepartieshaveauthorizedsomeoneelsethroughapowerofattorney,the Property value: 2,060,022 powerofattorneyinoriginalwithcopies. City: Karachi Note: Procedures sometimes take place simultaneously. Instances of this are marked with an asterisk (*). Procedure 1*. Advertisement of transaction in a newspaper invit- ing objections registering propertY Time to complete: 8days Sri Lanka Cost to complete:PKR3,000 Property value: 5,942,699 Comment: Anadvertisementinnewspapersinvitingobjections/claimsmustbe City: Colombo placed.Afterpublication,thereisaseven-daywaitingtimeforarrivalofobjec- tions,ifany.Advertisementispublishedinlocalnewspapers(dailies)havinga Procedure 0*. A title search must be carried out at the relevant largecirculation. Land Registry Procedure 2*. Advertisement of transaction in a second newspa- Time to complete: 3-7days per inviting objections Cost to complete:LKR1,000 Comment: Onreceiptofthelasttitledeedandplanfromtheseller,atitlesearch Time to complete: 8days hastobecarriedoutattherelevantLandRegistry. Cost to complete:IncludedinProcedure1 Alawyer/notaryengagedbythePurchaserhastorecommendtitle.Goodtitle Comment: Sometimesitisorderedtobepublishedintwonewspapersi.e.one hastobeestablishedforthepast30years.Alldeedsandplanshavetobe inEnglishlanguageandtheotherinthelocallanguage. checked.Ifpriordeedsarenotavailablewiththesellerthenotarywillhaveto checkduplicatesofdeedsattheLandRegistry. Procedure 3. Hire deed writer or lawyer to draft sale purchase Confirmationfromanotary/lawyershouldbeobtainedthatthetitletothe agreement propertyisclear. Time to complete: 1day Onconfirmationthatthetitletothepropertyisclearstep2willapply;ifnot titleinsuranceisrecommended,andthenextstepwouldbetoobtainInsurance Cost to complete:5000PKR Policy. Comment: ItiscommonpracticeinPakistantohirealawyerordeedwriterto Thecostsofthesearchare:LKR10forsearchattheLandRegistry;LKR5tocheck draftthesalepurchaseagreement. duplicateofdeed,andLKR105toobtaincopyofdeed. Procedure 4. Payment of stamp duty and registration fees Procedure 1. Obtain a Buyers Policy of Title Insurance (optional) Time to complete: 1day Time to complete: 3days Cost to complete:3%ofthepropertyprice(stampduty)+1%ofpropertyprice Cost to complete:LKR230,000 (registrationfee).IncaseofresidentialapartmentsstampdutyisNILforapart- Comment: IftitleinsuranceisrecommendedinProcedure1duetoadefectin mentsvaluedupto$8,500;¼of1%forapartmentsvaluedbetween$8501and title,thenthenextstepwouldbetoobtainaBuyersPolicyofTitleInsuranceto $16500,and½of1%forapartmentsvaluedabove$16500. coverdefects. Comment: Conveyancestampduty(3%ofpropertyprice)andregistrationfee Thisstepisoptionalandcontingenttotheresultofstep1. (1%ofpropertyprice)mustbepaidattheGovernmentTreasuryorNational Usuallytitleinsuranceisrecommendedforthefollowingreasons: BankofPakistan,anautonomousbankjointlyownedbyGovernmentofPakistan ·Priordeedsanddocumentationnotbeingavailableandfurtheriftheregisters andpublic,whoissuereceiptofmoneywhichistakentotheStampofficeofthe atthelandregistrycannotbetracedfor30years(ifthebooksaredamaged). Government. ·Ifthereareanydiscrepanciesinthetitledeedsandplans. ·Ifthepresentownerhadownedanundividedshareofalargerland,andhad sub-divideditwithouttheconsentoftheotherpartiesorwithoutaDeedof PartitionorPartitionPlan. appenDix ii · Data Details 87 Procedure 2*. Seller needs to obtain a group of documents from Procedure 8. Notary hands over to the owner all the deeds and the Municipality documents pertaining to the property Time to complete: 21days Time to complete: 1day Cost to complete:LKR500 Cost to complete:Noadditionalcost Comment: Thesellerwillhavetoobtainthefollowingdocumentsfromthe Comment: OnreceiptoftheDeedofTransferfromtheLandRegistrythe Municipality: notaryhandsovertotheownerallthedeedsanddocumentspertainingtothe 1.TheBuildingandStreetlineCertificate propertyforretention. 2.CertificateofNon-vesting 3.Taxreceiptsinproofofpaymentofratesandtaxesforthelastquarter Note: Procedures sometimes take place simultaneously. Instances of 4.Certificateofconformityinrespectofthebuilding this are marked with an asterisk (*). 5.CertificateofOwnershipstatingthattheselleristheownerofthelandand premises Procedure 3*. A new survey plan of the property must be ob- tained Time to complete: 14days Cost to complete:About0.1%ofpropertyvalue Comment: Anewapprovedplanmustbeobtainedforboththelandandthe building.Theymustbeobtainedbythesellerandattachedlatertotheapplica- tionforregistration. Procedure 4. The parties must present some documents to the buyer's notary/lawyer and the Deed of Transfer in favor of the buyer is signed Time to complete: 2days Cost to complete:LKR300+1%ofpurchaseprice(Lawyer'sfees) Comment: Thefollowingdocumentwithregardtothecompanyoftheseller willhavetobefurnishedtothebuyer'slawyer/notary: 1.MemorandumandArticlesoftheCompany 2.CertificateofIncorporationoftheSeller 3.LatestCompaniesForm48(detailsoftheDirectors) 4.Resolutionauthorizingthesaleofland Thebuyerneedstopassaresolutiontopurchasetheproperty. OnreceiptoftheabovedocumentstheDeedofTransferinfavorofthePur- chasercanbesigned.Lawyer'sfeesarepaidbythebuyerandwilldependonthe lawyer(usually1%ofpurchaseprice). Procedure 5. Payment of stamp duty at a nominated bank Time to complete: 1day Cost to complete:4%ofvalueoflandminusLKR1,000(Stampduty) Comment: Afterexecutionofthedeedoftransferstampdutywillhavetobe paidtoanominatedstatebankinfavoroftherelevantProvincialCouncilin whichthelandissituated. Procedure 6. The deed is sent for registration to the relevant land registry Time to complete: 30-42days Cost to complete:AlreadypaidinProcedure5 Comment: Afterpaymentofstampduty,thedeeddulyattestedbythenotary, willhavetobesentforregistrationtotherelevantlandregistry. ThedeedisregisteredandreturnedtothenotaryfromtheLandRegistry. Procedure 7. Name of the buyer must be registered at the Munici- pality and the certificate of ownership is obtained Time to complete: 2days Cost to complete:LKR200 Comment: Thenameofthenewcompanywillhavetoberegisteredasthenew ownerattheMunicipality. ThecertificateofownershipisobtainedfromtheMunicipalityonexecutionof theDeedofTransferinfavorofthenewowner. 88 Doing Business in south asia 2007 GETTING CREDIT Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka Credit Information Index 0 2 0 3 0 2 4 3 Arebothindividualsandfirmslistedincreditregistry? No Yes No No No Yes Yes Yes Arebothpositiveandnegativedatadistributed? No Yes No Yes No Yes Yes Yes Doestheregistrycollectcreditinformationfromfinancialinstitu- No No No No No No No No tionsaswellasretailersandutilitiesproviders? Aremorethan2yearsofhistoricalcreditinformationavailable No No No Yes No No Yes Yes fordistribution? Isdataonallloanslargerthen1%ofincomepercapitarecorded? No No No Yes No No Yes No Isitguaranteedbylawthatborrowerscaninspecttheirdata? No No No No No No No No PROTECTING INVESTORS Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka Disclosure Index 0 6 6 7 0 6 6 4 Whatcorporatebodyprovideslegallysufficientapprovalforthe 0 2 1 2 0 2 2 1 transaction?(0­3;SEENOTES) Immediatedisclosuretothepublicand/orshareholders 0 0 1 0 0 0 0 0 (0­2;SEENOTES) Disclosuresinpublishedperiodicfilings(0­2;SEENOTES) 0 2 1 2 0 2 2 2 DisclosuresbyMr.Jamestoboardofdirectors(0­2;SEENOTES) 0 2 2 2 0 2 2 1 Requirementthatanexternalbodyreviewthetransactionbefore 0 0 1 1 0 0 0 0 ittakesplace(0=NO,1=YES) Director Liability Index 0 7 3 4 8 1 6 5 Plaintiff'sabilitytoholdJamesliablefordamagetothecompany 0 1 0 0 2 0 1 1 (0­2;SEENOTES) Plaintiff'sabilitytoholdtheapprovingbodyliablefordamageto 0 2 1 2 2 0 1 1 thecompany.(0­2;SEENOTES) Plaintiff'sabilitytorescindthetransaction(0­2;SEENOTES) 0 1 1 1 1 0 1 1 Mr.Jamespaysloss/damagescausedtoBuyer(0=NO,1=YES) 0 1 0 0 1 0 1 1 Mr.Jamesrepayspersonalprofitsmadefromthetransaction 0 1 0 0 1 0 1 0 (0=NO,1=YES) FinesandjailavailableagainstJames(0=NO,1=YES) 0 0 0 0 0 0 1 0 Abilityofshareholderstosuederivativelyordirectlyfordamage 0 1 1 1 1 1 0 1 toBuyerasaresultofthetransaction(0­1;SEENOTES) Shareholder Suits Index 2 7 4 7 8 9 7 7 Documentsavailabletotheplaintifffromthedefendantandwit- 0 3 0 4 4 4 4 4 nessesduringtrail(0­4;SEENOTES) Abilityofplaintiffstodirectlyquestionthedefendantandwit- 0 0 1 2 2 2 1 2 nessesduringtrial(0­2;SEENOTES) Plaintiffcanrequestcategoriesofdocumentsfromthedefendant 0 1 1 0 1 1 0 0 withoutidentifyingspecificones(0=NO,1=YES) Shareholdersowning10%orlessofBuyer'ssharescanrequestan 1 1 0 1 1 1 1 0 inspectorinvestigatethetransaction(0=NO,1=YES) Standardofproofforcivilsuitislowerthanthatforacriminal 0 1 1 0 0 1 1 1 case(0=NO,1=YES) Shareholdersowning10%orlessofBuyer'ssharescaninspect 1 1 1 0 0 0 0 0 transactiondocumentsbeforefilingsuit(0=NO,1=YES) Investor Protection Index 0.7 6.7 4.3 6.0 5.3 5.3 6.3 5.3 appenDix ii · Data Details 89 PAyING TAxES Payments Time Statutory Total tax rate (number) (hours) Tax Rate Tax Base (%) (%ofprofit) Afghanistan Turnovertax (businessreceiptstax) 1 - a) 2% turnover 36.3 Corporateincometax 1 155 20% taxableincome 0 Personalincometax 120 variousrates taxablesalaries e) Total 2 275 36.3 Bangladesh Valueaddedtax(VAT) 12 240 15% valueadded 45.4 b) Corporateincometax 1 160 37.50% taxableincome 26.1 Municipaltax(propertytax) 1 - a) 10% rentalvalue 10.8 Capitalgainstax 1 - a) 5% saleprice 3.1 Interesttax 1 - a) 10% interestincome 0.3 Vehicletax 1 - a) fixedfee c) Total 17 400 40.3 Bhutan Corporateincometax 2 250 30% taxableincome 35.5 Propertytax 1 - a) BTN75perunit propertyarea 4.2 Healthinsurancecontributions 12 24 1% grosssalaries 1.3 Businesslicense 1 - a) variesfromBTN700to25,000 1.2 Vehicletax 1 - a) fixedfee(BTN13,000) 0.8 Interesttax 1 - a) 5% interestincome 0.1 Stampduty 1 - a) BTN5persignature numberofsignatures c) Total 19 274 43 India Centralsalestax 12 128 4% purchaseprice 29.1 Corporateincometax 4 40 33.66% taxableincome 14.3 Socialsecuritycontributions 12 96 12% grosssalaries 13.9 Fueltax 1 - a) Rs.3.25perliter fuelconsumption 9.2 Valueaddedtax(stateVAT) 9 - a) 12.50% valueadded 5.9 b) Employee'sstateinsurance contribution 12 - a) 4.75% grosssalaries 5.5 Propertytax 1 - a) 10% assessedvalueofproperty 4.7 Dividendtax 1 - a) 14.03% distributeddividends 2 Mahashtrasalestax 3 - a) 4% purchaseprice 1.6 Interesttax 1 - a) 20.91% interestincome 0.5 Insurancecontractstax 1 - a) 10% insurancepremium 0.2 Vehicletax(pollutiontax) 1 - a) fixedfee(Rs45) 0 Stampduty 1 - a) fixedfee(Rs50) c) Total 59 264 81.1 Maldives Propertytransfertax 1 0 15% saleprice 9.3 Total 1 0 9.3 90 Doing Business in south asia 2007 PAyING TAxES Payments Time Statutory Total tax rate (number) (hours) Tax Rate Tax Base (%) (%ofprofit) Nepal Valueaddedtax(VAT) 12 192 13% valueadded 39.4 b) Corporateincometax 3 120 20% taxableincome 18.3 Socialsecuritycontributions 12 96 10% grosssalaries 11.6 Specialduty 3 - a) 1.50% taxableincome 1.4 Municipalbusinesstax 1 - a) fixedfee(NPR10,000) 1 Municipaltaxonvehicles 1 - a) fixedfee(NPR3,000) 0.3 Vehicletax 1 - a) fixedfee(NPR1,500) 0.2 Propertytax 1 - a) variousrates landvalue 0 Landtax(revenue) 1 - a) NPR100foreach5476sq.ft. propertyarea 0 Total 35 408 32.8 Pakistan Valueaddedtax(VAT) 12 480 15% valueadded 45.4 b) Corporateincometax 5 40 37% taxableincome 27 Socialsecuritycontributions 12 40 7% grosssalaries 8.1 Pensioncontributions 12 - a) 5%uptoPKR150peremployee andpermonth numberofemployees 5.5 Educationtax 1 - a) PKR25permonthperemployee numberofemployees 1 Propertytax 1 - a) 18%(including10%discount) annualrentalvalueofproperty 0.9 Professionaltax 1 - a) fixedfee(PKR10,000) 0.6 Vehicletax 1 - a) fixedfee 0.3 Interesttax 1 - a) 10% interestincome 0.2 d) Stampduty 1 - a) slabratebasedoncontractvalue c) Total 47 560 43.4 Sri Lanka Valueaddedtax(VAT) 12 144 15% valueadded 45.4 b) Corporateincometax 4 16 32.50% taxableincome 36.5 Turnovertax 4 - a) 1% turnover 18.2 Socialsecuritycontributions 12 96 12% grosssalaries 13.9 Providentfund 12 - a) 3% grosssalaries 3.5 Propertytax 1 - a) 35% annualpropertyvalue 1.7 Checktransactiontax(stampduty) 12 - a) 0.10% transactionvalue 0.8 Socialresponsibilitylevy 1 - a) 0.25% taxableincome 0.3 Interesttax 1 - a) 10% interestincome 0.2 d) Municipalbusinesstax 1 - a) variesfromRs250toRs5,000 0.1 Vehicletax 1 - a) fixedfee(Rs1,000) 0 Total 61 256 74.9 a)datanotcollected Nameoftaxeshavebeenstandardized.Forinstance b)VATisnotincludedinthetotaltaxratebecause incometax,profittax,taxoncompany'sincomeareall itisataxleviedonconsumers namedcorporateincometaxinthistable. c)verysmallamount Whenthereismorethanonestatutorytaxrate,theone d)includedinothertaxes applicabletoTaxpayerCoisreported. e)Withheldtax ThehoursforVATincludealltheVATandsalestaxes f)electronicfillingavailable applicable g)paidjointlywithanothertax ThehoursforSocialSecurityincludeallthehoursfor labortaxesingeneral appenDix ii · Data Details 91 ENFORCING A CONTRACT Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka Procedures(number) .. 50 34 56 28 28 55 20 TotalTime(days) 1,642 1,442 275 1,420 665 590 880 837 Filingperiod(days) 40 7 30 20 15 15 30 62 Judgmentperiod(days) 1,420 1,070 110 1,095 165 365 550 595 Enforcementperiod(days) 182 365 135 305 485 210 300 180 Cost(%ofclaim) 25.0 45.7 20.2 35.7 16.2 24.4 22.6 21.3 93 Appendix III Rankings on the ease of doing business TherankingsforalleconomiesarebenchmarkedtoApril2006.Rankingsonthe easeofdoingbusinessaretheaverageofthecountryrankingsonthe10top- icscoveredinDoing Business 2007.Lastyear'srankingsarepresentedinitalics. Theseareadjustedforchangesinthemethodology,datacorrectionsandthead- ditionof20neweconomies.SeetheDatanotesfordetails. Source: Doing Business database. 94 Doing Business in south asia 2007 Rankings on the ease of doing business *Hypotheticalrankingifcountryweretoadoptexistingdomesticbestpractices onalldoingbusinessindicators. 2007 2006 Economy 2007 2006 Economy 2007 2006 Economy 1 2 Singapore 65 78 Peru India-Lucknow 2 1 NewZealand 66 60 Hungary 116 123 Algeria 3 3 UnitedStates 67 72 Nicaragua 117 114 DominicanRepublic 4 4 Canada 68 95 Serbia 118 128 Guatemala 5 6 HongKong,China 69 61 SolomonIslands 119 113 Iran 6 5 UnitedKingdom 70 64 Montenegro 120 115 Albania 7 7 Denmark 71 75 ElSalvador 121 122 Brazil 8 9 Australia 72 65 Dominica India-Chandigarh 9 8 Norway 73 63 Grenada 122 119 Suriname 10 10 Ireland 74 66 Pakistan (Karachi) 123 120 Ecuador 11 12 Japan 75 74 Poland 124 134 Croatia 12 11 Iceland 76 67 Swaziland India-NewDelhi 13 14 Sweden 77 68 UnitedArabEmirates 125 125 CapeVerde 14 13 Finland 78 73 Jordan 126 121 Philippines 15 16 Switzerland 79 76 Colombia India-Patna 16 15 Lithuania India­bestpractice* India-Ranchi 17 17 Estonia Pakistan-Faisalabad 127 127 WestBankandGaza 18 19 Thailand 80 77 Tunisia 128 132 Ukraine 19 18 PuertoRico 81 79 Panama 129 124 Belarus 20 20 Belgium Pakistan-Sialkot 130 135 Syria 21 21 Germany 82 69 Italy 131 126 Bolivia 22 22 Netherlands Pakistan-Lahore 132 129 Gabon 23 23 Korea Pakistan-Peshawar 133 130 Tajikistan 24 31 Latvia 83 80 Kenya 134 138 India (Mumbai) 25 25 Malaysia 84 83 Seychelles India-Calcutta 26 26 Israel 85 85 St.KittsandNevis 135 131 Indonesia 27 27 St.Lucia 86 87 Lebanon 136 133 Guyana 28 24 Chile 87 86 MarshallIslands 137 139 Benin 29 28 SouthAfrica 88 81 Bangladesh (Dhaka) 138 143 Bhutan 30 30 Austria 89 89 Sri Lanka 139 136 Haiti 31 29 Fiji 90 104 KyrgyzRepublic 140 137 Mozambique 32 32 Mauritius 91 84 Turkey 141 156 Côted'Ivoire 33 33 AntiguaandBarbuda 92 94 FYRMacedonia 142 150 Tanzania 34 37 Armenia 93 108 China 143 142 Cambodia 35 47 France 94 102 Ghana 144 141 Comoros 36 34 Slovakia 95 91 BosniaandHerzegovina 145 140 Iraq 37 112 Georgia 96 97 Russia 146 152 Senegal 38 35 SaudiArabia 97 96 Ethiopia 147 151 Uzbekistan 39 38 Spain Bangladesh-Chittagong 148 146 Mauritania 40 45 Portugal 98 101 Yemen 149 148 Madagascar 41 36 Samoa 99 100 Azerbaijan 150 157 EquatorialGuinea 42 39 Namibia 100 90 Nepal 151 154 Togo 43 62 Mexico 101 93 Argentina 152 147 Cameroon 44 42 St. Vincent and the Grenadines Bangladesh-Khulna 153 145 Zimbabwe 45 41 Mongolia 102 92 Zambia 154 161 Sudan 46 40 Kuwait Bangladesh-Bogra 155 166 Mali 47 43 Taiwan,China 103 88 Moldova 156 155 Angola 48 44 Botswana 104 98 Vietnam 157 149 Guinea 49 71 Romania 105 99 CostaRica 158 158 Rwanda 50 48 Jamaica 106 105 Micronesia 159 164 LaoPDR 51 46 Tonga 107 103 Uganda 160 170 Niger 52 50 CzechRepublic 108 109 Nigeria 161 153 Djibouti Pakistan­bestpractice* Pakistan-Quetta 162 159 Afghanistan 53 49 Maldives India-Hyderabad 163 171 BurkinaFaso 54 59 Bulgaria India-Bangalore 164 144 Venezuela 55 52 Oman 109 111 Greece 165 165 Egypt 56 51 Belize 110 106 Malawi 166 160 Burundi 57 53 PapuaNewGuinea 111 107 Honduras 167 162 CentralAfricanRepublic 58 54 Vanuatu 112 110 Paraguay 168 163 SierraLeone 59 55 TrinidadandTobago 113 118 Gambia 169 167 SãoToméandPrincipe 60 58 Kiribati India-Jaipur 170 168 Eritrea 61 56 Slovenia India-Chennai 171 169 Congo,Rep. 62 57 Palau India-Bhubaneshwar 172 172 Chad Bangladesh­bestpractice* 114 116 Lesotho 173 173 Guinea-Bissau 63 82 Kazakhstan 115 117 Morocco 174 174 Timor-Leste 64 70 Uruguay 116 123 Algeria 175 175 Congo,Dem.Rep. DATANOTES 95 Data notes The indicators presented and analyzed in Doing Business The Doing Business methodology offers several advan- measure business regulation and the protection of property tages. It is transparent, using factual information about what rights--and their effect on businesses, especially small and laws and regulations say and allowing multiple interactions medium-size domestic firms. First, the indicators document with local respondents to clarify potential misinterpretations the degree of regulation, such as the number of procedures of questions. Having representative samples of respondents is to start a business or register commercial property. Second, not an issue, as the texts of the relevant laws and regulations they gauge regulatory outcomes, such as the time and cost are collected and answers checked for accuracy. The meth- to enforce a contract, go through bankruptcy or trade across odology is inexpensive and easily replicable, so data can be borders. Third, they measure the extent of legal protections collected in a large sample of economies--175 published in of property, for example, the protections of investors against Doing Business 2007. Because standard assumptions are used looting by company directors or the scope of assets that can in the data collection, comparisons and benchmarks are valid be used as collateral according to secured transactions laws. across countries. And the data not only highlight the extent Fourth, they measure the flexibility of employment regula- of obstacles to doing business but also help identify their tion. Finally, a set of indicators documents the tax burden on source, supporting policymakers in designing reform. businesses. The data for all sets of indicators in Doing Busi- The Doing Business methodology has 5 limitations that ness in South Asia 2007 are for April 2006. should be considered when interpreting the data. First, the The Doing Business data are collected in a standardized collected data refer to businesses in the country's most popu- way. To start, the Doing Business team, with academic advis- lous city or the relevant cities for the sub-national data and ers, designs a survey. The survey uses a simple business case may not be representative of regulatory practices in other to ensure comparability across countries and over time-- parts of the country. Second, the data often focus on a spe- with assumptions about the legal form of the business, its cific business form--a limited liability company of a specified size, its location and the nature of its operations. Surveys are size--and may not be representative of the regulation on administered through more than 5,000 local experts, includ- other businesses, for example, sole proprietorships. Third, ing lawyers, business consultants, accountants, government transactions described in a standardized case study refer to officials and other professionals routinely administering a specific set of issues and may not represent the full set of or advising on legal and regulatory requirements. These issues a business encounters. Fourth, the measures of time experts have several (typically 4) rounds of interaction with involve an element of judgment by the expert respondents. the Doing Business team, involving conference calls, writ- When sources indicate different estimates, the time indica- ten correspondence and country visits. For Doing Business tors reported in Doing Business represent the median values 2007 team members visited 65 countries to verify data and of several responses given under the assumptions of the case expand the pool of respondents. The data from surveys are study. Fifth, the methodology assumes that a business has subjected to numerous tests for robustness, which lead to full information on what is required and does not waste time revisions or expansions of the information collected. when completing procedures. In practice, completing a pro- cedure may take longer if the business lacks information or is unable to follow up promptly. 96 DOiNgBuSiNESSiNSOuTHASiA2007 The methodology for 4 of the Doing Business topics In other cases complaints were resolved without a need for changed for Doing Business 2007 and Doing Business in South corrections, through explanations of the assumptions un- Asia 2007. For paying taxes, the total tax rate measure now derlying the methodology and the date as of which data are includes all labor contributions paid by the employer (such collected. In addition, the Doing Business team has corrected as social security contributions) and excludes consumption 37 data points as a result of new information obtained during taxes (such as sales tax or value added tax). And the measure its travel and the recruitment of additional respondents. The is now expressed as a percentage of commercial profits rather ease of doing business index reflects these changes. For these than gross profits. This change reflects the total tax burden reasons--as well as the addition of 20 new economies--this borne by businesses. For enforcing contracts, the case study year's rankings on the ease of doing business are not compa- was revised to reflect a typical contractual dispute over the rable with the rankings reported in Doing Business in 2006. quality of goods rather than a simple debt default. For trading To make comparisons across time, table 1.2 reports recalcu- across borders, Doing Business now reports the cost associ- lated rankings for last year. ated with exporting and importing cargo in addition to the The laws and regulations underlying the Doing Business time and number of documents required. And for employing data are now available on the Doing Business website at workers, hiring costs are no longer included in the calcula- http://www.doingbusiness.org. All the sample surveys and tion of the ease of employing workers. the details underlying the indicators are also published on Doing Business now publishes more than 8,750 data points. the website. Questions on the methodology and challenges Since the publication of Doing Business in 2006, 19 challenges to data may be submitted through the "Ask a Question" func- to last year's data have been received. In 6 cases--Algeria, tion on the Doing Business home page. Updated indicators, as France, Hong Kong (China), Jordan, Morocco and the United well as any revisions of or corrections to the printed data, are Kingdom--every data point was reviewed by government posted continuously on the website. experts. The challenges resulted in 12 corrections to the data. Economy characteristics Population Region and income group Doing Business 2007 reports midyear 2005 population sta- tistics as published in World Development Indicators 2006. Doing Business uses the World Bank regional and income group classifications, available at http://www.worldbank.org/ Gross national income (GNI) per capita data/countryclass/countryclass.html. Throughout the report the Doing Business 2007 reports 2005 income per capita as pub- term rich economies refers to the high-income group, middle- lished in the World Bank's World Development Indicators income economies to the upper-middle-income group and poor 2006. Income is calculated using the Atlas method (current economies to the lower-middle-income and low-income groups. US$). For cost indicators expressed as a percentage of income per capita, 2005 GNI in local currency units is used as the denominator. Starting a business in the start-up process function efficiently and without cor- ruption. If answers by local experts differ, inquiries continue Doing Business records all procedures that are officially re- until the data are reconciled. quired for an entrepreneur to start up and formally operate To make the data comparable across countries, several as- an industrial or commercial business. These include obtain- sumptions about the business and the procedures are used. ing all necessary licenses and permits and completing any required notifications, verifications or inscriptions for the Assumptions about the business company and employees with relevant authorities. The business: After a study of laws, regulations and publicly available · Is a limited liability company. If there is more than one information on business entry, a detailed list of procedures type of limited liability company in the country, the is developed, along with the time and cost of complying with limited liability form most popular among domestic each procedure under normal circumstances and the paid-in firms is chosen. Information on the most popular form minimum capital requirements. Subsequently, local incorpo- is obtained from incorporation lawyers or the statistical ration lawyers and government officials complete and verify office. the data. On average 4 law firms participate in each country. · Operates in the country's most populous city or the Information is also collected on the sequence in which relevant cities for the sub-national data. procedures are to be completed and whether procedures may · Is 100% domestically owned and has 5 owners, none of be carried out simultaneously. It is assumed that any required whom is a legal entity. information is readily available and that all agencies involved DATANOTES 97 · Has start-up capital of 10 times income per capita at the Time end of 2005, paid in cash. Time is recorded in calendar days. The measure captures the · Performs general industrial or commercial activities, such as the production or sale of products or services to the median duration that incorporation lawyers indicate is nec- public. It does not perform foreign trade activities and essary to complete a procedure. It is assumed that the mini- does not handle products subject to a special tax regime, mum time required for each procedure is 1 day. Although for example, liquor or tobacco. The business is not using procedures may take place simultaneously, they cannot start heavily polluting production processes. on the same day. A procedure is considered completed once · Leases the commercial plant and offices and is not a the company has received the final document, such as the proprietor of real estate. company registration certificate or tax number. If a procedure · Does not qualify for investment incentives or any special can be accelerated for an additional cost, the fastest proce- benefits. dure is chosen. It is assumed that the entrepreneur does not · Has up to 50 employees 1 month after the commencement waste time and commits to completing each remaining pro- of operations, all of them nationals. cedure without delay. The time that the entrepreneur spends · Has a turnover of at least 100 times income per capita. on gathering information is ignored. It is assumed that the · Has a company deed 10 pages long. entrepreneur is aware of all entry regulations and their se- quence from the beginning but has had no prior contact with Procedures any of the officials. A procedure is defined as any interaction of the company founder with external parties (government agencies, lawyers, Cost auditors, notaries). Interactions between company found- Cost is recorded as a percentage of the country's income per ers or company officers and employees are not counted capita. Only official costs are recorded. The company law, the as procedures. Procedures that must be completed in the commercial code and specific regulations and fee schedules same building but in different offices are counted as sepa- are used as sources for calculating costs. In the absence of fee rate procedures. The founders are assumed to complete all schedules, a government officer's estimate is taken as an offi- procedures themselves, without middlemen, facilitators, ac- cial source. In the absence of a government officer's estimate, countants or lawyers, unless the use of such a third party is estimates of incorporation lawyers are used. If several incor- mandated by law. poration lawyers provide different estimates, the median re- Both pre- and post-incorporation procedures that are ported value is applied. In all cases the cost excludes bribes. officially required for an entrepreneur to formally operate a business are recorded. Procedures that are not required Paid-in minimum capital to start and formally operate a business are ignored. For ex- Thepaid-inminimumcapitalrequirementreflectstheamount ample, obtaining exclusive rights over the company name is that the entrepreneur needs to deposit in a bank before regis- not counted in a country where businesses may use a number tration starts and is recorded as a percentage of the country's as identification. income per capita. The amount is typically specified in the Procedures required for official correspondence or trans- commercial code or the company law. Many countries have actions with public agencies are included. For example, if a a minimum capital requirement but allow businesses to pay company seal or stamp is required on official documents, only a part of it before registration, with the rest to be paid such as tax declarations, obtaining it is counted. Similarly, if after the first year of operation. In Mozambique in March a company must open a bank account before registering for 2006, for example, the minimum capital requirement for lim- sales tax or value added tax, this transaction is included as a ited liability companies was 1,500,000 meticais, of which half procedure. Shortcuts are counted only if they fulfill 3 criteria: was payable before registration. The paid-in minimum capital they are legal, they are available to the general public, and recorded for Mozambique is therefore 750,000 meticais, or avoiding them causes substantial delays. 10% of income per capita. In the Philippines the minimum Only procedures required of all businesses are covered. capital requirement was 5,000 pesos, but only a quarter Industry-specific procedures are excluded. For example, needed to be paid before registration. The paid-in minimum procedures to comply with environmental regulations are capital recorded for the Philippines is therefore 1,250 pesos, included only when they apply to all businesses conducting or 2% of income per capita. general commercial or industrial activities. Procedures that the company undergoes to connect to electricity, water, gas This methodology was developed in Djankov and others (2002) and waste disposal services are not included. and is adopted here with minor changes. 98 DOiNgBuSiNESSiNSOuTHASiA2007 Dealing with licenses · Is a new construction (there was no previous construction on the land). Doing Business records all procedures required for a busi- · Has complete architectural and technical plans. ness in the construction industry to build a standardized · Will be connected to electricity, water, sewerage and one warehouse as an example of dealing with licenses. These land phone line. The connection to each utility network procedures include obtaining all necessary licenses and per- will be 32 feet, 10 inches (10 meters) long. mits, receiving all required inspections and completing all · Will require a 10-ampere power connection and 140 required notifications and submitting the relevant documents kilowatts of electricity. (for example, building plans and site maps) to the authorities. · Will be used for storing books. Doing Business also records procedures for obtaining utility connections, such as electricity, telephone, water and sewer- Procedures age. Procedures necessary to be able to use the property as A procedure is any interaction of the company's employees collateral or transfer it to another business are also counted. or managers with external parties, including government The survey divides the process of building a warehouse into agencies, public inspectors, notaries, the land registry and distinct procedures and calculates the time and cost of com- cadastre and technical experts apart from architects and pleting each procedure under normal circumstances. engineers. Interactions between company employees, such Information is collected from construction lawyers, con- as development of the warehouse plans and inspections struction firms, utility service providers and public officials conducted by employees, are not counted as procedures. who deal with building regulations. To make the data com- Procedures that the company undergoes to connect to elec- parable across countries, several assumptions about the busi- tricity, water, sewerage and phone services are included. All ness, the warehouse project and the procedures are used. procedures that are legally or in practice required for build- ing a warehouse are counted, even if they may be avoided in Assumptions about the construction company exceptional cases. The business (BuildCo): Time · Is a limited liability company. · Operates in the country's most populous city or the Time is recorded in calendar days. The measure captures relevant cities for the sub-national data. the median duration that local experts indicate is necessary · Is 100% domestically owned and has 5 owners, none of to complete a procedure. It is assumed that the minimum whom is a legal entity. time required for each procedure is 1 day. If a procedure · Carries out construction projects, such as building a can be accelerated legally for an additional cost, the fast- warehouse. est procedure is chosen. It is assumed that BuildCo does · Has up to 20 builders and other employees, all of them not waste time and commits to completing each remaining nationals with the technical expertise and professional procedure without delay. The time that BuildCo spends experiencenecessarytodeveloparchitecturalandtechnical on gathering information is ignored. It is assumed that plans for building a warehouse. BuildCo is aware of all building requirements and their sequence from the beginning. Assumptions about the warehouse project The warehouse: Cost · Has 2 stories and approximately 14,000 square feet (1,300.6 Cost is recorded as a percentage of the country's income per square meters). Each floor is 9 feet, 10 inches (3 meters) capita. Only official costs are recorded. The building code, high. specific regulations and fee schedules and information from · Is located in a periurban area of the country's most local experts are used as sources for costs. If several local populous city or the relevant cities for the sub-national partners provide different estimates, the median reported data. value is used. All the fees associated with completing the · Is located on a land plot of 10,000 square feet (929 procedures to legally build a warehouse, including utility square meters), which is 100% owned by BuildCo and is hook-up, are included. accurately registered in the cadastre and land registry. DATANOTES 99 Employing workers is assigned a score of 1 if term contracts can be used only for temporary tasks and a score of 0 if they can be used for any Doing Business measures the regulation of employment, spe- task. A score of 1 is assigned if the maximum cumulative du- cifically as it affects the hiring and firing of workers and the ration of term contracts is less than 3 years; 0.5 if it is between rigidity of working hours. The data on employing workers 3 and 5 years; and 0 if term contracts can last 5 years or more. are based on a detailed survey of employment regulations Finally, a score of 1 is assigned if the ratio of the minimum that is completed by local law firms. The employment laws of wage to the average value added per worker is higher than most countries are available online in the NATLEX database, 0.75; 0.67 for a ratio greater than 0.50 and less than or equal published by the International Labour Organization. Laws to 0.75; 0.33 for a ratio greater than 0.25 and less than or and regulations as well as secondary sources are reviewed equal to 0.50; and 0 for a ratio less than or equal to 0.25. In to ensure accuracy. Conflicting answers are further checked the Central African Republic, for example, term contracts against 2 additional sources, including a local legal treatise on are allowed only for temporary tasks (a score of 1), and they employment regulation. can be used for a maximum of 2 years (a score of 1). The To make the data comparable across countries, several as- ratio of the mandated minimum wage to the value added per sumptions about the worker and the business are used. worker is 0.66 (a score of 0.67). Averaging the three subin- dices and scaling the index to 100 gives the Central African Assumptions about the worker Republic a score of 89. The worker: The rigidity of hours index has 5 components: (i) whether · Is a nonexecutive, full-time male employee who has night work is unrestricted; (ii) whether weekend work is un- worked in the same company for 20 years. restricted; (iii) whether the workweek can consist of 5.5 days; · Earns a salary plus benefits equal to the country's average (iv) whether the workweek can extend to 50 hours or more wage during the entire period of his employment. (including overtime) for 2 months a year; and (v) whether · Is a lawful citizen with a wife and 2 children. The family paid annual vacation is 21 working days or fewer. For each of resides in the country's most populous city or the relevant these questions, if the answer is no, the country is assigned cities for the sub-national data. a score of 1; otherwise a score of 0 is assigned. For example, · Is not a member of a labor union, unless membership is Montenegro imposes restrictions on night work (a score of 1) mandatory. and weekend work (a score of 1), allows 5.5-day workweeks (a score of 0), permits 50-hour workweeks for 2 months (a Assumptions about the business score of 0) and requires paid vacation of 20 working days (a The business: score of 0). Averaging the scores and scaling the result to 100 · Is a limited liability company. gives a final index of 40 for Montenegro. · Operates in the country's most populous city or the The difficulty of firing index has 8 components: (i) relevant cities for the sub-national data. whether redundancy is disallowed as a basis for terminating · Is 100% domestically owned. workers; (ii) whether the employer needs to notify a third · Operates in the manufacturing sector. party (such as a government agency) to terminate 1 redun- dant worker; (iii) whether the employer needs to notify a · Has 201 employees. third party to terminate a group of more than 20 redundant · Abides by every law and regulation but does not grant workers; (iv) whether the employer needs approval from a workers more benefits than what is legally mandated. third party to terminate 1 redundant worker; (v) whether · Is subject to collective bargaining agreements in countries the employer needs approval from a third party to terminate where such bargaining covers more than half the manufacturing sector. a group of more than 20 redundant workers; (vi) whether the law requires the employer to consider reassignment or Rigidity of employment index retraining options before redundancy termination; (vii) The rigidity of employment index is the average of three sub- whether priority rules apply for redundancies; and (viii) indices: a difficulty of hiring index, a rigidity of hours index whether priority rules apply for reemployment. For the first and a difficulty of firing index. All the subindices have several question an answer of yes for workers of any income level components. And all take values between 0 and 100, with gives a score of 10 and means that the rest of the questions do higher values indicating more rigid regulation. not apply. An answer of yes to question (iv) gives a score of The difficulty of hiring index measures (i) whether term 2. For every other question, if the answer is yes, a score of 1 contracts can be used only for temporary tasks; (ii) the is assigned; otherwise a score of 0 is given. Questions (i) and maximum cumulative duration of term contracts; and (iii) (iv), as the most restrictive regulations, have greater weight in the ratio of the minimum wage for a trainee or first-time the construction of the index. employee to the average value added per worker. A country In Tunisia, for example, redundancy is allowed as grounds for termination (a score of 0). An employer has to both notify 100 DOiNgBuSiNESSiNSOuTHASiA2007 a third party (a score of 1) and obtain its approval (a score of of the worker's wages and include 10% for sickness, maternity 2) to terminate a single redundant worker, and has to both and temporary disability benefits; 1.7% for permanent dis- notify a third party (a score of 1) and obtain its approval ability and survivor benefits; and 2% for housing. (a score of 1) to terminate a group of redundant workers. The law mandates consideration of retraining or alternative Firing cost placement before termination (a score of 1). There are prior- The firing cost indicator measures the cost of advance notice ity rules for termination (a score of 1) and reemployment (a requirements, severance payments and penalties due when score of 1). Adding up the scores and scaling to 100 gives a terminating a redundant worker, expressed in weekly wages. final index of 80 for Tunisia. One month is recorded as 4 and 1/3 weeks. In Mozambique, Nonwage labor cost for example, an employer is required to give 90 days' notice before a redundancy termination, and the severance pay for The nonwage labor cost indicator measures all social security workers with 20 years of service equals 30 months of wages. payments (including retirement fund; sickness, maternity No penalty is levied. Altogether, the employer pays the equiv- and health insurance; workplace injury; family allowance; alent of 143 weeks of salary to dismiss the worker. and other obligatory contributions) and payroll taxes associ- ated with hiring an employee in fiscal year 2005. The cost is This methodology was developed in Botero and others (2004) expressed as a percentage of the worker's salary. In Bolivia, and is adopted here with minor changes. for example, the taxes paid by the employer amount to 13.7% Registering property · Is adequately measured and filed in the cadastre, registered in the land registry and free of title disputes. Doing Business records the full sequence of procedures · Is located in a periurban commercial zone, and no necessary when a business purchases land and a building rezoning is required. to transfer the property title from the seller to the buyer so · Consists of land and a building. The land area is 6,000 that the buyer can use the property for expanding its busi- square feet (557.4 square meters). A 2-story warehouse of ness, as collateral in taking new loans or, if necessary, to sell 10,000 square feet (929 square meters) is located on the to another business. Every required procedure is included, land. The warehouse is 10 years old, is in good condition whether it is the responsibility of the seller or the buyer or and complies with all safety standards, building codes and other legal requirements. The property of land and must be completed by a third party on their behalf. Local building will be transferred in its entirety. property lawyers and property registries provide information · Will not be subject to renovations or additional building on required procedures as well as the time and cost to com- following the purchase. plete each of them. · Has no trees, natural water sources, natural reserves or To make the data comparable across countries, several historical monuments of any kind. assumptions about the business, the property and the proce- · Will not be used for special purposes, and no special dures are used. permits, such as for residential use, industrial plants, Assumptions about the business waste storage or certain types of agricultural activities, are required. The business: · Has no occupants (legal or illegal), and no other party · Is a limited liability company. holds a legal interest in it. · Is located in a periurban area of the country's most populous city or the relevant cities for the sub-national Procedures data. A procedure is defined as any interaction of the buyer or the · Is 100% domestically and privately owned. seller, their agents (if an agent is legally or in practice required) · Has 50 employees, all of whom are nationals. or the property with external parties, including government · Performs general commercial activities. agencies, inspectors, notaries and lawyers. Interactions be- tween company officers and employees are not considered. Assumptions about the property All procedures that are legally or in practice required for The property: registering property are recorded, even if they may be avoided in exceptional cases. It is assumed that the buyer follows the · Has a value of 50 times income per capita. fastest legal option available and used by the general public. · Is fully owned by another domestic limited liability Although the business may use lawyers or other professionals company. where necessary in the registration process, it is assumed that · Has no mortgages attached and has been under the same it does not employ an outside facilitator in the registration ownership for the past 10 years. process unless legally or in practice required to do so. DATANOTES 101 Time Cost Time is recorded in calendar days. The measure captures the Cost is recorded as a percentage of the property value, as- median duration that property lawyers or registry officials in- sumed to be equivalent to 50 times income per capita. Only dicate is necessary to complete a procedure. It is assumed that official costs required by law are recorded, including fees, the minimum time required for each procedure is 1 day. Al- transfer taxes, stamp duties and any other payment to the though procedures may take place simultaneously, they can- property registry, notaries, public agencies or lawyers. Other not start on the same day. It is assumed that the buyer does taxes, such as capital gains tax or value added tax, are ex- not waste time and commits to completing each remaining cluded from the cost measure. If cost estimates differ among procedure without delay. If a procedure can be accelerated sources, the median reported value is used. for an additional cost, the fastest legal procedure available and used by the general public is chosen. If procedures can be undertaken simultaneously, it is assumed that they are. It is assumed that the parties involved are aware of all regula- tions and their sequence from the beginning. Time spent on gathering information is not considered. Getting credit · Any legal or natural person may grant or take security in the property. Doing Business constructs measures of the legal rights of · A unified registry operates that includes charges over borrowers and lenders and the sharing of credit information. movable property. The first set of indicators describes how well collateral and · Secured creditors have priority outside of bankruptcy. bankruptcy laws facilitate lending. The second set measures · Secured creditors, rather than other parties such as the coverage, scope, quality and accessibility of credit infor- government or workers, are paid first out of the proceeds mation available through public and private credit registries. from liquidating a bankrupt firm. The data on the legal rights of borrowers and lenders are · Secured creditors are able to seize their collateral when a gathered through a survey of financial lawyers and verified debtor enters reorganization; there is no "automatic stay" through analysis of laws and regulations as well as public or "asset freeze" imposed by the court. sources of information on collateral and bankruptcy laws. · Management does not stay during reorganization. An The data on credit information sharing are built in two stages. administrator is responsible for managing the business First, banking supervision authorities and public informa- during reorganization. tion sources are surveyed to confirm the presence of public · Parties may agree on enforcement procedures by contract. credit registries and private credit information bureaus. · Creditors may both seize and sell collateral out of court Second, when applicable, a detailed survey on the public or without restriction. private credit registry's structure, law and associated rules is administered to the credit registry. Survey responses are The index ranges from 0 to 10, with higher scores indicating verified through several rounds of follow-up communication that collateral and bankruptcy laws are better designed to with respondents as well as by contacting third parties and expand access to credit. consulting public sources. The survey data are confirmed Depth of credit information index through teleconference calls in most countries. The depth of credit information index measures rules affect- Strength of legal rights index ing the scope, accessibility and quality of credit information The strength of legal rights index measures the degree to available through either public or private credit registries. A which collateral and bankruptcy laws protect the rights of score of 1 is assigned for each of the following 6 features of borrowers and lenders and thus facilitate lending. The index the credit information system: includes 7 aspects related to legal rights in collateral law and · Both positive (for example, amount of loan and on-time 3 aspects in bankruptcy law. A score of 1 is assigned for each repayment pattern) and negative (for instance, number of the following features of the laws: and amount of defaults, late payments, bankruptcies) credit information is distributed. · General rather than specific description of assets is permitted in collateral agreements. · Data on both firms and individuals are distributed. · General rather than specific description of debt is · Data from retailers, trade creditors or utilities as well as permitted in collateral agreements. financial institutions are distributed. 102 DOiNgBuSiNESSiNSOuTHASiA2007 · More than 2 years of historical data are distributed. percentage of the adult population. A public credit registry is · Data on loans above 1% of income per capita are defined as a database managed by the public sector, usually by distributed. the central bank or the superintendent of banks, that collects · By law, borrowers have the right to access their data. information on the creditworthiness of borrowers (persons or businesses) in the financial system and makes it available The index ranges from 0 to 6, with higher values indicating to financial institutions. If no public registry operates, the the availability of more credit information, from either a pub- coverage value is 0. lic registry or a private bureau, to facilitate lending decisions. In Turkey, for example, both a public and a private registry Private credit bureau coverage operate. Both distribute positive and negative information The private credit bureau coverage indicator reports the (a score of 1). The private bureau distributes data only on number of individuals or firms listed by a private credit bu- individuals, but the public registry covers firms as well as in- reau with current information on repayment history, unpaid dividuals (a score of 1). The public and private registries share debts or credit outstanding. The number is expressed as a data among financial institutions only; no data are collected percentage of the adult population. A private credit bureau from retailers or utilities (a score of 0). The private bureau is defined as a private firm or nonprofit organization that distributes more than 2 years of historical data (a score of 1). maintains a database on the creditworthiness of borrowers The public registry collects data only on loans of $3,132 (66% (persons or businesses) in the financial system and facilitates of income per capita) or more, but the private bureau collects the exchange of credit information among banks and fi- information on loans of any value (a score of 1). Borrowers nancial institutions. Credit investigative bureaus and credit have the right to access their data (a score of 1). Summing reporting firms that do not directly facilitate information across the indicators gives Turkey a total score of 5. exchange between banks and other financial institutions are not considered. If no private bureau operates, the coverage Public credit registry coverage value is 0. The public credit registry coverage indicator reports the number of individuals and firms listed in a public credit reg- This methodology was developed in Djankov, McLiesh and istry with current information on repayment history, unpaid Shleifer (forthcoming) and is adopted here with minor debts or credit outstanding. The number is expressed as a changes. Protecting investors · Has only national shareholders. · Has invested only in the country and has no subsidiaries Doing Business measures the strength of minority shareholder or operations abroad. protections against directors' misuse of corporate assets for · Is a food manufacturer. personal gain. The indicators distinguish 3 dimensions of · Has its own distribution network. investor protection: transparency of transactions (extent of disclosure index), liability for self-dealing (extent of director Assumptions about the transaction liability index) and shareholders' ability to sue officers and · Mr. James is Buyer's controlling shareholder and a member directors for misconduct (ease of shareholder suits index). of Buyer's board of directors. He owns 60% of Buyer and The data come from a survey of corporate lawyers and are elected 2 directors to Buyer's 5-member board. based on company laws, court rules of evidence and securi- · Mr. James also owns 90% of Seller, a company that ties regulations. operates a chain of retail hardware stores. Seller recently To make the data comparable across countries, several as- closed a large number of its stores. sumptions about the business and the transaction are used. · Mr. James proposes to Buyer that it purchase Seller's unused fleet of trucks to expand Buyer's distribution of its Assumptions about the business food products. Buyer agrees. The price is equal to 10% of The business (Buyer): Buyer's assets and is higher than the market value. · Is a publicly traded corporation listed on the country's · The proposed transaction is part of the company's ordinary most important stock exchange. If the number of publicly course of business and is not outside the authority of the traded companies listed on that exchange is less than company. 10, or if there is no stock exchange in the country, it · Buyer enters into the transaction. All required approvals is assumed that Buyer is a large private company with are obtained, and all required disclosures made. multiple shareholders. · The transaction is unfair to Buyer. Shareholders sue · Has a board of directors and a chief executive officer Mr. James and the other parties that approved the (CEO) who may legally act on behalf of Buyer where transaction. permitted, even if this is not specifically required by law. DATANOTES 103 Extent of disclosure index damage the transaction causes to the company (a score of 0 is The extent of disclosure index has 5 components: (i) what assigned if the approving body cannot be held liable or can be corporate body can provide legally sufficient approval for held liable only for fraud or bad faith; 1 if the approving body the transaction (a score of 0 is assigned if it is the CEO or can be held liable for negligence; 2 if the approving body can the managing director alone; 1 if the board of directors or be held liable when the transaction is unfair or prejudicial shareholders must vote and Mr. James is permitted to vote; to the other shareholders); (iii) whether a court can void the 2 if the board of directors must vote and Mr. James is not transaction upon a successful claim by a shareholder plain- permitted to vote; 3 if shareholders must vote and Mr. James tiff (a score of 0 is assigned if rescission is unavailable or is is not permitted to vote); (ii) whether immediate disclosure available only in case of fraud or bad faith; 1 if rescission is of the transaction to the public, the shareholders or both is available when the transaction is oppressive or prejudicial required (a score of 0 is assigned if no disclosure is required; to the other shareholders; 2 if rescission is available when 1 if disclosure on the terms of the transaction but not Mr. the transaction is unfair or entails a conflict of interest); (iv) James's conflict of interest is required; 2 if disclosure on both whether Mr. James pays damages for the harm caused to the the terms and Mr. James's conflict of interest is required); (iii) company upon a successful claim by the shareholder plaintiff whether disclosure in the annual report is required (a score (a score of 0 is assigned if no; 1 if yes); (v) whether Mr. James of 0 is assigned if no disclosure on the transaction is required; repays profits made from the transaction upon a successful 1 if disclosure on the terms of the transaction but not Mr. claim by the shareholder plaintiff (a score of 0 is assigned if James's conflict of interest is required; 2 if disclosure on both no; 1 if yes); (vi) whether fines and imprisonment can be ap- the terms and Mr. James's conflict of interest is required); (iv) plied against Mr. James (a score of 0 is assigned if no; 1 if yes); whether disclosure by Mr. James to the board of directors is and (vii) shareholder plaintiffs' ability to sue directly or de- required (a score of 0 is assigned if no disclosure is required; rivatively for damage the transaction causes to the company 1 if a general disclosure of the existence of a conflict of inter- (a score of 0 is assigned if suits are unavailable or are available est is required without any specifics; 2 if full disclosure of all only for shareholders holding more than 10% of the compa- material facts relating to Mr. James's interest in the Buyer- ny's share capital; 1 if direct or derivative suits are available Seller transaction is required); and (v) whether it is required for shareholders holding 10% or less of share capital). that an external body, for example, an external auditor, review The index ranges from 0 to 10, with higher values indicat- the transaction before it takes place (a score of 0 is assigned ing greater liability of directors. To hold Mr. James liable in if no; 1 if yes). Panama, for example, a plaintiff must prove that Mr. James The index ranges from 0 to 10, with higher values indicat- influenced the approving body or acted negligently (a score ing greater disclosure. In Poland, for example, the board of of 1). To hold the other directors liable, a plaintiff must prove directors must approve the transaction and Mr. James is not that they acted negligently (a score of 1). The unfair transac- allowed to vote (a score of 2). Buyer is required to disclose tion cannot be voided (a score of 0). If Mr. James is found li- immediately all information affecting the stock price, includ- able, he must pay damages (a score of 1) but he is not required ing the conflict of interest (a score of 2). In its annual report to disgorge his profits (a score of 0). Mr. James cannot be Buyer must also disclose the terms of the transaction and Mr. fined or imprisoned (a score of 0). Direct suits are available James's ownership in Buyer and Seller (a score of 2). Before for shareholders holding 10% or less of share capital (a score the transaction Mr. James must disclose his conflict of inter- of 1). Adding these numbers gives Panama a score of 4 on the est to the other directors, but he is not required to provide extent of director liability index. specific information about it (a score of 1). Poland does not Ease of shareholder suits index require an external body to review the transaction (a score of 0). Adding these numbers gives Poland a score of 7 on the The ease of shareholder suits index measures (i) the range extent of disclosure index. of documents available to the shareholder plaintiff from the defendant and witnesses during trial (a score of 1 is assigned Extent of director liability index for each of the following types of documents available: infor- The extent of director liability index measures (i) a share- mation that the defendant has indicated he intends to rely on holder plaintiff's ability to hold Mr. James liable for damage for his defense; information that directly proves specific facts the Buyer-Seller transaction causes to the company (a score in the plaintiff's claim; any information relevant to the subject of 0 is assigned if Mr. James cannot be held liable or can be matter of the claim; and any information that may lead to the held liable only for fraud or bad faith; 1 if Mr. James can be discovery of relevant information); (ii) whether the plaintiff held liable only if he influenced the approval of the trans- can directly examine the defendant and witnesses during trial action or was negligent; 2 if Mr. James can be held liable (a score of 0 is assigned if no; 1 if yes, with prior approval of when the transaction was unfair or prejudicial to the other the questions by the judge; 2 if yes, without prior approval); shareholders); (ii) a shareholder plaintiff's ability to hold the (iii) whether the plaintiff can obtain any documents from the approving body (the CEO or board of directors) liable for defendant without identifying them specifically (a score of 0 is assigned if no; 1 if yes); (iv) whether shareholders owning 104 DOiNgBuSiNESSiNSOuTHASiA2007 10% or less of the company's share capital can request that a transaction) (a score of 0). A shareholder holding 5% of Buy- government inspector investigate the Buyer-Seller transaction er's shares can request that a government inspector review (a score of 0 is assigned if no; 1 if yes); (v) whether sharehold- suspected mismanagement by Mr. James and the CEO (a ers owning 10% or less of the company's share capital have the score of 1). And any shareholder can inspect the transaction right to inspect the transaction documents before filing suit documents before deciding whether to sue (a score of 1). The (a score of 0 is assigned if no; 1 if yes); and (vi) whether the standard of proof for civil suits is the same as that for crimi- standard of proof for civil suits is lower than that for a crimi- nal suits (a score of 0). Adding these numbers gives Greece a nal case (a score of 0 is assigned if no; 1 if yes). score of 5 on the ease of shareholder suits index. The index ranges from 0 to 10, with higher values indicat- ing greater powers of shareholders to challenge the transac- Strength of investor protection index tion. In Greece, for example, the plaintiff can access docu- The strength of investor protection index is the average of ments that the defendant intends to rely on for his defense the extent of disclosure index, the extent of director liability and that directly prove facts in the plaintiff's claim (a score index and the ease of shareholder suits index. The index of 2). The plaintiff can examine the defendant and witnesses ranges from 0 to 10, with higher values indicating better during trial, though only with prior approval of the questions investor protection. by the court (a score of 1). The plaintiff must specifically identify the documents being sought (for example, the Buyer- This methodology was developed in Djankov, La Porta, Lopez- Seller purchase agreement of July 15, 2005) and cannot just de-Silanes and Shleifer (2005) and is adopted here with minor request categories (for example, all documents related to the changes. Paying taxes · Is 100% domestically owned and has 5 owners, all of whom are natural persons. Doing Business records the tax that a medium-size company · Has a start-up capital of 102 times income per capita at the must pay or withhold in a given year, as well as measures of end of 2004. the administrative burden in paying taxes. Taxes are measured · Performs general industrial or commercial activities. at all levels of government and include the profit or corporate Specifically, it produces ceramic flowerpots and sells them income tax, social security contributions and labor taxes paid at retail. It does not participate in foreign trade (no import by the employer, property taxes, property transfer taxes, the or export) and does not handle products subject to a dividend tax, the capital gains tax, the financial transactions special tax regime, for example, liquor or tobacco. tax, waste collection taxes and vehicle and road taxes. · Owns2plotsofland,1building,machinery,officeequipment, To measure the tax paid by a standardized business and computers and 1 truck and leases another truck. the complexity of a country's tax law, a case study is prepared · Does not qualify for investment incentives or any special with a set of financial statements and assumptions about benefits apart from those related to the age or size of the company. transactions made over the year. Experts in each country compute the taxes owed in their jurisdiction based on the · Has 60 employees--4 managers, 8 assistants and 48 workers. All are nationals, and 1 of the managers is also standardized case facts. Information on the frequency of fil- an owner. ing, audits and other costs of compliance is also compiled. · Has a turnover of 1,050 times income per capita. The project was developed and implemented in cooperation with PricewaterhouseCoopers. · Makes a loss in the first year of operation. To make the data comparable across countries, several as- · Has the same gross margin (pre-tax) across all economies. sumptions about the business and the taxes are used. · Distributes 50% of its profits as dividends to the owners at the end of the second year. Assumptions about the business · Sells one of its plots of land at a profit during the second The business: year. · Is a limited liability, taxable company. If there is more than · Is subject to a series of detailed assumptions on expenses one type of limited liability company in the country, the and transactions to further standardize the case. limited liability form most popular among domestic firms is chosen. Incorporation lawyers or the statistical office Assumptions about the taxes report the most popular form. · All the taxes paid or withheld in the second year of · Started operations on January 1, 2004. At that time the operation are recorded. A tax is considered distinct if it company purchased all the assets shown in its balance has a different name or is collected by a different agency. sheet and hired all its workers. Taxes with the same name and agency, but charged at · Operates in the country's most populous city or the different rates depending on the business, are counted as relevant cities for the sub-national data. the same tax. DATANOTES 105 · The number of times the company pays or withholds Total tax rate taxes in a year is the number of different taxes multiplied by the frequency of payment (or withholding) for The total tax rate measures the amount of taxes payable by each tax. The frequency of payment includes advance the business in the second year of operation, expressed as a payments (or withholding) as well as regular payments share of commercial profits. Doing Business 2007 reports tax (or withholding). rates for fiscal year 2005. The total amount of taxes is the sum of all the different taxes payable after accounting for deduc- Tax payments tions and exemptions. The taxes withheld (such as sales tax or The tax payments indicator reflects the total number of taxes value added tax) but not paid by the company are excluded. paid, the method of payment, the frequency of payment and The taxes included can be divided into five categories: profit the number of agencies involved for this standardized case or corporate income tax, social security contributions and during the second year of operation. It includes payments other labor taxes paid by the employer, property taxes, turn- made by the company on consumption taxes, such as sales over taxes and other small taxes (such as municipal fees and tax or value added tax. These taxes are traditionally withheld vehicle and fuel taxes). on behalf of the consumer. The number of payments takes Commercial profits are defined as sales minus cost of into account electronic filing. Where full electronic filing is goods sold, minus gross salaries, minus administrative ex- allowed, the tax is counted as paid once a year even if the penses, minus other deductible expenses, minus deductible payment is more frequent. provisions, plus capital gains (from the property sale) minus interest expense, plus interest income and minus commer- Time cial depreciation. To compute the commercial depreciation, Time is recorded in hours per year. The indicator measures a straight-line depreciation method is applied with the fol- the time to prepare, file and pay (or withhold) three major lowing rates: 0% for the land, 5% for the building, 10% for types of taxes: the corporate income tax, value added or sales the machinery, 33% for the computers, 20% for the office tax and labor taxes, including payroll taxes and social security equipment, 20% for the truck and 10% for business develop- contributions. Preparation time includes the time to collect all ment expenses. information necessary to compute the tax payable. If separate The methodology is consistent with the total tax calcula- accounting books must be kept for tax purposes--or separate tion applied by PricewaterhouseCoopers. calculations must be made for tax purposes--the time associ- ated with these processes is included. Filing time includes the This methodology was developed in "Tax Burdens around the time to complete all necessary tax forms and make all neces- World," an ongoing research project by Simeon Djankov, Cara- sary calculations. Payment time is the hours needed to make lee McLiesh, Rita Ramalho and Andrei Shleifer. the payment online or at the tax office. When taxes are paid in person, the time includes delays while waiting. Trading across borders Assumptions about the business The business: Doing Business compiles procedural requirements for ex- porting and importing a standardized cargo of goods. Every · Has 200 or more employees. official procedure for exporting and importing the goods is · Is located in the country's most populous city or the recorded--from the contractual agreement between the two relevant cities for the sub-national data. parties to the delivery of goods--along with the time and · Is a private, limited liability company. It does not operate cost necessary for completion. All documents required for within an export processing zone or an industrial estate with special export or import privileges. clearance of the goods across the border are also recorded. For exporting goods, procedures range from packing the goods · Is domestically owned with no foreign ownership. at the factory to their departure from the port of exit. For import- · Exports more than 10% of its sales. ing goods, procedures range from the vessel's arrival at the port of · Uses the nearest or most convenient port in the relevant entry to the cargo's delivery at the factory warehouse. cities. Local freight forwarders, shipping lines, customs brokers Assumptions about the traded goods and port officials provide information on required documents and cost as well as the time to complete each procedure. To The traded product travels in a dry-cargo, 20-foot, full con- make the data comparable across countries, several assump- tainer load. The product: tions about the business and the traded goods are used. · Is not hazardous nor does it include military items. · Does not require refrigeration or any other special environment. 106 DOiNgBuSiNESSiNSOuTHASiA2007 · Does not require any special phytosanitary or Time environmental safety standards other than accepted international standards. Time is recorded in calendar days. The time calculation for a procedure starts from the moment it is initiated and runs until · Falls under one of the following Standard International Trade Classification (SITC) Revision categories: it is completed. If a procedure can be accelerated for an addi- tional cost, the fastest legal procedure is chosen. It is assumed SITC 65: textile yarn, fabrics and made-up articles. that neither the exporter nor the importer wastes time and SITC 84: articles of apparel and clothing accessories. that each commits to completing each remaining procedure SITC07:coffee,tea,cocoa,spicesandmanufacturesthereof. without delay. Procedures that can be completed in parallel Documents are measured as simultaneous for the purpose of measuring time. The waiting time between procedures (for example, dur- All documents required to export and import the goods are ing unloading of the cargo) is included in the measure. recorded. It is assumed that the contract has already been agreed upon and signed by both parties. Documents include Cost bank documents, customs declaration and clearance docu- Cost is recorded as the fees levied on a 20-foot container in ments, port filing documents, import licenses and other of- United States dollars. All the fees associated with completing ficial documents exchanged between the concerned parties. the procedures to export or import the goods are included. These Documents filed simultaneously are considered different include costs for documents, administrative fees for customs documents but with the same time frame for completion. clearance and technical control, terminal handling charges and inland transport. The cost measure does not include tariffs or trade taxes. Only official costs are recorded. Enforcing contracts · The plaintiff takes all required steps for prompt enforcement of the judgment. The debt is successfully Indicators on enforcing contracts measure the efficiency of collected through sale of the defendant's movable assets the judicial system in resolving a commercial dispute. The (such as a vehicle) at a public auction. data are built by following the step-by-step evolution of a Procedures payment dispute before local courts. The data are collected through study of the codes of civil procedure and other A procedure is defined as any interaction mandated by law or court regulations as well as surveys completed by local litiga- court regulation between the parties, or between them and tion lawyers (and, in a quarter of the countries, by judges as the judge (or administrator) or court officer. This includes well). steps to file the case, steps for trial and judgment and steps necessary to enforce the judgment. Assumptions about the case Time · The value of the claim equals 200% of the country's income per capita. Time is recorded in calendar days, counted from the moment · The plaintiff has fully complied with the contract (that is, the plaintiff files the lawsuit in court until payment. This the plaintiff is 100% right). includes both the days when actions take place and the wait- · Thecaserepresentsalawfultransactionbetweenbusinesses ing periods between actions. The respondents make separate located in the country's most populous city or the relevant estimates of the average duration of different stages of dispute cities for the sub-national data. resolution: the completion of service of process (time to file · The plaintiff files a lawsuit to enforce the contract. the case), the issuance of judgment (time for the trial) and the · A court in the most populous city or the relevant cities for moment of payment (time for enforcement). the sub-national data decides the dispute. Cost · The defendant attempts to delay service of process but it is finally accomplished. Cost is recorded as a percentage of the claim, assumed to be · The defendant opposes the complaint (default judgment equivalent to 200% of income per capita. Only official costs re- is not an option) on the grounds that the delivered goods quired by law are recorded, including court costs and average at- were not of adequate quality. torney fees where the use of attorneys is mandatory or common. · The plaintiff introduces documentary evidence and calls one witness. The defendant calls one witness. Neither This methodology was developed in Djankov and others (2003) party presents objections. and is adopted here with minor changes. · The judgment is in favor of the plaintiff and the defendant does not appeal the judgment. DATANOTES 107 Closing a business Time Time is recorded in calendar years. It captures the estimated Doing Business studies the time, cost and outcomes of bank- duration required to complete a bankruptcy. Information is ruptcy proceedings involving domestic entities. The data are collected on the sequence of the bankruptcy procedures and derived from survey responses by local insolvency lawyers on whether any procedures can be carried out simultane- and verified through a study of laws and regulations as well ously. Delays due to legal derailment tactics that parties to the as public information on bankruptcy systems. bankruptcy may use--in particular, the extension of response To make the data comparable across countries, several as- periods or appeals--are considered. sumptions about the business and the case are used. Cost Assumptions about the business The cost of the bankruptcy proceedings is recorded as a The business: percentage of the estate's value. The cost is calculated on the · Is a limited liability company. basis of survey responses by practicing insolvency lawyers. · Operates in the country's most populous city or the If several respondents report different estimates, the median relevant cities for the sub-national data. reported value is used. Only official costs are recorded, in- · Is 100% domestically owned, with the founder, who is also cluding court costs as well as fees of insolvency practitioners, the chairman of the supervisory board, owning 51% (no independent assessors, lawyers and accountants. The cost other shareholder holds more than 5% of shares). figures are averages of the estimates on a multiple-choice · Has downtown real estate, where it runs a hotel, as its question, where the respondents choose among the follow- major asset. ing options: 0­2%, 3­5%, 6­8%, 9­10%, 11­18%, 19­25%, · Has a professional general manager. 26­33%, 34­50%, 51­75% and more than 75% of the estate · Has had average annual revenue of 1,000 times income value of the bankrupt business. per capita over the past 3 years. · Has 201 employees and 50 suppliers, each of whom is Recovery rate owed money for the last delivery. The recovery rate is recorded as cents on the dollar recovered · Borrowed from a domestic bank 5 years ago (the loan has by claimants--creditors, tax authorities and employees-- 10 years to full repayment) and bought real estate (the through the bankruptcy proceedings. The calculation takes hotel building), using it as security for the bank loan. into account whether the business is kept as a going concern · Has observed the payment schedule and all other during the proceedings, as well as bankruptcy costs and the conditions of the loan up to now. loss in value due to the time spent closing down. If the busi- · Has a mortgage, with the value of the mortgage principal ness keeps operating, no value is lost on the initial claim, set being exactly equal to the market value of the hotel. at 100 cents on the dollar. If it does not, the initial 100 cents Assumptions about the case on the dollar are reduced to 70 cents on the dollar. Then the official costs of the insolvency procedure are deducted (1 cent · The business is experiencing liquidity problems. The for each percentage of the initial value). Finally, the value lost company's loss in 2005 reduced its net worth to a negative as a result of the time that the money remains tied up in in- figure. There is no cash to pay the bank interest or solvency procedures is taken into account, including the loss principal in full, due tomorrow. Therefore, the business of value due to depreciation of the hotel furniture. Consistent defaults on its loan. Management believes that losses will be incurred in 2007 and 2008 as well. with international accounting practice, the depreciation rate for furniture is taken to be 20%. The furniture is assumed to · The bank holds a floating charge against the hotel in countries where floating charges are possible. If the law account for a quarter of the total value of assets. The recovery does not permit a floating charge but contracts commonly rate is the present value of the remaining proceeds, based use some other provision to that effect, this provision is on end-2005 lending rates from the International Monetary specified in the lending contract. Fund's International Financial Statistics, supplemented with · The business has too many creditors to renegotiate out of data from central banks. court. It has the following options: a procedure aimed at rehabilitation or any procedure that will reorganize the This methodology was developed in "Efficiency in Bankruptcy," business to permit further operation; a procedure aimed an ongoing research project by Simeon Djankov, Oliver Hart, at liquidation; or a procedure aimed at selling the hotel, Caralee McLiesh and Andrei Shleifer. as a going concern or piecemeal, enforced either through court (or by a government authority like a debt collection agency) or out of court (receivership). 108 DOiNgBuSiNESSiNSOuTHASiA2007 Ease of doing business words, there is much room for partial reform. When an economy has no laws or regulations covering The ease of doing business index ranks economies from 1 to a specific area--for example bankruptcy--it receives a "no 175. The index is calculated as the ranking on the simple av- practice" mark. Similarly, if regulation exists but is never erage of country percentile rankings on each of the 10 topics used in practice, or if a competing regulation prohibits such covered in Doing Business 2007. The ranking on each topic is practice, the economy receives a "no practice" mark. This puts the simple average of the percentile rankings on its compo- it at the bottom of the ranking. nent indicators (table 12.1). The ease of doing business index is limited in scope. It One example: The ranking on starting a business is the does not account for a country's proximity to large markets, average of the country percentile rankings on the procedures, the quality of its infrastructure services (other than services time, cost and paid-in minimum capital requirement to reg- related to trading across borders), the security of property ister a business. In Iceland it takes 5 procedures, 5 days and from theft and looting, macroeconomic conditions or the 3% of annual income per capita in fees to open a business. strength of underlying institutions. There remains a large un- The minimum capital required amounts to 16% of income finished agenda for research into what regulation constitutes per capita. On these 4 indicators Iceland ranks in the 7th, 1st, binding constraints, what package of reforms is most effective 8th and 48th percentiles. So on average, Iceland ranks in the and how these issues are shaped by the country context. The 18th percentile on the ease of starting a business. It ranks in Doing Business indicators provide a new empirical data set the 55th percentile on protecting investors, 18th percentile that may improve understanding of these issues. on trading across borders, 10th percentile on enforcing con- Doing Business 2007 uses a simple method to calculate tracts, 7th percentile on closing a business and so on. Higher the top reformers (table 1.1). First, it selects the economies ranks indicate simpler regulation and stronger protections that reformed three or more of the ten Doing Business topics of property rights. The simple average of Iceland's percentile (table 12.2). This year, 23 economies met this criterion: Ar- rankings on all topics is 20%. When all countries are ordered menia, Australia, Bulgaria, China, Croatia, Czech Republic, by their average percentile rank, Iceland is in 12th place. El Salvador, France, Georgia, Ghana, Guatemala, India, Is- Each indicator set studies a different aspect of the busi- rael, Latvia, Lithuania, Mexico, Morocco, Nicaragua, Nigeria, ness environment. Country rankings vary, sometimes sig- Peru, Romania, Rwanda and Tanzania. Second, these selected nificantly, across indicator sets. For example, Iceland ranks in economies are ranked on the increase in the rank in the ease the 7th percentile on closing a business, its highest ranking, of doing business from the previous year. For example, Croa- and in the 55th percentile on protecting investors, its lowest. tia, Mexico, and Nicaragua reformed in 3 aspects of business This points to priorities for reform: Protecting investors is regulation each. But Croatia's rank improved from 134 to one place to start in further improving business conditions 124, Mexico's rank improved from 62 to 43 and Nicaragua's in Iceland. Across all 175 economies the average correlation improved from 72 to 67. These represent a 10 place, 19 place coefficient between the 10 sets of indicators is 0.39, and the and 5 place improvement in rankings, respectively. Mexico coefficients between any 2 sets of indicators range from 0.16 therefore ranks ahead of Croatia in the top 10 reformers list; (between employing workers and trading across borders) to Nicaragua doesn't make it. 0.66 (between closing a business and enforcing contracts). The low correlations suggest that countries rarely score uni- This methodology was developed in Djankov, McLiesh and versally well or universally badly on the indicators. In other Ramalho (forthcoming) and adopted with minor changes here. Table 12.1 Which indicators make up the ranking? Starting a business Protecting investors Procedures,time,costandpaid-inminimumcapitaltoopenanewbusiness Indicesoftheextentofdisclosure,extentofdirectorliabilityandeaseof Dealing with licenses shareholdersuits Procedures,timeandcostofbusinessinspectionsandlicensing(construc- Paying taxes tionindustry) Numberoftaxpayments,timetopreparetaxreturnsandtotaltaxesasa Employing workers shareofcommercialprofits Difficultyofhiringindex,rigidityofhoursindex,difficultyoffiringindexand Trading across borders firingcost Documents,timeandcosttoexportandimport Registering property Enforcing contracts Procedures,timeandcosttoregistercommercialrealestate Procedures,timeandcosttoresolveacommercialdispute Getting credit Closing a business Strengthoflegalrightsindex,depthofcreditinformationindex Recoveryrateinbankruptcy DATANOTES 109 TABLE12.2 RefoRms in 2005/06 n Positivereform · Dealing Trading Negativereform Starting with Employing Registering Getting Protecting Paying across Enforcing Closing Economy a business licenses workers property credit investors taxes borders contracts a business Afghanistan Albania n Algeria n n Angola AntiguaandBarbuda n n Argentina n Armenia n n n n Australia n n n Austria Azerbaijan n n Bangladesh Belarus n · n Belgium n Belize Benin n Bhutan Bolivia · BosniaandHerzegovina n n Botswana n Brazil n Bulgaria n n n BurkinaFaso n Burundi n n Cambodia n n Cameroon Canada n CapeVerde CentralAfricanRepublic n · Chad n Chile n China n n n n Colombia n n Comoros Congo,Dem.Rep. Congo,Rep. CostaRica Côted'ivoire n Croatia n n n CzechRepublic n n n Denmark n n Djibouti · Dominica DominicanRepublic n · n Ecuador Egypt n n ElSalvador n n n Equatorialguinea Eritrea · Estonia n n Ethiopia n Fiji Finland France n n n n n gabon gambia n georgia n n n n n n germany n n ghana n n n greece n n 110 DOiNgBuSiNESS2007 RefoRms in 2005/06 n Positivereform · Dealing Trading Negativereform Starting with Employing Registering Getting Protecting Paying across Enforcing Closing Economy a business licenses workers property credit investors taxes borders contracts a business grenada guatemala n n n guinea guinea-Bissau n guyana n Haiti Honduras n n HongKong,China n n Hungary · n iceland India n n n n n indonesia n iran iraq ireland n israel n n n italy n n Jamaica n Japan n n Jordan n Kazakhstan n Kenya n n Kiribati Korea n n Kuwait n KyrgyzRepublic n n LaoPDR n n Latvia n n n Lebanon Lesotho n n Lithuania n n n FYRMacedonia n n · n Madagascar n Malawi Malaysia Maldives · Mali n n Marshallislands Mauritania n Mauritius n n Mexico n n n Micronesia n n Moldova n n Mongolia Montenegro n Morocco n n n Mozambique n Namibia Nepal Netherlands n NewZealand · n Nicaragua n n n Niger n n Nigeria n n n Norway · Oman Pakistan n n Palau · Panama n DATANOTES 111 RefoRms in 2005/06 n Positivereform · Dealing Trading Negativereform Starting with Employing Registering Getting Protecting Paying across Enforcing Closing Economy a business licenses workers property credit investors taxes borders contracts a business PapuaNewguinea Paraguay n Peru n n n n · Philippines Poland n Portugal n PuertoRico n Romania n n n n n n Russia n n Rwanda n n n Samoa SãoToméandPrincipe SaudiArabia n Senegal n Serbia · n n n Seychelles n SierraLeone n Singapore Slovakia n n Slovenia Solomonislands SouthAfrica n Spain n n Sri Lanka · St.KittsandNevis St.Lucia St.Vincent and the Grenadines Sudan n Suriname Swaziland · n Sweden n Switzerland n n Syria n n Taiwan,China Tajikistan Tanzania n n n n Thailand n Timor-Leste · Togo · n Tonga TrinidadandTobago Tunisia n Turkey n uganda n · ukraine n n unitedArabEmirates unitedKingdom n unitedStates n uruguay n n uzbekistan · · Vanuatu Venezuela · · · Vietnam n n WestBankandgaza Yemen n Zambia Zimbabwe · Acknowledgments 113 Acknowledgments Contact details of local partners are available on the Doing Business website at http://rru.worldbank.org/doingbusiness Doing Business in South Asia is a joint publication of the Johns, Adam Larson, Julien Levis, Janet Morris, Dana World Bank Group's South Asia Financial and Private Omran, Rita Ramalho, Sylvia Solf, Caroline van Cop- Sector department (SASFP) and the Doing Business penolle, Adriana Vicentini and Justin Yap. Gerry Quinn project team. The SASFP team was led by Shanthi designed the report. Divakaran under the direction of Simon Bell, Aurora Ferrari and Eric David Manes. Authors were Anjum The report was made possible by the generous contribu- Ahmad, Asya Akhlaque, Khurshid Alam, Inderbir tion of more than 200 lawyers, judges, business-people Singh Dhingra, Sriyani Hulugalle, Syed Mahmood, Eric and public officials in the South Asia region. Many of David Manes, Ismail Radwan, and Sabin Raj Shrestha, the contributors are members of the Lex Mundi As- with input from Mark Dutz, Reazul Islam, Isfandyar sociation of law firms or the International Bar Associa- Zaman Khan, Samuel Maimbo, Varsha Marathe, Kyoo- tion. The names of those wishing to be acknowledged Won Oh, Tilahun Temesgen, Niraj Verma and Namoos individually are listed below and contact details are Zaheer. The Doing Business team comprised Caralee posted on the Doing Business website, http://www. McLiesh, Sabine Hertveldt and Monica Hanssen, with doingbusiness.org. input from Allen Dennis, Penelope Fidas, Melissa 114 doingBusinessinsoutHAsiAin2007 GLoBAL CoNTrIBUTorS M. Moksadul Islam B.B. Kalden Allen & Overy LLP Legal Steps Dzongkhag Thrimkiduensa Baker & McKenzie Amir-Ul Islam Bap Kinga The Law Associates, member of Lex Chamber of Commerce & Industry Booz Allen Hamilton Inc. Mundi Kunzang Cleary, Gottlieb, Steen & Hamilton LLP Karishma Jahan Ministry of Finance Lex Mundi, Association of Independent Law Firms Dr. Kamal Hossain and Associates Subarna Lama PricewaterhouseCoopers Rabeya Jamali Ministry of Trade & Industry Huq and Co. SDV International Logistics Sonam Lhendup Ahsanul Kabir Ministry of Trade & Industry rEGIoNAL CoNTrIBUTorS Sohel Kasem Karma Lotey ACZALAW A. Qasem & Co. / Yangphel Adventure Travel PricewaterhouseCoopers Robert Hughes Mon Bahadur Monger Abul Kashem Managing Proprietor IKRP Rokas & Partners Advocate, District Court, Chittagong Mr. Naichu Chamber of Commerce & Industry AFGHANISTAN Mohammad Enayet Ali Khurram Khan Sangay Penjore Advocate, District Court, Khulna Standard Chartered Bank Taqi-ud-din Ahmad Khondker Shamsuddin Mahmood Thimpu Municipal Corporation A.F. Ferguson & Co. Mr. Ali Prakash Rasaily JMS Garments Ltd Advisers' Legal Alliance Shafic Gawhari Q.M. Mahtab-Uz-Zaman City Legal Unit Ministry of Commerce Abdullah Al-Masud Dasho Shera Lhendup Prime Bank Ltd. BRAC University Parwana Hasan Kazi Abdul Mannan WangDue District Court AWLPA Nurul Amin Mizanur Rahman Manu Dawa Sherpa Rashid Ibrahim Ashfaq Amin Dr. Kamal Hossain and Associates Sherpa Consultancy A.F. Ferguson & Co. Integrated Transportation Services Ltd., Agent of Panalpina Mr. Paikar Superintendency of Banks and Visal Khan M/S Paikar Ex-IM Financial Entities Mandviwalla & Zafar Ad. Asaduzzaman Syed Ashtiaq Ahmed & Associates Abdul Qayyum Ugen Takchhu Yasin Khosti Ministry of Commerce Survey and Land Records Office, Society of Afghan Architects and Mr. Ashan Ministry of Agriculture Engineers Sharifa Printers and Packaging Mirza Quamrul Hasan pvt. Ltd Norbu Tsering Gaurav Kukreja Golam Rabbani Royal Court of Justice Afghan Container Transport Co. Isbahul Bar Chowdhury Prime Bank Ltd. Prime Bank Ltd. Kipchu Tshering Khalid Mahmood Mizanur Rahaman Karma Tshering A.F. Ferguson & Co. Prof Abdul Bayes Ministry of Law, Justice and Department of Economics, Parliamentary Affairs Game Tshering Zahoor Malla Jahangirnagar University, Construction Association of Globalink Logistics Group Bangladesh. Habibur Rahman Bhutan The Law Counsel Mehmood Y. Mandviwalla Md. Halim Bepari Tandin Tshering Mandviwalla & Zafar Halim Law Associate Mohammed Razack Ministry of Trade & Industry John D. McDonald Gouranga Chakraborty Abdur Razzaq Tsering Wangchuck Baker & McKenzie, LLP Bank of Bangladesh The Law Counsel Royal Court of Justice Salman Nasim Khairul Alam Choudhury Quazi Reza-Ul Hoque Sonam P. Wangdi A.F. Ferguson & Co. Huq and Company ERGO Legal Counsels Nima Wangdi Soli Parakh Shirin Chaudhury Omar Sadat Deki Wangmo A.F. Ferguson & Co. Jamilur Reza Choudhury Imran Siddiq Bhutan National Bank Abdul Rahman Watanwal The Law Counsel A.B.M. Nasirud Doulah Tashi Wangmo MBC Construction Doulah & Doulah Advocates Mr. Subed Ministry of Labour and Human Charles Clinton HM Traders A.B.M. Shamsud Doulah Resources Altai Consulting Doulah & Doulah Advocates Munir Uddin Ahamed Tshering Yangchen Zaid Mohseni A.B.M. Badrud Doulah Rafique Ul-Huq Royal Monetary Authority Zamoh Doulah & Doulah Advocates Huq & Co. Tashi Yezer Omar Zakhilwal Moin Ghani Royal Securities Exchange Afghanistan Investment Support BHUTAN Agency Dr. Kamal Hossain & Associates INDIA Mainul Haque Loknath Chapagai BANGLADESH Bank of Bangladesh Ministry of Trade & Industry Prashant Agarwal Tashi Delek Fox Mandal Little Nahid Afreen Aneek Haque Office of Legal Affairs Richa Agarwal The Law Associates, member of Lex Haque and Associates PricewaterhouseCoopers Mundi Raquibul Haque Miah Eden Dema Royal Monetary Authority Ruchi Agarwal Jasim Ahmed Shamsul Hasan Fox Mandal Little Bangladesh Container Lines Ltd. Kincho Dorjee Mr.Hassan Cargo & Courier Co. Shilpa Agrawal Sahahuddin Ahmed International Trade Agencies LTD Fox Mandal Little Dr. Kamal Hossain & Associates Rinzin Dorji Syed Afzal Hasan Uddin Ministry of Trade & Industry Neelkanth D. Aher Sahabuddin Ahmed Syed Ashtiaq Ahmed & Associates Fox Mandal Little Dutch-Bangla Bank Foundation Dophu Dorji Azmal Hossain Royal Securities Exchange Amit Bahl Badrul Ahsan PricewaterhouseCoopers A. Qasem & Co. / Kamal Hossain T.C. Ghimirey PricewaterhouseCoopers Mr. Hossain, N.B. Gurung Yashraj Bardhan Tanjib-ul Alam Shapla Traders DHL Fox Mandal Little Dr. Kamal Hossain & Associates Rafiqul Islam Kenzang Gyeltshen Samit Bishnoi Judicial Service Association DHL Fox Mandal Little Acknowledgments 115 Harshala Chandorkar Janak Pandya Hon Jameel Indra Lohani Credit Information Bureau Ltd. Nishith Desai Associates Ministry of Justice Surendra Man Pradhan NK Chaidhary Vishwas Panjiar Aswin Kumar Jaipur Rugs Company Pvt, ltd Fox Mandal Little Confederation of Indian Bijaya Mishra Pradhan & Associates Orijit Chaterjee Dilleep Paronby Industries Fox Mandal Little Evereday Industries Hassan Latheef Kailash Prasad Neupane Nepal Telecommunications Ashutosh Chaturvedi Anuradha Parrakat Munavvar & Associates Law Firm Authority PricewaterhouseCoopers Confederation of Indian Idham Muizz Adnan Matrika Niraula Harminder Chawla Industries Ministry of Economic Niraula Law Chamber Chawla & Co. Shreyas Patel Development and Trade Bodhraj Niroula Dilkhush R. Doshi Fox Mandal Little Ahmed Muizzu Muizzu, Suood & Co. Megh Raj Pokhrel Srivastava Gantakolla R. 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Venkateshwar Rao PricewaterhouseCoopers Reliance Law Firm Gupta's Texitile annexe Fox Mandal Little Shabab Rasheed Civil Court Madan Krishna Sharma Nityanand Gupta Abhishek Saket CSC & Co. / PricewaterhouseCoopers PricewaterhouseCoopers Infini Juridique Mazlan Rasheed Shah, Hussain & Co., Barristers & Kusum Shrestha Akil Hirani Radhika Sankaran Attorneys Majmudar & Co. Fox Mandal Little Mohamed Saeed Ramji Shrestha Toral Jhaveri Amresh Kumar Sao Fihalhohi Saroj Shrestha Fox Mandal Little Fox Mandal Little Fathimath Shafeegah Sudheer Shrestha Ajay Joseph Tapas Sen Shuaib M. Shah Prem Shanker Shrestha Fox Mandal Little National Institute of Public Finance and Policy Shah, Hussain & Co., Barristers & Credit Information Bureau Ltd. Mg Jospeph Attorneys Anil Kumar Sinha Venkateswara Essence &Chemical Vikram Shroff Nishith Desai Associates Aisha Shujune Muhammad Sinha-Verma Law Concern Kachwaha & Partners Ministry of Justice Chitranjan Singh Sajjan Thapa Himesh Kampani Fox Mandal Little Hussain Siraj Dhruba Bar Singh Thapa & PricewaterhouseCoopers Ministry of Higher Education, Associates Ravinder Singh Employment and Social Security Sushmita Kapur Fox Mandal Little G.D. Udas Fox Mandal Little Abdullah Waheed Registrar of Companies Ravinder Singhania Aswin Kumar Singhania & Partners Sarath Weerakoon Peter Ward Confederation of Indian HSBC Nepal Bank Ltd. Industries Rudra Srivastava Chawla & Co Lubna Zahir Hussain PAKISTAN Mukesh Kumar Law Commission of the Maldives KNM & Partners Rudra Srivastava Ali Jafar Abidi Chawla & Co NEPAL Parveen Kumar State Bank of Pakistan Parnami Overseas Logistics Pvt. V.K. Srivastava Madhu Sudan Agrawal Rana Iftikhar Ahmed Ltd. Fox Mandal Little Standard Chartered Bank Nepal Chauhdary Law Chamber Manish Madhukar Visa steel ltd Ltd. Hadi Shakil Ahmad Infini Juridique MALDIVES Janak Bhandari Shakil Law Firm Som Mandal Global Law Associates Taqi-ud-din Ahmad Fox Mandal Little Mohamed Abdulazeez Parshuram Chetri A.F. Ferguson & Co. Vipender Mann Aima Construction Co. Nepal Bank Ltd. Waheed Ahmad KNM & Partners Jatindra Bhattray Purna Chitra Akhtar Shabir Law Associates Satish Mehta PricewaterhouseCoopers Basu Dahal Masood Ahmed Dun & Bradstreet SAME Ltd. Ali Hussain Didi Himalayan Bank Abraham & Sarwana Dara Mehta Ministry of Home Affairs Komal Prakash Ghimire Hasan Akber Little & Co. Mohamed Fizan Tika Ram Ghimire HKD & Company Saurabh Misra Shah, Hussain & Co., Barristers & Department of Land Revenue and Farooq Akhtar Fox Mandal Little Attorneys Reform Azam Chaudhry Law Associates Siddharth Misra S. Gayen Ashok Man Kapali Ahmad Syed Akhter Fox Mandal Little Mohamed Hameed Shangri-la Freight Pvt. Ltd. Group `O' Pyramid Logistics Group Mr. Mohan Antrac Maldives Pvt. Ltd. Shrawan Khanal Asghar Ali Isex Fashions Shaaheen Hameed Satish Krishna Kharel Attorney Sreejit Mohanty Premier Chambers Advocate Ch.Muhammad Ali Fox Mandal Little Nadiya Hassan Parshuram Koirala Chauhdary Law Chamber Satish Murthi Serene Ho Oi Khuen Advocate Ijaz Anwar Murti and Murti International Abdul Rasheed Ibrahim Namgyal Lama Attorney Law Practice Customs Service Nepal Freight Forwarders Mr Arif Vijay Nair Ahmed Ifthikhar Association Rustam Pvt Ltd KNM & Partners Ministry of Economic Mian Muhammad Arshad Anshoo Nayar Development and Trade M.M Arshad Law Associates Fox Mandal Little 116 doingBusinessinsoutHAsiAin2007 Mumtaz Hanafi Baqri Mansoor Khan Mr. Shaukat Hanafi Law Office Shadana Khan Ravi Akbar towels Mr. Barlas Azam Chaudhry Law Ata-ur-Rehman Sheikh Vital pvt. Ltd Associates Ata-ur-Rehman Sheikh & Shumail Ahmad Butt Arif Khan Associates Butt & Sohail LLP Qamar Abbas & Co. Azhar Ehsan Sheikh Nasir Ahmed Butt Suleman Khan Azhar Ehsan Sheikh Chauhdary Law Chamber Rizvi, Isa, Afridi & Angell, Advocate Adnan I. Chaudhry member of Lex Mundi Dil Afroz Subhani Malik, Chaudhry, Ahmed Mr. Khokhar Ata ur Rehman Sheikh & & Siddiqi Ashraf Industries Associates Mohammad Azam Chaudhry Abdul Aziz Kundi Sakhi Sultan Azam Chaudhry Law Kundi Law Associates Attorney Associates Khalid Mahmood Mr. Tahir Nadia Chaudhry A.F. Ferguson & Co. Aj textile mills ltd Azam Chaudhry Law Salman Talibuddin Associates Mahvash Malik Rizvi, Isa, Afridi & Angell, Kabraji & Talibuddin Fouad Rashid Dar member of Lex Mundi Saleem uz Zaman Target Logistics Intl. Kabraji & Talibuddin Private Limited Hasnain Naqvee Rizvi, Isa, Afridi & Angell, Faisal Daudpota member of Lex Mundi SrI LANKA Khalid Daudpota & Co. Dr. Zafar Nueen Nasar Ayomi Aluwihare- Ikram Fayaz Pakistan Institute of Gunawardene Qamar Abbas & Co. Development Economics F.J. & G. De Saram, member of Lex Mundi Maria Ghaznavi Salman Nasim Rizvi, Isa, Afridi & Angell, A.F. Ferguson & Co. N.P.H. Amarasena member of Lex Mundi Rana Aqeel Nasir Credit Information Bureau Irfan Mir Halepota Attorney Shumail Ahmad Butt Law Firm Irfan M. Butt & Sohail LLP Halepota Mr. Nasroo Haji Nasroo& Co Sharmela de Silva Muhammad Aslam Hayat Tiruchelvam Associates Aslam Hayat & Co Neelofar Nawab Rizvi, Isa, Afridi & Angell, Savantha De Saram Raja Zahid Hussain member of Lex Mundi D.L. & F. De Saram Rana Law Associates Soli Parakh Amila Fernando Mr.Hussain A.F. Ferguson & Co. Julius & Creasy Leatherware pvt. Ltd Abdul Rahman Chandrahani Gamage Rashid Ibrahim Qamar Abbas & Co. Sudath Perera Associates A.F. Ferguson & Co. Mr. Ramzan Anandhiy Gunawardhana Malik Muhammad Jamil Iqbal Niagara Mills Pvt Ltd Julius & Creasy Jamil Iqbal Law Associates Mr. Rehman Mahes Jeyadevan Tariq Nasim Jan Qulandry Traders PricewaterhouseCoopers Datacheck Pvt. Ltd. Imran Sajjad Ramani Muttettuwegama Mian Iqbal Javaid Attorney Tichurelvam Associates Attorney Mr. Salahuddin Asiri Perera Mian Iqbal Javed Ch. Sardar Industries Pvt MIT Cargo Ltd. Advocate High Court Ltd. Rujaratnam Senathi Rajah Ch.Muhammad Amin Javed Jawad A. Sarwana Julius & Creasy Amin Javed Law Associates Abraham & Sarwana J.H.P. Ratnayeke Mr. Kalimullah Mr. Shah Paul Ratnayeke Associates Abdul Nafah & Company Sky jims Diluka Rodrigo Mr. Khan Huma Shah Ata Ur Rehman Sheikh Chenab ltd Sheikh Shah Rana & Ijaz Daya Weeraratne Ch.Mushtaq Ahmad Khan Syed Nisar Ali Shah PricewaterhouseCoopers Law International Nisar Law Associates Haider Shamsi John Wilson Jr. Haider Shamsi and Co. John Wilson Partners