103374 Regional Profile 2016 South Asia (SA) Doing Business 2016 SOUTH ASIA (SA) 2 © 2016 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 18 17 16 15 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2016 SOUTH ASIA (SA) 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 22 Getting electricity ....................................................................................................................... 30 Registering property .................................................................................................................. 38 Getting credit .............................................................................................................................. 45 Protecting minority investors ................................................................................................... 51 Paying taxes ................................................................................................................................ 56 Trading across borders .............................................................................................................. 63 Enforcing contracts .................................................................................................................... 75 Resolving insolvency .................................................................................................................. 81 Distance to frontier and ease of doing business ranking ...................................................... 86 Resources on the Doing Business website .............................................................................. 89 Doing Business 2016 SOUTH ASIA (SA) 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is globally for each indicator and data for the following for a local entrepreneur to open and run a small to comparator regions: Latin America, East Asia and the medium-size business when complying with relevant Pacific (EAP), Europe and Central Asia (ECA), Middle East regulations. It measures and tracks changes in and North Africa (MENA) and OECD High Income.. The regulations affecting 11 areas in the life cycle of a data in this report are current as of June 1, 2015 (except business: starting a business, dealing with construction for the paying taxes indicators, which cover the period permits, getting electricity, registering property, getting January–December 2014). credit, protecting minority investors, paying taxes, The Doing Business methodology has limitations. Other trading across borders, enforcing contracts, resolving areas important to business—such as an economy’s insolvency and labor market regulation. Doing Business proximity to large markets, the quality of its 2016 presents the data for the labor market regulation infrastructure services (other than those related to indicators in an annex. The report does not present trading across borders and getting electricity), the rankings of economies on labor market regulation security of property from theft and looting, the indicators or include the topic in the aggregate distance transparency of government procurement, to frontier score or ranking on the ease of doing macroeconomic conditions or the underlying strength of business. institutions—are not directly studied by Doing Business. In a series of annual reports Doing Business presents The indicators refer to a specific type of business, quantitative indicators on business regulations and the generally a local limited liability company operating in protection of property rights that can be compared the largest business city. Because standard assumptions across 189 economies, from Afghanistan to Zimbabwe, are used in the data collection, comparisons and over time. The data set covers 47 economies in Sub- benchmarks are valid across economies. The data not Saharan Africa, 32 in Latin America and the Caribbean, 25 only highlight the extent of obstacles to doing business; in East Asia and the Pacific, 25 in Eastern Europe and they also help identify the source of those obstacles, Central Asia, 20 in the Middle East and North Africa and supporting policy makers in designing regulatory reform. 8 in South Asia, as well as 32 OECD high-income More information is available in the full report. Doing economies. The indicators are used to analyze economic Business 2016 presents the indicators, analyzes their outcomes and identify what reforms have worked, where relationship with economic outcomes and recommends and why. regulatory reforms. The data, along with information on This regional profile presents the Doing Business ordering the Doing Business 2016 report, are available on indicators for economies in South Asia (SA). It also the Doing Business website at shows the regional average, the best performance http://www.doingbusiness.org. Doing Business 2016 SOUTH ASIA (SA) 5 THE BUSINESS ENVIRONMENT CHANGES IN DOING BUSINESS 2016 As part of a two-year update in methodology, Doing The case study underlying the trading across borders Business 2016 expands the focus of five indicator sets indicators has been changed to increase its relevance. (dealing with construction permits, getting electricity, For each economy the export product and partner are registering property, enforcing contracts and labor now determined on the basis of the economy’s market regulation), substantially revises the comparative advantage, the import product is auto parts, methodology for one indicator set (trading across and the import partner is selected on the basis of which borders) and implements small updates to the economy has the highest trade value in that product. The methodology for another (protecting minority investors). indicators continue to measure the time and cost to export and import. The indicators on dealing with construction permits now include an index of the quality of building regulation and Beyond these changes there is one other update in its implementation. The getting electricity indicators now methodology, for the protecting minority investors include a measure of the price of electricity consumption indicators. A few points for the extent of shareholder and an index of the reliability of electricity supply and governance index have been fine-tuned, and the index transparency of tariffs. Starting this year, the registering now also measures aspects of the regulations applicable property indicators include an index of the quality of the to limited companies rather than privately held joint land administration system in each economy in addition stock companies. to the indicators on the number of procedures and the For more details on the changes, see the “What is time and cost to transfer property. And for enforcing changing in Doing Business?” chapter starting on page contracts an index of the quality and efficiency of judicial 27 of the Doing Business 2016 report. For more details processes has been added while the indicator on the on the data and methodology, please see the “Data number of procedures to enforce a contract has been Notes” chapter starting on page 119 of the Doing dropped. Business 2016 report. For more details on the distance to The scope of the labor market regulation indicator set frontier metric, please see the “Distance to frontier and has also been expanded, to include more areas capturing ease of doing business ranking” chapter in this profile. aspects of job quality. The labor market regulation indicators continue to be excluded from the aggregate distance to frontier score and ranking on the ease of doing business. Doing Business 2016 SOUTH ASIA (SA) 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s permits, getting electricity, registering property, regulatory environment for business, a good place to getting credit, protecting minority investors, paying start is to find out how it compares with the regulatory taxes, trading across borders, enforcing contracts environment in other economies. Doing Business and resolving insolvency. The labor market provides an aggregate ranking on the ease of doing regulation indicators are not included in this year’s business based on indicator sets that measure and aggregate ease of doing business ranking, but the benchmark regulations applying to domestic small to data are presented in the economy profile. medium-size businesses through their life cycle. The ease of doing business ranking compares Economies are ranked from 1 to 189 by the ease of economies with one another; the distance to frontier doing business ranking. Doing Business presents results score benchmarks economies with respect to for 2 aggregate measures: the distance to frontier score regulatory best practice, showing the absolute and the ease of doing business ranking. The ranking of distance to the best performance on each Doing economies is determined by sorting the aggregate Business indicator. When compared across years, the distance to frontier scores, rounded to two decimals. An distance to frontier score shows how much the economy’s distance to frontier score is indicated on a regulatory environment for local entrepreneurs in an scale from 0 to 100, where 0 represents the worst economy has changed over time in absolute terms, performance and 100 the frontier. (See the chapter on while the ease of doing business ranking can show the distance to frontier and ease of doing business). only how much the regulatory environment has The 10 topics included in the ranking in Doing Business changed relative to that in other economies. 2016: starting a business, dealing with construction Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy stands in regional average (figure 1.2). Another perspective is the aggregate ranking on the ease of doing business is provided by the regional average rankings on the topics useful. Also useful is to know how it ranks compared with included in the ease of doing business ranking (figure 1.3) other economies in the region and compared with the and the distance to frontier scores (figures 1.4 and 1.5). Figure 1.2 How economies in South Asia (SA) rank on the ease of doing business Note: The rankings are benchmarked to June 2015 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population- weighted average for the 2 cities. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 8 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - South Asia (SA) (Scale: Rank 189 center, Rank 1 outer edge) Regional average ranking Source: Doing Business database. Figure 1.4 Distance to frontier scores on Doing Business topics - South Asia (SA) (Scale: Score 0 center, Score 100 outer edge) Note: The rankings are benchmarked to June 2015 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respec t to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 9 Figure 1.5 How far has South Asia (SA) come in the areas measured by Doing Business? Source: Doing Business database. Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator. Starting a business is comparable to 2010. Getting credit, protecting minority investors, paying taxes and resolving insolvency had methodology changes in 2014 and thus are only comparable to 2013. Dealing with construction permits, registering property, trading across borders, enforcing contracts and getting electricity had methodology changes in 2015 and thus are only comparable to 2014. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 119 of the Doing Business 2016 report for more details on the distance to frontier score. Doing Business 2016 SOUTH ASIA (SA) 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business The absolute values of the indicators tell another part of tells only part of the story, so do changes in that ranking. the story (table 1.1). Policy makers can learn much by Yearly movements in rankings can provide some comparing the indicators for their economy with those indication of changes in an economy’s regulatory for the lowest- and highest-scoring economies in the environment for firms, but they are always relative. An region as well as those for the best performers globally. economy’s ranking might change because of These comparisons may reveal unexpected strengths in developments in other economies. An economy that an area of business regulation—such as a regulatory implemented business regulation reforms may fail to rise process that can be completed with a small number of in the rankings (or may even drop) if it is passed by procedures in a few days and at a low cost. others whose business regulation reforms had a more significant impact as measured by Doing Business. Table 1.1 Summary of Doing Business indicators for South Asia (SA) Lowest regional Best regional Best global Indicator Regional average performance performance performance Starting a Business 155 (India) 34 (Afghanistan) 96 1 (New Zealand) (rank) Starting a Business 73.59 (India) 93.05 (Afghanistan) 84.32 99.96 (New Zealand) (DTF Score) Procedures (number) 12.9 (India) 3.0 (Afghanistan) 7.9 1.0 (New Zealand*) Time (days) 29.0 (India) 7.0 (Afghanistan) 15.7 0.5 (New Zealand) Cost (% of income per 28.4 (Nepal) 4.0 (Bhutan) 14.0 0.0 (Slovenia) capita) Paid-in min. capital (% 1.7 (Maldives) 0.0 (7 Economies*) 0.2 0.0 (105 Economies*) of income per capita) Dealing with Construction Permits 185 (Afghanistan) 41 (Maldives) 103 1 (Singapore) (rank) Dealing with Construction Permits 22.94 (Afghanistan) 75.36 (Maldives) 59.92 92.97 (Singapore) (DTF Score) Procedures (number) 33.6 (India) 10.0 (3 Economies*) 15.1 7.0 (5 Economies*) Time (days) 353.0 (Afghanistan) 86.0 (Nepal) 194.6 26.0 (Singapore) Cost (% of warehouse 76.6 (Afghanistan) 0.2 (Sri Lanka) 14.7 0.0 (Qatar) value) Building quality control 1.5 (Afghanistan) 13.7 (Pakistan) 9.2 15.0 (New Zealand) index (0-15) Getting Electricity 189 (Bangladesh) 50 (Bhutan) 122 1 (Korea, Rep.) (rank) Doing Business 2016 SOUTH ASIA (SA) 11 Lowest regional Best regional Best global Indicator Regional average performance performance performance Getting Electricity 15.31 (Bangladesh) 80.09 (Bhutan) 55.37 99.88 (Korea, Rep.) (DTF Score) Procedures (number) 9.0 (Bangladesh) 4.0 (Bhutan) 5.5 3.0 (14 Economies*) Time (days) 428.9 (Bangladesh) 61.0 (Bhutan) 141.7 18.0 (Korea, Rep.*) Cost (% of income per 3,469.7 (Afghanistan) 296.8 (Maldives) 1,386.2 0.0 (Japan) capita) Reliability of supply and transparency of 0.0 (5 Economies*) 5.5 (India) 1.9 8.0 (18 Economies*) tariff index (0-8) Registering Property 185 (Bangladesh) 51 (Bhutan) 136 1 (New Zealand) (rank) Registering Property 27.48 (Bangladesh) 73.40 (Bhutan) 47.83 94.46 (New Zealand) (DTF Score) Procedures (number) 9.0 (Afghanistan*) 3.0 (Bhutan*) 6.4 1.0 (4 Economies*) Time (days) 250.0 (Afghanistan) 5.0 (Nepal) 97.6 1.0 (3 Economies*) Cost (% of property 15.9 (Maldives) 4.8 (Nepal) 7.2 0.0 (Saudi Arabia) value) Quality of the land administration index 3.0 (Afghanistan) 24.0 (Bhutan) 7.6 28.5 (3 Economies*) (0-30) Getting Credit (rank) 133 (Bangladesh) 42 (India) 105 1 (New Zealand) Getting Credit (DTF 30.00 (Bangladesh) 65.00 (India) 41.25 100.00 (New Zealand) Score) Strength of legal rights 2.0 (Maldives) 9.0 (Afghanistan) 4.9 12.0 (3 Economies*) index (0-12) Depth of credit 0.0 (3 Economies*) 7.0 (India) 3.4 8.0 (26 Economies*) information index (0-8) Credit registry 0.5 (Afghanistan) 15.6 (Maldives) 3.0 100.0 (Portugal) coverage (% of adults) Credit bureau coverage 1.3 (Nepal) 50.3 (Sri Lanka) 12.7 100.0 (22 Economies*) (% of adults) Protecting Minority 189 (Afghanistan) 8 (India) 83 1 (3 Economies*) Investors (rank) Protecting Minority 10.00 (Afghanistan) 73.33 (India) 51.46 83.33 (3 Economies*) Investors (DTF Score) Strength of minority investor protection 1.0 (Afghanistan) 7.3 (India) 5.1 8.3 (3 Economies*) index (0-10) Doing Business 2016 SOUTH ASIA (SA) 12 Lowest regional Best regional Best global Indicator Regional average performance performance performance Extent of conflict of interest regulation 1.7 (Afghanistan) 6.7 (India) 5.3 9.3 (Singapore*) index (0-10) Extent of shareholder governance index (0- 0.3 (Afghanistan) 8.0 (India) 5.0 8.0 (4 Economies*) 10) 1 (United Arab Paying Taxes (rank) 171 (Pakistan) 28 (Bhutan) 118 Emirates*) Paying Taxes (DTF 99.44 (United Arab 44.46 (Pakistan) 85.50 (Bhutan) 65.21 Score) Emirates*) Payments (number per 3.0 (Hong Kong SAR, 47.0 (Pakistan*) 18.0 (Bhutan) 31.3 year) China*) Time (hours per year) 594.0 (Pakistan) 85.0 (Bhutan) 299.3 55.0 (Luxembourg) Total tax rate (% of 60.6 (India) 29.5 (Nepal) 38.9 25.9 (Ireland) profit) Trading Across 174 (Afghanistan) 21 (Bhutan) 120 1 (16 Economies*) Borders (rank) Trading Across 28.90 (Afghanistan) 95.49 (Bhutan) 57.75 100.00 (16 Economies*) Borders (DTF Score) Time to export: Border 109 (India) 2 (Bhutan) 61 0 (15 Economies*) compliance (hours) Cost to export: Border 596 (Maldives) 59 (Bhutan) 376 0 (18 Economies*) compliance (USD) Time to export: Documentary 243 (Afghanistan) 2 (Bhutan) 80 0 (Jordan) compliance (hours) Cost to export: Documentary 344 (Afghanistan) 50 (Bhutan) 184 0 (20 Economies*) compliance (USD) Time to import: Border 287 (India) 2 (Bhutan) 114 0 (19 Economies*) compliance (hours) Cost to import: Border 1,294 (Bangladesh) 110 (Bhutan) 653 0 (28 Economies*) compliance (USD) Time to import: Documentary 336 (Afghanistan) 2 (Bhutan) 108 1 (21 Economies*) compliance (hours) Cost to import: Documentary 900 (Afghanistan) 50 (Bhutan) 349 0 (30 Economies*) compliance (USD) Doing Business 2016 SOUTH ASIA (SA) 13 Lowest regional Best regional Best global Indicator Regional average performance performance performance Enforcing Contracts 188 (Bangladesh) 50 (Bhutan) 143 1 (Singapore) (rank) Enforcing Contracts 22.21 (Bangladesh) 65.36 (Bhutan) 42.83 84.91 (Singapore) (DTF Score) Time (days) 1,642.0 (Afghanistan) 225.0 (Bhutan) 1,076.9 150.0 (Singapore) Cost (% of claim) 66.8 (Bangladesh) 16.5 (Maldives) 30.4 9.0 (Iceland) Quality of judicial 5.5 (Nepal*) 7.5 (3 Economies*) 6.5 15.5 (3 Economies*) processes index (0-18) Resolving Insolvency 189 (Bhutan) 78 (Sri Lanka) 129 1 (Finland) (rank) Resolving Insolvency 0.00 (Bhutan) 46.40 (Sri Lanka) 31.14 93.81 (Finland) (DTF Score) Recovery rate (cents on 25.7 (India) 49.7 (Maldives) 31.8 92.9 (Japan) the dollar) Time (years) 4.3 (India) 1.5 (Maldives) 2.6 0.4 (Ireland) Cost (% of estate) 25.0 (Afghanistan) 4.0 (Maldives) 10.1 1.0 (Norway) Strength of insolvency 2.0 (Maldives) 7.0 (3 Economies*) 4.5 15.0 (4 Economies*) framework index (0-16) * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Note: The global best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2016 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 14 STARTING A BUSINESS WHAT THE STARTING A BUSINESS Formal registration of companies has many INDICATORS MEASURE immediate benefits for the companies and for business owners and employees. Legal entities can Procedures to legally start and operate a outlive their founders. Resources are pooled as company (number) several shareholders join forces to start a company. Formally registered companies have access to Preregistration (for example, name services and institutions from courts to banks as well verification or reservation, notarization) as to new markets. And their employees can benefit Registration in the economy’s largest from protections provided by the law. An additional business city 1 benefit comes with limited liability companies. These Postregistration (for example, social security limit the financial liability of company owners to their registration, company seal) investments, so personal assets of the owners are not put at risk. Where governments make registration Time required to complete each procedure easy, more entrepreneurs start businesses in the (calendar days) formal sector, creating more good jobs and Does not include time spent gathering generating more revenue for the government. information What do the indicators cover? Each procedure starts on a separate day (2 procedures cannot start on the same day). Doing Business measures the ease of starting a Procedures that can be fully completed business in an economy by recording all procedures online are recorded as ½ day. officially required or commonly done in practice by an entrepreneur to start up and formally operate an Procedure completed once final document is industrial or commercial business—as well as the received time and cost required to complete these procedures. No prior contact with officials It also records the paid-in minimum capital that Cost required to complete each procedure companies must deposit before registration (or (% of income per capita) within 3 months). The ranking of economies on the ease of starting a business is determined by sorting Official costs only, no bribes their distance to frontier scores for starting a No professional fees unless services required business. These scores are the simple average of the by law distance to frontier scores for each of the component indicators. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Conducts general commercial or industrial and that there has been no prior contact with activities. officials. It also assumes that the entrepreneur will pay no bribes. And it assumes that the business:  Has a start-up capital of 10 times income per capita.  Is a limited liability company, located in the largest business city , is 100% domestically 1  Has a turnover of at least 100 times income per owned with between 10 and 50 employees. capita.  Does not qualify for any special benefits.  Does not own real estate. For the 11 economies with a population of more than 100 million, data for a second city have been added. 1 Doing Business 2016 SOUTH ASIA (SA) 15 STARTING A BUSINESS Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in South suggest an answer (figure 2.1). The average ranking of Asia (SA) to start a business? The global rankings of the region and comparator regions provide a useful these economies on the ease of starting a business benchmark. Figure 2.1 How economies in South Asia (SA) rank on the ease of starting a business Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 16 STARTING A BUSINESS The indicators underlying the rankings may be more and the paid-in minimum capital requirement (figure revealing. Data collected by Doing Business show what 2.2). Comparing these indicators across the region and it takes to start a business in each economy in the with averages both for the region and for comparator region: the number of procedures, the time, the cost regions can provide useful insights. Figure 2.2 What it takes to start a business in economies in South Asia (SA) Procedures (number) Doing Business 2016 SOUTH ASIA (SA) 17 STARTING A BUSINESS Time (days) Doing Business 2016 SOUTH ASIA (SA) 18 STARTING A BUSINESS Cost (% of income per capita) Doing Business 2016 SOUTH ASIA (SA) 19 STARTING A BUSINESS Paid-in minimum capital (% of income per capita) Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 20 STARTING A BUSINESS What are the changes over time? Economies around the world have taken steps making it often as part of a larger regulatory reform program. easier to start a business—streamlining procedures by Among the benefits have been greater firm satisfaction setting up a one-stop shop, making procedures simpler and savings and more registered businesses, financial or faster by introducing technology, and reducing or resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in South Asia (SA) (table 2.1)? Table 2.1 How have economies in South Asia (SA) made starting a business easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Afghanistan made starting a business more costly by DB2016 Afghanistan increasing the registration and publication fees. India made starting a business easier by eliminating the minimum capital requirement and the need to obtain a DB2016 India certificate to commence business operations. This reform applies to both Delhi and Mumbai. Sri Lanka made starting a business easier by eliminating the DB2016 Sri Lanka requirement to notify the Registrar of Companies of the payment of stamp duty for the initial issuance of shares. Afghanistan made starting a business more difficult by DB2015 Afghanistan increasing the publication fees and prolonging the time required for registration. India made starting a business easier by considerably reducing the registration fees, but also made it more difficult DB2015 India by introducing a requirement to file a declaration before the commencement of business operations. These changes apply to both Delhi and Mumbai. Afghanistan made starting a business easier by reducing the DB2014 Afghanistan time and cost to obtain a business license and by eliminating the inspection of the premises of newly registered companies. Bangladesh made starting a business easier by automating the registration process and reducing the time required to DB2014 Bangladesh obtain a trading license and to complete the tax and value added tax registration. Bhutan made starting a business easier by reducing the time DB2014 Bhutan required to obtain the security clearance certificate. Nepal made starting a business easier by reducing the DB2014 Nepal administrative processing time at the company registrar and by establishing a data link between agencies involved in the Doing Business 2016 SOUTH ASIA (SA) 21 DB year Economy Reform incorporation process. Sri Lanka made starting a business easier by computerizing and expediting the process of obtaining a registration DB2013 Sri Lanka number for the Employees Provident Fund and Employees Trust Fund. Bhutan eased the process of starting a business by making its DB2012 Bhutan criminal records search electronic and making the rubber company stamps available on the local market. India eased business start-up by establishing an online VAT DB2011 India registration system and replacing the physical stamp previously required with an online version. Bangladesh made business start-up easier by eliminating the DB2011 Bangladesh requirement to buy adhesive stamps and further enhancing the online registration system. Pakistan made starting a business easier by introducing an electronic registration system, allowing online registration for DB2010 Pakistan sales tax and eliminating the requirement to make the declaration of compliance on a stamped paper. Afghanistan simplified business start-up by taking company registration out of the commercial courts; establishing a new DB2010 Afghanistan company registry that acts as a one-stop shop combining company registration, tax registration and publication in the official gazette; and introducing flat registration fees. Bangladesh made starting a business easier by launching a DB2010 Bangladesh full-fledged online business name clearance and registration process. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 22 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse (number) many builders opt out. They may pay bribes to pass inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water and Doing Business records all procedures required for a sewerage business in the construction industry to build a warehouse along with the time and cost to complete Registering and selling the warehouse after its each procedure. In addition, this year Doing Business completion introduces a new measure, the building quality Time required to complete each procedure control index, evaluating the quality of building (calendar days) regulations, the strength of quality control and safety Does not include time spent gathering mechanisms, liability and insurance regimes, and information professional certification requirements. Each procedure starts on a separate day. The ranking of economies on the ease of dealing with Procedures that can be fully completed online construction permits is determined by sorting their are recorded as ½ day distance to frontier scores for dealing with construction permits. These scores are the simple Procedure considered completed once final document is received average of the distance to frontier scores for each of the component indicators. No prior contact with officials To make the data comparable across economies, Cost required to complete each procedure (% several assumptions about the construction of warehouse value) company, the warehouse project and the utility Official costs only, no bribes connections are used. Assumptions about the construction company Building quality control index (0-15) Sum of the scores of six component indices: The construction company (BuildCo): Quality of building regulations (0-2)  Is a limited liability company (or its legal equivalent). Quality control before construction (0-1)  Operates in the economy’s largest business Quality control during construction (0-3) city. For 11 economies the data are also Quality control after construction (0-3) collected for the second largest business city. Liability and insurance regimes (0-2)  Is 100% domestically and privately owned Professional certifications (0-4) with five owners, none of whom is a legal entity.  Is fully licensed and insured to carry out construction projects, such as building warehouses. Doing Business 2016 SOUTH ASIA (SA) 23 The construction company (BuildCo) (continued):  Has 60 builders and other employees, all of  Will be a new construction (there was no them nationals with the technical expertise previous construction on the land), with no and professional experience necessary to trees, natural water sources, natural reserves obtain construction permits and approvals. or historical monuments of any kind on the plot.  Has at least one employee who is a licensed architect or engineer and  Will have complete architectural and registered with the local association of technical plans prepared by a licensed architects or engineers. BuildCo is not architect. If preparation of the plans requires assumed to have any other employees who such steps as obtaining further are technical or licensed experts, such as documentation or getting prior approvals geological or topographical experts. from external agencies, these are counted as procedures.  Has paid all taxes and taken out all necessary insurance applicable to its  Will include all technical equipment required general business activity (for example, to be fully operational. accidental insurance for construction  Will take 30 weeks to construct (excluding all workers and third-person liability). delays due to administrative and regulatory  Owns the land on which the warehouse will requirements). be built and will sell the warehouse upon Assumptions about the utility connections its completion. The water and sewerage connections:  Is valued at 50 times income per capita. • Will be 150 meters (492 feet) from the Assumptions about the warehouse existing water source and sewer tap. If there is no water delivery infrastructure in the economy, a  The warehouse: borehole will be dug. If there is no sewerage  Will be used for general storage activities, infrastructure, a septic tank in the smallest size such as storage of books or stationery. The available will be installed or built. warehouse will not be used for any goods  Will not require water for fire protection requiring special conditions, such as food, reasons; a fire extinguishing system (dry chemicals or pharmaceuticals. system) will be used instead. If a wet fire  Will have two stories, both above ground, protection system is required by law, it is with a total constructed area of assumed that the water demand specified approximately 1,300.6 square meters below also covers the water needed for fire (14,000 square feet). Each floor will be 3 protection. meters (9 feet, 10 inches) high.  Will have an average water use of 662 liters  Will have road access and be located in the (175 gallons) a day and an average periurban area of the economy’s largest wastewater flow of 568 liters (150 gallons) a business city (that is, on the fringes of the day. Will have a peak water use of 1,325 liters city but still within its official limits). For 11 (350 gallons) a day and a peak wastewater economies the data are also collected for flow of 1,136 liters (300 gallons) a day. the second largest business city.  Will have a constant level of water demand • Will not be located in a special economic and wastewater flow throughout the year. or industrial zone. Will be located on a land  Will be 1 inch in diameter for the water plot of approximately 929 square meters connection and 4 inches in diameter for the (10,000 square feet) that is 100% owned by sewerage connection. BuildCo and is accurately registered in the cadastre and land registry. Doing Business 2016 SOUTH ASIA (SA) 24 DEALING WITH CONSTRUCTION PERMITS Where do the region’s economies stand today? How easy it is for entrepreneurs in economies in South construction permits suggest an answer (figure 3.1). The Asia (SA) to legally build a warehouse? The global average ranking of the region and comparator regions rankings of these economies on the ease of dealing with provide a useful benchmark. Figure 3.1 How economies in South Asia (SA) rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 25 DEALING WITH CONSTRUCTION PERMITS The indicators underlying the rankings may be more the time and the cost (figure 3.2). Comparing these revealing. Data collected by Doing Business show what it indicators across the region and with averages both for takes to comply with formalities to build a warehouse in the region and for comparator regions can provide each economy in the region: the number of procedures, useful insights. Figure 3.2 What it takes to comply with formalities to build a warehouse in economies in South Asia (SA) Procedures (number) Doing Business 2016 SOUTH ASIA (SA) 26 DEALING WITH CONSTRUCTION PERMITS Time (days) Doing Business 2016 SOUTH ASIA (SA) 27 DEALING WITH CONSTRUCTION PERMITS Cost (% of warehouse value) * Indicates a “no practice” mark. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the econom y at the bottom of the ranking on the relevant indicator. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 28 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index (0-15) * Indicates a “no practice” mark. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. Note: The index ranges from 0 to 15, with higher values indicating better quality control and safety mechanisms in the construction permitting system. The indicator is based on the same case study assumptions as the measures of efficiency. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 29 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? Smart regulation ensures that standards are met while world have worked on consolidating permitting making compliance easy and accessible to all. Coherent requirements. What construction permitting reforms has and transparent rules, efficient processes and adequate Doing Business recorded in South Asia (SA) (table 3.1)? allocation of resources are especially important in sectors where safety is at stake. Construction is one of them. In an effort to ensure building safety while keeping compliance costs reasonable, governments around the Table 3.1 How have economies in South Asia (SA) made dealing with construction permits easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Sri Lanka made dealing with construction permits less time- DB2016 Sri Lanka consuming by streamlining the internal review process for building permit applications. The Maldives made dealing with construction permits more difficult by requiring that building plans be stamped and DB2016 Maldives approved by private structural and architectural checkers prior to requesting a building permit. Nepal made dealing with construction permits easier by DB2015 Nepal implementing a new electronic building permit system. Sri Lanka made dealing with construction permits easier by DB2014 Sri Lanka eliminating the requirement to obtain a tax clearance and by reducing building permit fees. India reduced the time required to obtain a building permit DB2013 India by establishing strict time limits for preconstruction approvals. Sri Lanka made dealing with construction permits more DB2010 Sri Lanka difficult by increasing some fees and adding a procedure. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 30 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely on INDICATORS MEASURE self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity connection first step for a customer is always to gain access by (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized Obtaining external installation works and warehouse, as well as the time and cost to complete possibly purchasing material for these works them. These procedures include applications and Concluding any necessary supply contract and contracts with electricity utilities, clearances from obtaining final supply other agencies and the external and final connection works. In addition, this year Doing Business adds Time required to complete each procedure two new measures: the reliability of supply and (calendar days) transparency of tariffs index (included in the Is at least 1 calendar day aggregate distance to frontier score and ranking on Each procedure starts on a separate day the ease of doing business) and the price of electricity (omitted from these aggregate measures). Does not include time spent gathering The ranking of economies on the ease of getting information electricity is determined by sorting their distance to Reflects the time spent in practice, with little frontier scores for getting electricity. These scores follow-up and no prior contact with officials are the simple average of the distance to frontier Cost required to complete each procedure (% scores for each of the component indicators. To of income per capita) make the data comparable across economies, several assumptions are used. Official costs only, no bribes Assumptions about the warehouse Excludes value added tax The reliability of supply and transparency of The warehouse: tariffs index  Is owned by a local entrepreneur. Sum of the scores of six component indices:  Is located in the economy’s largest business Duration and frequency of outages city. For 11 economies the data are also collected for the second largest business city. Tools to monitor power outages  Is located in an area where similar warehouses Tools to restore power supply are typically located. In this area a new Regulatory monitoring of utilities’ performance electricity connection is not eligible for a Financial deterrents aimed at limiting outages special investment promotion regime (offering special subsidization or faster service, for Transparency and accessibility of tariffs example), and located in an area with no Price of electricity (cents per kilowatt-hour)* physical constraints. For example, the property Price based on monthly bill for commercial is not near a railway. warehouse in case study  Is a new construction and is being connected *Price of electricity is not included in the calculation of to electricity for the first time. distance to frontier nor ease of doing business ranking Doing Business 2016 SOUTH ASIA (SA) 31 The warehouse (continued):  Has two stories, both above ground, with Assumptions about the monthly consumption a total surface area of approximately  It is assumed that the warehouse operates 8 1,300.6 square meters (14,000 square hours a day for 30 days a month, with feet). The plot of land on which it is built equipment utilized at 80% of capacity on is 929 square meters (10,000 square feet). average, and that there are no electricity cuts  Is used for storage of goods. (assumed for simplicity). The subscribed capacity of the warehouse is 140 kVA, with a power factor of 1 (1 kVA = 1 kW). The monthly Assumptions about the electricity connection energy consumption is therefore 26,880 kWh, and the hourly consumption 112 kWh (26,880 The electricity connection: kWh/30 days/8 hours).  Is a permanent one.  If multiple electricity suppliers exist, the  Is a three-phase, four-wire Y, 140-kilovolt- warehouse is served by the cheapest supplier. ampere (kVA) (subscribed capacity) connection (where the voltage is 120/208  Tariffs effective in March of the current year are used for calculation of the price of V, the current would be 400 amperes; electricity for the warehouse. where it is 230/400 B, the current would be nearly 200 amperes).  Is 150 meters long. The connection is to either the low-voltage or the medium- voltage distribution network and either overhead or underground, whichever is more common in the area where the warehouse is located.  Requires works that involve the crossing of a 10-meter road (such as by excavation or overhead lines) but are all carried out on public land. There is no crossing of other owners’ private property because the warehouse has access to a road.  Includes only a negligible length in the customer’s private domain.  Will supply monthly electricity consumption of 26,880 kilowatt-hours (kWh).  Does not involve work to install the internal electrical wiring. This has already been completed, up to and including the customer’s service panel or switchboard and installation of the meter base. Doing Business 2016 SOUTH ASIA (SA) 32 GETTING ELECTRICITY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in South average ranking of the region and comparator regions Asia (SA) to connect a warehouse to electricity? The provide a useful benchmark. global rankings of these economies on the ease of getting electricity suggest an answer (figure 4.1). The Figure 4.1 How economies in South Asia (SA) rank on the ease of getting electricity Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 33 GETTING ELECTRICITY The indicators underlying the rankings may be more time and the cost (figure 4.2). Comparing these revealing. Data collected by Doing Business show what it indicators across the region and with averages both for takes to get a new electricity connection in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Figure 4.2 What it takes to get an electricity connection in economies in South Asia (SA) Procedures (number) Doing Business 2016 SOUTH ASIA (SA) 34 GETTING ELECTRICITY Time (days) Doing Business 2016 SOUTH ASIA (SA) 35 GETTING ELECTRICITY Cost (% of income per capita) Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 36 GETTING ELECTRICITY Reliability of supply and transparency of tariff index (0-8) Source: Doing Business database. Note: The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Doing Business 2016 SOUTH ASIA (SA) 37 GETTING ELECTRICITY What are the changes over time? Obtaining an electricity connection is essential to enable ensure safety in the connection process while keeping a business to conduct its most basic operations. In many connection costs reasonable, governments around the economies the connection process is complicated by the world have worked to consolidate requirements for multiple laws and regulations involved—covering service obtaining an electricity connection. What reforms in quality, general safety, technical standards, procurement getting electricity has Doing Business recorded in South practices and internal wiring installations. In an effort to Asia (SA) (table 4.1)? Table 4.1 How have economies in South Asia (SA) made getting electricity easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Bhutan made getting electricity easier by speeding up the DB2016 Bhutan process for obtaining a new connection. The utility in Delhi made the process for getting an electricity connection simpler and faster by eliminating the internal wiring inspection by the Electrical Inspectorate. The utility in DB2016 India Mumbai reduced the procedures and time required to connect to electricity by improving internal work processes and coordination. In India the utility in Mumbai made getting electricity less DB2015 India costly by reducing the security deposit for a new connection. Sri Lanka made getting electricity easier by improving the DB2014 Sri Lanka utility’s internal workflow and by reducing the time required to process new applications for connections. Bangladesh made getting electricity more difficult by requiring all customers to meet 7% of their electricity needs DB2013 Bangladesh through solar energy, making it necessary to install solar panels. Afghanistan made getting electricity easier by improving the DB2012 Afghanistan efficiency of the electricity department in Kabul and introducing a new fee schedule for connections. Bangladesh made getting electricity more difficult by imposing a moratorium on new electricity connections from April 2010 to DB2012 Bangladesh March 2011 because of an electricity supply shortage. This moratorium has led to long delays for customers and has increased the time to obtain an electricity connection. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 38 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. In (calendar days) addition, this year Doing Business adds a new Does not include time spent gathering measure to the set of registering property information indicators, an index of the quality of the land administration system in each economy. The Each procedure starts on a separate day. ranking of economies on the ease of registering Procedures that can be fully completed online are recorded as ½ day. property is determined by sorting their distance to frontier scores for registering property. These scores Procedure considered completed once final are the simple average of the distance to frontier document is received scores for each of the component indicators. To No prior contact with officials make the data comparable across economies, several assumptions about the parties to the Cost required to complete each procedure transaction, the property and the procedures are (% of property value) used. Official costs only, no bribes The parties (buyer and seller): No value added or capital gains taxes included  Are limited liability companies, 100% Quality of land administration index (0-30) domestically and privately owned and  Is located in a periurban commercial zone, and perform general commercial activities and no rezoning is required. are located in the economy’s largest business city .  Has no mortgages attached, has been under 2 the same ownership for the past 10 years.  Have 50 employees each, all of whom are nationals.  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value and entire condition and complies with all safety property will be transferred. standards, building codes and legal  Is registered in the land registry or cada- requirements. There is no heating system. stre, or both, and is free of title disputes. For the 11 economies with a population of more than 100 million, data for a second city have been added. 2 Doing Business 2016 SOUTH ASIA (SA) 39 REGISTERING PROPERTY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in South suggest an answer (figure 5.1). The average ranking of Asia (SA) to transfer property? The global rankings of the region and comparator regions provide a useful these economies on the ease of registering property benchmark. Figure 5.1 How economies in South Asia (SA) rank on the ease of registering property Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 40 REGISTERING PROPERTY The indicators underlying the rankings may be more time and the cost (figure 5.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to complete a property transfer in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Figure 5.2 What it takes to register property in economies in South Asia (SA) Procedures (number) Doing Business 2016 SOUTH ASIA (SA) 41 REGISTERING PROPERTY Time (days) Doing Business 2016 SOUTH ASIA (SA) 42 REGISTERING PROPERTY Cost (% of property value) * Indicates a “no practice” mark. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 43 REGISTERING PROPERTY Quality of Land Administration Index (0-30) * Indicates a “no practice” mark. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. Source: Doing Business database. Note: The index ranges from 0 to 30, with higher values indicating better quality of the land administration system. Doing Business 2016 SOUTH ASIA (SA) 44 REGISTERING PROPERTY What are the changes over time? Economies worldwide have been making it easier for buyers to use or mortgage their property earlier. What entrepreneurs to register and transfer property—such as property registration reforms has Doing Business by computerizing land registries, introducing time limits recorded in South Asia (SA) (table 5.1)? for procedures and setting low fixed fees. Many have cut the time required substantially—enabling Table 5.1 How have economies in South Asia (SA) made registering property easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Bhutan made transferring property easier by introducing a DB2016 Bhutan computerized land information system. Sri Lanka made registering property faster by introducing an DB2013 Sri Lanka electronic system at the Land Registry in Colombo. Pakistan made registering property more expensive by DB2011 Pakistan doubling the capital value tax to 4%. Bangladesh reduced the property transfer tax to 6.7% of the DB2011 Bangladesh property value. Maldives now allows registered companies to own land as DB2011 Maldives long as all company shares are owned by Maldivians. Nepal made transferring property easier by reducing the DB2010 Nepal registration fee. Afghanistan made registering property easier by reducing DB2010 Afghanistan property transfer taxes. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 45 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s financial Strength of legal rights index (0–12) history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially movable property, as security to generate capital— Depth of credit information index (0–8) while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable The ranking of economies on the ease of getting collateral (for more details on each case, see the Data credit is determined by sorting their distance to Notes section of the Doing Business 2016 report). frontier scores for getting credit. These scores are These scenarios assume that the borrower: the distance to frontier score for the strength of  Is a private limited liability company. legal rights index and the depth of credit Has its headquarters and only base of information index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2016 SOUTH ASIA (SA) 46 GETTING CREDIT Where do the region’s economies stand today? How well do the credit information systems and of these economies on the ease of getting credit suggest collateral and bankruptcy laws in economies in South an answer (figure 6.1). The average ranking of the region Asia (SA) facilitate access to credit? The global rankings and comparator regions provide a useful benchmark. Figure 6.1 How economies in South Asia (SA) rank on the ease of getting credit Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 47 GETTING CREDIT Another way to assess how well regulations and the strength of legal rights index for South Asia (SA) and institutions support lending and borrowing in the region comparators on the strength of legal rights index. Figure is to see where the region stands in the distribution of 6.3 shows the same thing for the depth of credit scores across regions. Figure 6.2 highlights the score on information index. Figure 6.2 How strong are legal rights for borrowers and lenders? Region scores on strength of legal rights index Note: Higher scores indicate that collateral and bankruptcy laws are better designed to facilitate access to credit. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 48 Figure 6.3 How much credit information is shared—and how widely? Region scores on depth of credit information index Note: Higher scores indicate the availability of more credit information, from either a credit registry or a credit bureau, to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 49 GETTING CREDIT What are the changes over time? When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in South Asia (SA) (table 6.1)? Table 6.1 How have economies in South Asia (SA) made getting credit easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Afghanistan improved access to credit information by DB2016 Afghanistan launching a credit registry. Afghanistan strengthened its secured transactions system by DB2014 Afghanistan implementing a unified collateral registry. Bhutan improved access to credit information through new regulations governing the licensing and functioning of the DB2014 Bhutan credit bureau and guaranteeing borrowers’ right to access their data. Bangladesh improved access to credit information by DB2013 Bangladesh establishing an online platform for sharing such information. Sri Lanka strengthened its secured transactions system by DB2013 Sri Lanka establishing an electronic, searchable collateral registry and issuing regulations for its operation. Bhutan improved its credit information system by launching DB2012 Bhutan the operation of a public credit registry. Nepal improved access to credit information by starting to DB2010 Nepal distribute historical data. Sri Lanka improved access to credit information through a consolidation of systems at the private credit bureau allowing DB2010 Sri Lanka all shareholder lending institutions to submit credit data, with no minimum threshhold for the loans to be reported to the database. Afghanistan strengthened its secured transactions system through a new law broadening the range of assets that can DB2010 Afghanistan be used as collateral (including future assets), allowing a general description of debts and obligations in a security agreement and permitting out-of-court enforcement of Doing Business 2016 SOUTH ASIA (SA) 50 DB year Economy Reform security interests. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 51 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of WHAT THE PROTECTING MINORITY INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. Effective regulations define related-party transactions precisely, promote clear and efficient disclosure requirements, require Extent of disclosure index (0–10) shareholder participation in major decisions of the Review and approval requirements for related-party company and set detailed standards of accountability transactions ; Disclosure requirements for related-party for company insiders. transactions What do the indicators cover? Extent of director liability index (0–10) Doing Business measures the protection of minority Ability of minority shareholders to sue and hold interested investors from conflicts of interest through one set of directors liable for prejudicial related-party transactions; indicators and shareholders’ rights in corporate Available legal remedies (damages, disgorgement of profits, governance through another. The ranking of economies fines, imprisonment, rescission of the transaction) on the strength of minority investor protections is determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the Extent of conflict of interest regulation index extent of shareholder governance index. To make the (0–10) data comparable across economies, a case study uses Simple average of the extent of disclosure, extent of director several assumptions about the business and the liability and ease of shareholder indices transaction. Extent of shareholder rights index (0-10) The business (Buyer): Shareholders’ rights and role in major corporate decisions  Is a publicly traded corporation listed on the economy’s most important stock exchange Extent of ownership and control index (0-10) (or at least a large private company with Governance safeguards protecting shareholders from undue multiple shareholders). board control and entrenchment  Has a board of directors and a chief executive Extent of corporate transparency index (0-10) officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Corporate transparency on ownership stakes, compensation, specifically required by law. audits and financial prospects The transaction involves the following details: Extent of shareholder governance index (0–  Mr. James, a director and the majority 10) shareholder of the company, proposes that Simple average of the extent of shareholders rights, extent the company purchase used trucks from of ownership and control and extent of corporate another company he owns. transparency indices  The price is higher than the going price for Strength of investor protection index (0–10) used trucks, but the transaction goes forward. Simple average of the extent of conflict of interest  All required approvals are obtained, and all regulation and extent of shareholder governance indices required disclosures made, though the transaction is prejudicial to Buyer.  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2016 SOUTH ASIA (SA) 52 PROTECTING MINORITY INVESTORS Where do the region’s economies stand today? How strong are investor protections against self-dealing does not measure all aspects related to the protection of in economies in South Asia (SA)? The global rankings of minority investors, a higher ranking does indicate that an these economies on the strength of investor protection economy’s regulations offer stronger investor index suggest an answer (figure 7.1). While the indicator protections against self-dealing in the areas measured. Figure 7.1 How economies in South Asia (SA) rank on the strength of investor protection index Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 53 PROTECTING MINORITY INVESTORS The strength of minority investor protection index is the highlight the scores on the various minority investor average of the extent of conflict of interest regulation protection indices for South Asia (SA). Comparing the index and the extent of shareholder governance index. scores across the region and with averages both for the The index ranges from 0 to 10, rounded to the nearest region and for comparator regions can provide useful decimal place, with higher values indicating stronger insights. minority investor protections. Figures 7.2 and 7.3 Figure 7.2 How extensive are conflict of interest regulations? Extent of conflict of interest regulation index (0-10) Note: Higher values indicate stronger regulation of conflicts of interest. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 54 Figure 7.3 How extensive is shareholder governance? Extent of shareholder governance index (0-10) Note: Higher scores indicate stronger rights of shareholders in corporate governance. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 55 PROTECTING MINORITY INVESTORS What are the changes over time? Economies with the strongest protections of minority reforms to strengthen minority investor protections may investors from self-dealing require detailed disclosure move ahead on different fronts—such as through new or and define clear duties for directors. They also have well- amended company laws, securities regulations or functioning courts and up-to-date procedural rules that revisions to court procedures. What minority investor give minority shareholders the means to prove their case protection reforms has Doing Business recorded in South and obtain a judgment within a reasonable time. So Asia (SA) (table 7.1)? Table 7.1 How have economies in South Asia (SA) strengthened minority investor protections—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform India strengthened minority investor protections by requiring greater disclosure of conflicts of interest by board members, increasing the remedies available in case of prejudicial DB2015 India related-party transactions and introducing additional safeguards for shareholders of privately held companies. This reform applies to both Delhi and Mumbai. Sri Lanka strengthened investor protections by requiring DB2012 Sri Lanka greater corporate disclosure in case of transactions between interested parties. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 56 WHAT THE PAYING TAXES INDICATORS PAYING TAXES Taxes are essential. The level of tax rates needs to MEASURE be carefully chosen—and needless complexity in tax rules avoided. Firms in economies that rank Tax payments for a manufacturing company better on the ease of paying taxes in the Doing in 2014 (number per year adjusted for Business study tend to perceive both tax rates and electronic and joint filing and payment) tax administration as less of an obstacle to Total number of taxes and contributions paid, business according to the World Bank Enterprise including consumption taxes (value added tax, Survey research. sales tax or goods and service tax) Method and frequency of filing and payment What do the indicators cover? Time required to comply with 3 major taxes Using a case scenario, Doing Business records the (hours per year) taxes and mandatory contributions that a medium- size company must pay in a given year as well as Collecting information and computing the tax measures of the administrative burden of paying payable taxes and contributions. This case scenario uses a set Completing tax return forms, filing with of financial statements and assumptions about proper agencies transactions made over the year. Information is also Arranging payment or withholding compiled on the frequency of filing and payments as well as time taken to comply with tax laws. The Preparing separate tax accounting books, if ranking of economies on the ease of paying taxes is required determined by sorting their distance to frontier Total tax rate (% of profit before all taxes) scores on the ease of paying taxes. These scores are the simple average of the distance to frontier scores Profit or corporate income tax for each of the component indicators, with a Social contributions and labor taxes paid by threshold and a nonlinear transformation applied to the employer one of the component indicators, the total tax rate . 3 Property and property transfer taxes The financial statement variables have been updated to be proportional to 2012 income per capita; Dividend, capital gains and financial previously they were proportional to 2005 income transactions taxes per capita. To make the data comparable across Waste collection, vehicle, road and other taxes economies, several assumptions are used.  Taxes and mandatory contributions are  TaxpayerCo is a medium-size business that measured at all levels of government. started operations on January 1, 2013.  Taxes and mandatory contributions include  The business starts from the same financial corporate income tax, turnover tax and all position in each economy. All the taxes labor taxes and contributions paid by the and mandatory contributions paid during company. the second year of operation are recorded.  A range of standard deductions and exemptions are also recorded. The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. 3 The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax rate below this threshold receive the same score as the economy at the threshold. Doing Business 2016 SOUTH ASIA (SA) 57 PAYING TAXES Where do the region’s economies stand today? What is the administrative burden of complying with information for assessing the tax compliance burden for taxes in economies in South Asia (SA)—and how much businesses (figure 8.1). The average ranking of the region do firms pay in taxes? The global rankings of these provides a useful benchmark. economies on the ease of paying taxes offer useful Figure 8.1 How economies in South Asia (SA) rank on the ease of paying taxes Note: All economies with a total tax rate below the threshold of 26.1% applied in DB2015, receive the same distance to frontier score for the total tax rate (a distance to frontier score of 100 for the total tax rate) for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 58 PAYING TAXES The indicators underlying the rankings may be more major taxes (corporate income tax, VAT or sales tax and revealing. Data collected by Doing Business show what it labor taxes and mandatory contributions)—as well as the takes to comply with tax regulations in each economy in total tax rate (figure 8.2). Comparing these indicators the region—the number of payments per year and the across the region and with averages both for the region time required to prepare, and file and pay taxes the 3 and for comparator regions can provide useful insights. Figure 8.2 How easy is it to pay taxes in economies in South Asia (SA)—and what are the total tax rates? Payments (number per year) Doing Business 2016 SOUTH ASIA (SA) 59 PAYING TAXES Time (hours per year) Doing Business 2016 SOUTH ASIA (SA) 60 PAYING TAXES Total tax rate (% of profit) Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 61 PAYING TAXES What are the changes over time? Economies around the world have made paying taxes concrete results. Some economies simplifying faster and easier for businesses—such as by compliance with tax obligations and reducing rates have consolidating filings, reducing the frequency of seen tax revenue rise. What tax reforms has Doing payments or offering electronic filing and payment. Business recorded in South Asia (SA) (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How have economies in South Asia (SA) made paying taxes easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Bangladesh made paying taxes less costly for companies by DB2016 Bangladesh reducing the corporate income tax rate. This reform applies to both Chittagong and Dhaka. Maldives made paying taxes easier for companies by introducing more payment counters at the tax authority and DB2016 Maldives express counters at peak periods. At the same time, Maldives introduced additional disclosure requirements for filing corporate income tax returns. Sri Lanka made paying taxes more costly for companies by DB2015 Sri Lanka increasing the reduced corporate income tax rate for qualifying small and medium-size enterprises. Sri Lanka made paying taxes easier for companies by DB2014 Sri Lanka introducing an electronic filing system for social security contributions. Maldives made paying taxes easier for companies by DB2014 Maldives introducing electronic filing systems for corporate income tax, sales tax and pension contributions. Maldives introduced a goods and service tax, a business DB2013 Maldives profit tax and additional social contributions. DB2012 Pakistan Pakistan increased the profit tax rate for small firms. India eased the administrative burden of paying taxes for DB2012 India firms by introducing mandatory electronic filing and payment for value added tax. Doing Business 2016 SOUTH ASIA (SA) 62 DB year Economy Reform Sri Lanka made paying taxes less costly for businesses by abolishing the turnover tax and social security contribution DB2012 Sri Lanka and by reducing corporate income tax, value added tax and national building tax rates. India reduced the administrative burden of paying taxes by DB2011 India abolishing the fringe benefit tax and improving electronic payment. DB2011 Sri Lanka Bangladesh made paying taxes less costly for companies by DB2010 Bangladesh reducing the corporate income tax rate—though it also increased the capital gains tax rate. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 63 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE FOR IMPORT & EXPORT business. Excessive document requirements, burdensome customs procedures, inefficient port Documentary compliance – cost (US$) & time operations and inadequate infrastructure all lead to (hours) extra costs and delays for exporters and importers, stifling trade potential. Obtain, prepare and submit documents: What do the indicators cover? -During transport, clearance, inspections and port or border handling in origin economy Doing Business records the time and cost associated with the logistical process of exporting and -Required by origin, transit and destination economies importing goods. Under the new methodology introduced this year, Doing Business measures the Covers all documents by law and in practice time and cost (excluding tariffs) associated with three Border compliance – cost (US$) & time sets of procedures—documentary compliance, (hours) border compliance and domestic transport—within the overall process of exporting or importing a Customs clearance and inspections shipment of goods. The ranking of economies on the Inspections by other agencies ease of trading across borders is determined by Port or border handling sorting their distance to frontier scores for trading across borders. These scores are the simple average Obtaining, preparing and submitting of the distance to frontier scores for the time and documents during clearance, inspections and port or border handling cost for documentary compliance and border compliance to export and import. Domestic transport* Loading and unloading of shipment To make the data comparable across economies, a few assumptions are made about the traded goods Transport between warehouse and terminal/port and the transactions: Transport between terminal/port and border Time Obtaining, preparing and submitting  Time is measured in hours, and 1 day is 24 documents during domestic transport hours (for example, 22 days are recorded Traffic delays and road police checks while as 22 × 24 = 528 hours). If customs shipment is en route clearance takes 7.5 hours, the data are recorded as is. Alternatively, suppose that * Although Doing Business collects and publishes data on documents are submitted to a customs the time and cost for domestic transport, it does not use agency at 8:00 a.m., are processed these data in calculating the distance to frontier score for overnight and can be picked up at 8:00 trading across borders or the ranking on the ease of trading a.m. the next day. In this case the time for across borders. customs clearance would be recorded as Cost 24 hours because the actual procedure  Insurance cost and informal payments for took 24 hours. which no receipt is issued are excluded from the costs recorded. Costs are reported in U.S. dollars. Contributors are asked to convert local currency into U.S. dollars based on the exchange rate prevailing on the day they answer the questionnaire. Doing Business 2016 SOUTH ASIA (SA) 64 Assumptions of the case study  For each of the 189 economies covered by  Shipping cost based on weight is assumed to Doing Business, it is assumed that a shipment be greater than shipping cost based on travels from a warehouse in the largest business volume. city of the exporting economy to a warehouse  If government fees are determined by the in the largest business city of the importing value of the shipment, the value is assumed economy. For 11 economies the data are also to be $50,000. collected, under the same case study assumptions, for the second largest business  The product is new, not secondhand or used city. merchandise.  The import and export case studies assume  The exporting firm is responsible for hiring different traded products. It is assumed that and paying for a freight forwarder or customs each economy imports a standardized shipment broker (or both) and pays for all costs related of 15 metric tons of containerized auto parts to international shipping, domestic transport, (HS 8708) from its natural import partner—the clearance and mandatory inspections by economy from which it imports the largest value customs and other government agencies, port (price times quantity) of auto parts. It is or border handling, documentary compliance assumed that each economy exports the fees and the like for exports. The importing product of its comparative advantage (defined firm is responsible for the above costs for by the largest export value) to its natural export imports. partner—the economy that is the largest  The mode of transport is the one most widely purchaser of this product. Precious metal and used for the chosen export or import product gems, live animals and pharmaceuticals are and the trading partner, as is the seaport, excluded from the list of possible export airport or land border crossing. products, however, and the second largest product category is considered as needed.  All electronic submissions of information requested by any government agency in  To identify the trading partners and export connection with the shipment are considered product for each economy, Doing Business to be documents obtained, prepared and collected data on trade flows for the most submitted during the export or import recent four-year period from international process. databases such as the United Nations Commodity Trade Statistics Database (UN  A port or border is defined as a place Comtrade). For economies for which trade flow (seaport, airport or land border crossing) data were not available, data from ancillary where merchandise can enter or leave an government sources (various ministries and economy. departments) and World Bank Group country  Government agencies considered relevant offices were used to identify the export product are agencies such as customs, port and natural trading partners. authorities, road police, border guards,  A shipment is a unit of trade. Export shipments standardization agencies, ministries or do not necessarily need to be containerized, departments of agriculture or industry, while import shipments of auto parts are national security agencies and any other assumed to be containerized. government authorities. Doing Business 2016 SOUTH ASIA (SA) 65 TRADING ACROSS BORDERS Where do the region’s economies stand today? How easy it is for businesses in economies in South Asia suggest an answer (figure 9.1). The average ranking of (SA) to export and import goods? The global rankings of the region and comparator regions provide a useful these economies on the ease of trading across borders benchmark. Figure 9.1 How economies in South Asia (SA) rank on the ease of trading across borders Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 66 TRADING ACROSS BORDERS The indicators reported here are for trading a shipment and import is collected from local freight forwarders, of goods by the most widely used mode of transport customs brokers and traders. Comparing these indicators (whether sea, land, air or some combination of these). across the region and with averages both for the region The information on the time and cost to complete export and for comparator regions can provide useful insights. Figure 9.2 What it takes to trade across borders in economies in South Asia (SA) Time to export: Border compliance (hours) Doing Business 2016 SOUTH ASIA (SA) 67 TRADING ACROSS BORDERS Cost to export: Border compliance (USD) Doing Business 2016 SOUTH ASIA (SA) 68 TRADING ACROSS BORDERS Time to export: Documentary compliance (hours) Doing Business 2016 SOUTH ASIA (SA) 69 TRADING ACROSS BORDERS Cost to export: Documentary compliance (USD) Doing Business 2016 SOUTH ASIA (SA) 70 TRADING ACROSS BORDERS Time to import: Border compliance (hours) Doing Business 2016 SOUTH ASIA (SA) 71 TRADING ACROSS BORDERS Cost to import: Border compliance (USD) Doing Business 2016 SOUTH ASIA (SA) 72 TRADING ACROSS BORDERS Time to import: Documentary compliance (hours) Doing Business 2016 SOUTH ASIA (SA) 73 TRADING ACROSS BORDERS Cost to import: Documentary compliance (USD) Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 74 TRADING ACROSS BORDERS What are the changes over time? In economies around the world, trading across borders systems. These changes help improve their trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing Business tools to facilitate trade—including single windows, risk- recorded in South Asia (SA) (table 9.1)? based inspections and electronic data interchange Table 9.1 How have economies in South Asia (SA) made trading across borders easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Bangladesh made trading across borders easier by introducing a fully automated, computerized customs data DB2015 Bangladesh management system, ASYCUDA (Automated System for Customs Data) World. This reform applies to both Chittagong and Dhaka. Pakistan made trading across borders easier by introducing a fully automated, computerized system (the Web-Based One DB2015 Pakistan Customs system) for the submission and processing of export and import documents. This reform applies to both Lahore and Karachi. Sri Lanka made trading across borders easier by introducing DB2014 Sri Lanka an electronic payment system for port services. Sri Lanka reduced the time to export by implementing the DB2013 Sri Lanka ASYCUDA World electronic data interchange system. Pakistan reduced the time to export by improving electronic communication between the Karachi Port authorities and the DB2011 Pakistan private terminals, which have also boosted efficiency by introducing new equipment. Bangladesh reduced the time required to clear goods by DB2010 Bangladesh automating customs clearance procedures at the Chittagong port. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 75 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent Time required to enforce a contract through courts encourage new business relationships because the courts (calendar days) businesses know they can rely on the courts if a new customer fails to pay. Speedy trials are essential for Time to file and serve the case small enterprises, which may lack the resources to Time for trial and to obtain the judgment stay in business while awaiting the outcome of a long court dispute. Time to enforce the judgment What do the indicators cover? Cost required to enforce a contract through the courts (% of claim) Doing Business measures the time and cost for resolving a standardized commercial dispute through Attorney fees a local first-instance court. In addition, this year it Court fees introduces a new measure, the quality of judicial Enforcement fees processes index, evaluating whether each economy has adopted a series of good practices that promote Quality of judicial processes index (0-18) quality and efficiency in the court system. This new Court structure and proceedings (0-5) index replaces the indicator on procedures, which was eliminated this year. The ranking of economies Case management (0-6) on the ease of enforcing contracts is determined by Court automation (0-4) sorting their distance to frontier scores. These scores Alternative dispute resolution (0-3) are the simple average of the distance to frontier scores for each of the component indicators The dispute in the case study involves the breach of a  The value of the dispute is 200% of the sales contract between 2 domestic businesses. The income per capita or the equivalent in local case study assumes that the court hears an expert on currency of USD 5,000, whichever is greater. the quality of the goods in dispute. This distinguishes  The seller sues the buyer before the court the case from simple debt enforcement. To make the with jurisdiction over commercial cases worth data comparable across economies, Doing Business 200% of income per capita or $5,000. uses several assumptions about the case:  The seller requests a pretrial attachment to  The dispute concerns a lawful transaction secure the claim. between two businesses (Seller and Buyer), both located in the economy’s largest  The dispute on the quality of the goods business city. For 11 economies the data requires an expert opinion. are also collected for the second largest  The judge decides in favor of the seller; there business city. is no appeal.  The buyer orders custom-made goods,  The seller enforces the judgment through a then fails to pay. public sale of the buyer’s movable assets. Doing Business 2016 SOUTH ASIA (SA) 76 ENFORCING CONTRACTS Where do the region’s economies stand today? How efficient is the process of resolving a commercial ease of enforcing contracts suggest an answer (figure dispute through the courts in economies in South Asia 10.1). The average ranking of the region and comparator (SA)? The global rankings of these economies on the regions provide a useful benchmark. Figure 10.1 How economies in South Asia (SA) rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 77 ENFORCING CONTRACTS The indicators underlying the rankings may also be judicial processes index (figure 10.2). Comparing these revealing. Data collected by Doing Business show what it indicators across the region and with averages both for takes to enforce a contract through the courts in each the region and for comparator regions can provide economy in the region: the time, the cost and quality of useful insights. Figure 10.2 What it takes to enforce a contract through the courts in economies in South Asia (SA) Time (days) Doing Business 2016 SOUTH ASIA (SA) 78 ENFORCING CONTRACTS Cost (% of claim) Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 79 ENFORCING CONTRACTS Quality of Judicial Processes Index (0-18) Source: Doing Business database. Note: Higher values indicate more efficient judicial processes. Doing Business 2016 SOUTH ASIA (SA) 80 ENFORCING CONTRACTS What are the changes over time? Economies in all regions have improved contract reducing backlogs by introducing periodic reviews to enforcement in recent years. A judiciary can be improved clear inactive cases from the docket and by making in different ways. Higher-income economies tend to look procedures faster. What reforms making it easier (or for ways to enhance efficiency by introducing new more difficult) to enforce contracts has Doing Business technology. Lower-income economies often work on recorded in South Asia (SA) (table 10.1)? Table 10.1 How have economies in South Asia (SA) made enforcing contracts easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform Nepal improved oversight and monitoring in the court, DB2012 Nepal speeding up the process for filing claims. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 81 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses to normal operation and increase returns to Time required to recover debt (years) creditors. By clarifying the expectations of creditors Measured in calendar years and debtors about the outcome of insolvency Appeals and requests for extension are proceedings, well-functioning insolvency systems can included facilitate access to finance, save more viable businesses and sustainably grow the economy. Cost required to recover debt (% of debtor’s estate) What do the indicators cover? Doing Business studies the time, cost and outcome of Measured as percentage of estate value insolvency proceedings involving domestic legal Court fees entities. These variables are used to calculate the Fees of insolvency administrators recovery rate, which is recorded as cents on the dollar recovered by secured creditors through Lawyers’ fees reorganization, liquidation or debt enforcement Assessors’ and auctioneers’ fees (foreclosure or receivership) proceedings. To Other related fees determine the present value of the amount recovered by creditors, Doing Business uses the Outcome lending rates from the International Monetary Fund, Whether business continues operating as a supplemented with data from central banks and the going concern or business assets are sold Economist Intelligence Unit. piecemeal In addition, Doing Business evaluates the adequacy Recovery rate for creditors and integrity of the existing legal framework applicable to liquidation and reorganization Measures the cents on the dollar recovered by proceedings through the strength of insolvency secured creditors framework index. The index tests whether economies Outcome for the business (survival or not) adopted internationally accepted good practices in determines the maximum value that can be four areas: commencement of proceedings, recovered management of debtor’s assets, reorganization Official costs of the insolvency proceedings are proceedings and creditor participation. deducted The ranking of economies on the ease of resolving Depreciation of furniture is taken into account insolvency is determined by sorting their distance to frontier scores for resolving insolvency. These scores Present value of debt recovered are the simple average of the distance to frontier Strength of insolvency framework index (0- scores for the recovery rate and the strength of 16) insolvency framework index. The Resolving Sum of the scores of four component indices: Insolvency indicator does not measure insolvency proceedings of individuals and financial institutions. Commencement of proceedings index (0-3) The data are derived from questionnaire responses Management of debtor’s assets index (0-6) by local insolvency practitioners and verified through a study of laws and regulations as well as public Reorganization proceedings index (0-3) information on bankruptcy systems. Creditor participation index (0-4) Doing Business 2016 SOUTH ASIA (SA) 82 RESOLVING INSOLVENCY Where do the region’s economies stand today? How efficient are insolvency proceedings in economies in comparator regions provide a useful benchmark for South Asia (SA)? The global rankings of these economies assessing the efficiency of insolvency proceedings. on the ease of resolving insolvency suggest an answer Speed, low costs and continuation of viable businesses (figure 11.1). The average ranking of the region and characterize the top-performing economies. Figure 11.1 How economies in South Asia (SA) rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 83 RESOLVING INSOLVENCY The indicators underlying the rankings may be more these indicators across the region and with averages revealing. Data collected by Doing Business show the both for the region and for comparator regions can average recovery rate and the average strength of provide useful insights. insolvency framework index (figure 11.2). Comparing Figure 11.2 How efficient is the insolvency process in economies in South Asia (SA) Recovery Rate (0–100) Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 84 Total Strength of Insolvency Framework index (0-16) Source: Doing Business database. * Indicates a “no practice” mark. See the data notes for details. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. Source: Doing Business database. Note: Higher values indicate insolvency legislation that is better designed for rehabilitating viable firms and liquidating nonviable ones. Doing Business 2016 SOUTH ASIA (SA) 85 RESOLVING INSOLVENCY What are the changes over time? A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in South Asia (SA) (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How have economies in South Asia (SA) made resolving insolvency easier—or not? By Doing Business report year DB2011 to DB2016 DB year Economy Reform India made resolving insolvency easier by increasing the DB2010 India effectiveness of processes and thereby reducing the time required. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2016 SOUTH ASIA (SA) 86 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING Doing Business presents results for two aggregate even though it is no longer at the frontier in a measures: the distance to frontier score and the ease of subsequent year. doing business ranking, which is based on the distance For scores such as those on the strength of legal rights to frontier score. The ease of doing business ranking index or the quality of land administration index, the compares economies with one another; the distance to frontier is set at the highest possible value. For the total frontier score benchmarks economies with respect to tax rate, consistent with the use of a threshold in regulatory best practice, showing the absolute distance calculating the rankings on this indicator, the frontier is to the best performance on each Doing Business defined as the total tax rate at the 15th percentile of the indicator. When compared across years, the distance to overall distribution for all years included in the analysis frontier score shows how much the regulatory up to and including Doing Business 2015. For the time to environment for local entrepreneurs in an economy has pay taxes the frontier is defined as the lowest time changed over time in absolute terms, while the ease of recorded among all economies that levy the three major doing business ranking can show only how much the taxes: profit tax, labor taxes and mandatory regulatory environment has changed relative to that in contributions, and value added tax (VAT) or sales tax. For other economies. the different times to trade across borders, the frontier is Distance to Frontier defined as 1 hour even though in many economies the time is less than that. The distance to frontier score captures the gap between an economy’s performance and a measure of best In the same formulation, to mitigate the effects of practice across the entire sample of 36 indicators for 10 extreme outliers in the distributions of the rescaled data Doing Business topics (the labor market regulation for most component indicators (very few economies indicators are excluded). For starting a business, for need 700 days to complete the procedures to start a example, the former Yugoslav Republic of Macedonia business, but many need 9 days), the worst performance and New Zealand have the smallest number of is calculated after the removal of outliers. The definition procedures required (1), and New Zealand the shortest of outliers is based on the distribution for each time to fulfill them (0.5 days). Slovenia has the lowest component indicator. To simplify the process two rules cost (0.0), and Australia, Colombia and 103 other were defined: the 95th percentile is used for the economies have no paid-in minimum capital indicators with the most dispersed distributions requirement (table 14.1 in the Doing Business 2016 (including minimum capital, number of payments to pay report). taxes, and the time and cost indicators), and the 99th percentile is used for number of procedures. No outlier is Calculation of the distance to frontier score removed for component indicators bound by definition Calculating the distance to frontier score for each or construction, including legal index scores (such as the economy involves two main steps. In the first step depth of credit information index, extent of conflict of individual component indicators are normalized to a interest regulation index and strength of insolvency common unit where each of the 36 component framework index) and the recovery rate (figure 14.1). indicators y (except for the total tax rate) is rescaled In the second step for calculating the distance to frontier using the linear transformation (worst − y)/(worst − score, the scores obtained for individual indicators for frontier). In this formulation the frontier represents the each economy are aggregated through simple averaging best performance on the indicator across all economies into one distance to frontier score, first for each topic since 2005 or the third year in which data for the and then across all 10 topics: starting a business, dealing indicator were collected. Both the best performance and with construction permits, getting electricity, registering the worst performance are established every five years property, getting credit, protecting minority investors, based on the Doing Business data for the year in which paying taxes, trading across borders, enforcing contracts they are established, and remain at that level for the five and resolving insolvency. More complex aggregation years regardless of any changes in data in interim years. methods—such as principal components and Thus an economy may set the frontier for an indicator unobserved components—yield a ranking nearly Doing Business 2016 SOUTH ASIA (SA) 87 identical to the simple average used by Doing Business . than it would have had before (line D is bigger than line 4 Thus Doing Business uses the simplest method: C in figure 14.2 of the Doing Business 2016 report). weighting all topics equally and, within each topic, giving The nonlinear transformation is not based on any equal weight to each of the topic components . 5 economic theory of an “optimal tax rate” that minimizes An economy’s distance to frontier score is indicated on a distortions or maximizes efficiency in an economy’s scale from 0 to 100, where 0 represents the worst overall tax system. Instead, it is mainly empirical in performance and 100 the frontier. All distance to frontier nature. The nonlinear transformation along with the calculations are based on a maximum of five decimals. threshold reduces the bias in the indicator toward However, indicator ranking calculations and the ease of economies that do not need to levy significant taxes on doing business ranking calculations are based on two companies like the Doing Business standardized case decimals. study company because they raise public revenue in other ways—for example, through taxes on foreign The difference between an economy’s distance to companies, through taxes on sectors other than frontier score in any previous year and its score in 2015 manufacturing or from natural resources (all of which are illustrates the extent to which the economy has closed outside the scope of the methodology). In addition, it the gap to the regulatory frontier over time. And in any acknowledges the need of economies to collect taxes given year the score measures how far an economy is from firms. from the best performance at that time. Calculation of scores for economies with 2 cities Treatment of the total tax rate covered The total tax rate component of the paying taxes For each of the 11 economies in which Doing Business indicator set enters the distance to frontier calculation in collects data for the second largest business city as well a different way than any other indicator. The distance to as the largest one, the distance to frontier score is frontier score obtained for the total tax rate is calculated as the population-weighted average of the transformed in a nonlinear fashion before it enters the distance to frontier scores for these two cities (table distance to frontier score for paying taxes. As a result of 13.1). This is done for the aggregate score, the scores for the nonlinear transformation, an increase in the total tax each topic and the scores for all the component rate has a smaller impact on the distance to frontier indicators for each topic. score for the total tax rate—and therefore on the distance to frontier score for paying taxes—for economies with a below-average total tax rate than it would have had before this approach was adopted in Doing Business 2015 (line B is smaller than line A in figure 14.2 of the Doing Business 2016 report). And for economies with an extreme total tax rate (a rate that is very high relative to the average), an increase has a greater impact on both these distance to frontier scores 4 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less importance in the context of a specific economy. 5 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned to the strength of legal rights index and 40% to the depth of credit information index. Indicators for all other topics are assigned equal weights Doing Business 2016 SOUTH ASIA (SA) 88 Table 13.1 Weights used in calculating the distance to implemented regulatory reforms making it easier to do frontier scores for economies with 2 cities covered business in 3 or more of the 10 topics included in this year’s aggregate distance to frontier score. Changes Economy City Weight (%) making it more difficult to do business are subtracted Dhaka 78 Bangladesh from the total number of those making it easier to do Chittagong 22 São Paulo 61 business. Twenty-four economies meet this criterion: Brazil Armenia; Azerbaijan; Benin; Costa Rica; Côte d’Ivoire; Rio de Janeiro 39 Shanghai 55 Cyprus; Hong Kong SAR, China; Indonesia; Jamaica; China Beijing 45 Kazakhstan; Kenya; Lithuania; Madagascar; Mauritania; Mumbai 47 Morocco; Romania; the Russian Federation; Rwanda; India Delhi 53 Senegal; Togo; Uganda; the United Arab Emirates; Jakarta 78 Uzbekistan; and Vietnam. Second, Doing Business sorts Indonesia Surabaya 22 these economies on the increase in their distance to Tokyo 65 Japan frontier score from the previous year using comparable Osaka 35 data. Mexico City 83 Mexico Monterrey 17 Selecting the economies that implemented regulatory Lagos 77 reforms in at least three topics and had the biggest Nigeria Kano 23 improvements in their distance to frontier scores is Karachi 65 intended to highlight economies with ongoing, broad- Pakistan Lahore 35 based reform programs. The improvement in the Moscow 70 Russian Federation distance to frontier score is used to identify the top St. Petersburg 30 New York 60 improvers because this allows a focus on the absolute United States improvement—in contrast with the relative improvement Los Angeles 40 Source: United Nations, Department of Economic and Social shown by a change in rankings—that economies have Affairs, Population Division, World Urbanization Prospects, made in their regulatory environment for business. 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Ease of Doing Business ranking Economies that improved the most across 3 or more The ease of doing business ranking ranges from 1 to 189. Doing Business topics in 2014/15 The ranking of economies is determined by sorting the Doing Business 2016 uses a simple method to calculate aggregate distance to frontier scores, rounded to 2 decimals. which economies improved the ease of doing business the most. First, it selects the economies that in 2014/15 Doing Business 2016 SOUTH ASIA (SA) 89 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 11,400 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 136 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, case studies and repreneurship customized economy and regional profiles http://www.doingbusiness.org/reports Distance to frontier Data benchmarking 189 economies to the frontier Methodology in regulatory practice and a distance to frontier The methodologies and research papers underlying calculator Doing Business http://www.doingbusiness.org/data/distance-to- http://www.doingbusiness.org/methodology frontier Research Information on good practices Abstracts of papers on Doing Business topics and Showing where the many good practices identified related policy issues by Doing Business have been adopted http://www.doingbusiness.org/research http://www.doingbusiness.org/data/good-practice Doing Business reforms Short summaries of DB2016 business regulation reforms and lists of reforms since DB2008 http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2016 SOUTH ASIA (SA) 90