Doing Business 2017 Indonesia Economy Profile 2017 Indonesia Doing Business 2017 Indonesia 2 © 2017 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 19 18 17 16 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 2017 Indonesia 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 17 Dealing with construction permits ........................................................................................... 36 Getting electricity ....................................................................................................................... 58 Registering property .................................................................................................................. 71 Getting credit .............................................................................................................................. 87 Protecting minority investors ................................................................................................... 94 Paying taxes .............................................................................................................................. 101 Trading across borders ............................................................................................................ 108 Enforcing contracts .................................................................................................................. 115 Resolving insolvency ................................................................................................................ 125 Labor market regulation ......................................................................................................... 132 Distance to frontier and ease of doing business ranking .................................................... 138 Resources on the Doing Business website ............................................................................ 141 Doing Business 2017 Indonesia 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is also provides data for other selected economies for a local entrepreneur to open and run a small to (comparator economies) for each indicator. The data in medium-size business when complying with relevant this report are current as of June 1, 2016 (except for the regulations. It measures and tracks changes in paying taxes indicators, which cover the period January– regulations affecting 11 areas in the life cycle of a December 2015). business: starting a business, dealing with construction The Doing Business methodology has limitations. Other permits, getting electricity, registering property, getting areas important to business—such as an economy’s credit, protecting minority investors, paying taxes, proximity to large markets, the quality of its trading across borders, enforcing contracts, resolving infrastructure services (other than those related to insolvency and labor market regulation. Doing Business trading across borders and getting electricity), the 2017 presents the data for the labor market regulation security of property from theft and looting, the indicators in an annex. The report does not present transparency of government procurement, rankings of economies on labor market regulation macroeconomic conditions or the underlying strength of indicators or include the topic in the aggregate distance institutions—are not directly studied by Doing Business. to frontier score or ranking on the ease of doing The indicators refer to a specific type of business, business. generally a local limited liability company operating in In a series of annual reports Doing Business presents the largest business city. Because standard assumptions quantitative indicators on business regulations and the are used in the data collection, comparisons and protection of property rights that can be compared benchmarks are valid across economies. The data not across 190 economies, from Afghanistan to Zimbabwe, only highlight the extent of obstacles to doing business; over time. The data set covers 48 economies in Sub- they also help identify the source of those obstacles, Saharan Africa, 32 in Latin America and the Caribbean, 25 supporting policy makers in designing regulatory reform. in East Asia and the Pacific, 25 in Eastern Europe and More information is available in the full report. Doing Central Asia, 20 in the Middle East and North Africa and Business 2017 presents the indicators, analyzes their 8 in South Asia, as well as 32 OECD high-income relationship with economic outcomes and presents economies. The indicators are used to analyze economic business regulatory reforms. The data, along with outcomes and identify what reforms have worked, where information on ordering Doing Business 2017, are and why. available on the Doing Business website at This economy profile presents the Doing Business http://www.doingbusiness.org. indicators for Indonesia. To allow useful comparison, it Doing Business 2017 Indonesia 5 CHANGES IN DOING BUSINESS 2017 As part of a three-year update in methodology, Doing having equal evidentiary weight of women’s testimony in Business 2017 expands further by adding postfiling court. processes to the paying taxes indicator, including a Also for the first time this year Doing Business collects gender component in three of the indicators and data on Somalia, bringing the total number of developing a new pilot indicator on selling to the economies covered to 190. government. Also, for the first time this year Doing Business collects data on Somalia, bringing the total For more details on the changes, see the “”Old and new number of economies covered to 190. factors covered in Doing Business” section in the The paying taxes indicator is expanded this year to Overview chapter starting on page 1 of the Doing include postfiling processes – those processes that occur Business 2017 report. For more details on the data and after a firm complies with its regular tax obligations. methodology, please see the “Data Notes” chapter These include tax refunds, tax audits and tax appeals. In starting on page 114 of the Doing Business 2017 report. particular, Doing Business measures the time it takes to For more details on the distance to frontier metric, get a value added tax (VAT) refund, deal with a simple please see the “Distance to frontier and ease of doing mistake on a corporate tax return that can potentially business ranking” chapter in this profile. trigger an audit and good practices with administrative appeals process. This year’s Doing Business report presents a gender dimension in four of the indicator sets: starting a business, registering property, enforcing contracts and labor market regulation. Three of these areas are included in the distance to frontier score and in the ease of doing business ranking, while the fourth —labor market regulation—is not. Doing Business has traditionally assumed that the entrepreneurs or workers discussed in the case studies were men. This was incomplete by not reflecting correctly the Doing Business processes as applied to women—which in some economies may be different from the processes applied to men. Starting this year, Doing Business measures the starting a business process for two case scenarios: one where all entrepreneurs are men and one where all entrepreneurs are women. In economies where the processes are more onerous if the entrepreneur is a woman, Doing Business now counts the extra procedures applied to roughly half of the population that is female (for example, obtaining a husband’s consent or gender-specific requirements for opening a personal bank account when starting a business). Within the registering property indicators, a gender component has been added to the quality of land administration index. This component measures women’s ability to use, own, and transfer property according to the law. Finally, within the enforcing contracts indicator set, economies will be scored on Doing Business 2017 Indonesia 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: East Asia & Pacific based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Lower middle income businesses through their life cycle. Economies are ranked from 1 to 190 by the ease of doing business ranking. Population: 257,563,815 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 3,440 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2017 rank: 91 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2016 rank: 106* 0 represents the worst performance and 100 the frontier. Change in rank: 15 (See the chapter on the distance to frontier and ease of doing business). DB 2017 DTF: 61.52 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2016 DTF: 58.51 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: 3.01 performance on each Doing Business indicator. When compared across years, the distance to frontier score * DB2016 ranking shown is not last year’s published shows how much the regulatory environment for local ranking but a comparable ranking for DB2016 that entrepreneurs in an economy has changed over time in captures the effects of such factors as data revisions absolute terms, while the ease of doing business ranking and the changes in methodology. See the data notes can show only how much the regulatory environment has starting on page 114 of the Doing Business 2017 changed relative to that in other economies. report for sources and definitions. The 10 topics included in the ranking in Doing Business 2017: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The labor market regulation indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented in the economy profile. Doing Business 2017 Indonesia THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2017 Indonesia THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Indonesia and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2016 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 2017 Indonesia 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Indonesia (Scale: Rank 190 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Indonesia (Scale: Score 0 center, Score 100 outer edge) Source: Doing Business database. Note: The rankings are benchmarked to June 2016 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Doing Business 2017 Indonesia 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier score. tells only part of the story, so do changes in that ranking. This measure shows how far on average an economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy on of changes in an economy’s regulatory environment for each Doing Business indicator. firms, but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed over time—how far it has moved toward (or away from) in different areas. To aid in assessing such changes, the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Indonesia come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator. Starting a business is comparable to 2010. Getting credit, protecting minority investors, paying taxes and resolving insolvency had methodology changes in 2014 and thus are only comparable to 2013. Dealing with construction permits, registering property, trading across borders, enforcing contracts and getting electricity had methodology changes in 2015 and thus are only comparable to 2014. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2017 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2017 Indonesia 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Indonesia Best performer globally Philippines DB2017 Indonesia DB2017 Indonesia DB2016 Surabaya DB2017 Malaysia DB2017 Jakarta DB2017 Indicator China DB2017 India DB2017 DB2017 Starting a Business 151 167 -- -- 127 155 112 171 1 (New Zealand) (Rank) Starting a Business (DTF 76.43 67.51 77.50 72.62 81.02 74.31 83.67 68.86 99.96 (New Zealand) Score) Procedure – Men 11.2 12.0 11.0 12.0 9.0 12.9 8.0 16.0 1.0 (New Zealand) (number) Time – Men (days) 24.9 47.8 22.0 35.0 28.9 26.0 18.0 28.0 0.5 (New Zealand) Cost – Men (% of 19.4 19.9 19.1 20.3 0.7 13.8 6.2 15.8 0.0 (Slovenia) income per capita) Procedure – Women 11.2 12.0 11.0 12.0 9.0 12.9 9.0 16.0 1.0 (New Zealand) (number) Time – Women (days) 24.9 47.8 22.0 35.0 28.9 26.0 19.0 28.0 0.5 (New Zealand) Cost – Women (% of 19.4 19.9 19.1 20.3 0.7 13.8 6.2 15.8 0.0 (Slovenia) income per capita) Paid-in min. capital (% 0.0 31.0 0.0 0.0 0.0 0.0 0.0 3.1 0.0 (127 Economies*) of income per capita) Dealing with 116 113 -- -- 177 185 13 85 1 (New Zealand) Construction Permits Doing Business 2017 Indonesia 12 Best performer globally Philippines DB2017 Indonesia DB2017 Indonesia DB2016 Surabaya DB2017 Malaysia DB2017 Jakarta DB2017 Indicator China DB2017 India DB2017 DB2017 (Rank) Dealing with Construction Permits 65.73 65.26 66.12 64.34 48.52 32.83 81.10 69.45 87.40 (New Zealand) (DTF Score) Procedures (number) 17.0 17.0 17.0 17.0 22.0 35.1 15.0 24.0 7.0 (4 Economies*) Time (days) 200.2 200.2 191.0 233.0 244.3 190.0 79.0 98.0 28.0 (Korea, Rep.) Cost (% of warehouse 0.1 (Trinidad and 5.1 5.5 5.3 4.3 7.0 25.9 1.4 1.1 value) Tobago) Building quality control 13.0 13.0 13.0 13.0 9.0 11.5 13.0 12.0 15.0 (Luxembourg*) index (0-15) Getting Electricity 49 61 -- -- 97 26 8 22 1 (Korea, Rep.) (Rank) Getting Electricity (DTF 80.92 77.60 79.86 84.68 68.73 85.09 94.34 86.90 99.88 (Korea, Rep.) Score) Procedures (number) 4.8 5.0 5.0 4.0 5.5 5.0 4.0 4.0 3.0 (15 Economies*) Time (days) 57.7 79.0 59.0 53.0 143.2 45.9 31.0 42.0 18.0 (Korea, Rep.*) Cost (% of income per 357.0 383.0 357.0 357.0 390.4 133.2 26.6 25.7 0.0 (Japan) capita) Reliability of supply and transparency of tariff 6.0 6.0 6.0 6.0 6.0 7.0 8.0 6.0 8.0 (26 Economies*) index (0-8) Registering Property 118 123 -- -- 42 138 40 112 1 (New Zealand) (Rank) Registering Property 55.72 53.24 56.01 54.68 76.15 50.00 76.29 57.54 94.46 (New Zealand) (DTF Score) Procedures (number) 5.0 5.0 5.0 5.0 4.0 7.0 8.0 9.0 1.0 (4 Economies*) Doing Business 2017 Indonesia 13 Best performer globally Philippines DB2017 Indonesia DB2017 Indonesia DB2016 Surabaya DB2017 Malaysia DB2017 Jakarta DB2017 Indicator China DB2017 India DB2017 DB2017 Time (days) 27.4 27.4 25.0 36.0 19.5 46.8 13.0 35.0 1.0 (3 Economies*) Cost (% of property 10.8 10.8 10.9 10.4 3.4 7.7 3.4 4.3 0.0 (Saudi Arabia) value) Quality of the land administration index (0- 12.3 9.3 12.5 11.5 18.3 7.0 27.5 12.5 29.0 (Singapore) 30) Getting Credit (Rank) 62 70 -- -- 62 44 20 118 1 (New Zealand) Getting Credit (DTF 60.00 55.00 60.00 60.00 60.00 65.00 75.00 40.00 100.00 (New Zealand) Score) Strength of legal rights 6.0 5.0 6.0 6.0 4.0 6.0 7.0 3.0 12.0 (3 Economies*) index (0-12) Depth of credit 6.0 6.0 6.0 6.0 8.0 7.0 8.0 5.0 8.0 (30 Economies*) information index (0-8) Credit registry coverage 51.8 48.5 51.8 51.8 91.1 0.0 62.4 0.0 100.0 (3 Economies*) (% of adults) Credit bureau coverage 0.0 0.0 0.0 0.0 21.3 21.4 76.4 10.2 100.0 (23 Economies*) (% of adults) Protecting Minority 70 69 -- -- 123 13 3 137 1 (New Zealand*) Investors (Rank) Protecting Minority 56.67 56.67 56.67 56.67 45.00 73.33 80.00 41.67 83.33 (New Zealand*) Investors (DTF Score) Strength of minority investor protection 5.7 5.7 5.7 5.7 4.5 7.3 8.0 4.2 8.3 (New Zealand) index (0-10) Extent of conflict of interest regulation 5.7 5.7 5.7 5.7 5.0 6.7 8.7 4.0 9.3 (New Zealand) index (0-10) Extent of shareholder 5.7 5.7 5.7 5.7 4.0 8.0 7.3 4.3 8.3 (Norway) governance index (0- Doing Business 2017 Indonesia 14 Best performer globally Philippines DB2017 Indonesia DB2017 Indonesia DB2016 Surabaya DB2017 Malaysia DB2017 Jakarta DB2017 Indicator China DB2017 India DB2017 DB2017 10) 1 (United Arab Paying Taxes (Rank) 104 115 -- -- 131 172 61 115 Emirates) Paying Taxes (DTF 99.44 (United Arab 69.25 64.47 69.25 69.25 60.46 46.58 79.2 65.74 Score) Emirates) Payments (number per 3.0 (Hong Kong SAR, 43.0 54.0 43.0 43.0 9.0 25.0 9.0 28.0 year) China*) Time (hours per year) 221.0 234.0 221.0 221.0 259.0 241.0 164.0 185.6 55.0 (Luxembourg) Total tax rate (% of 30.6 29.7 30.6 30.6 68.0 60.6 40.0 42.9 26.1 (32 Economies*) profit) Postfiling index (0-100) 76.5 76.5 64.3 49.8 98.5 (Estonia) Trading across Borders 108 113 -- -- 96 143 60 95 1 (10 Economies*) (Rank) Trading across Borders 100.00 (10 65.87 63.53 67.68 59.48 69.13 57.61 82.38 69.39 (DTF Score) Economies*) Time to export: Border 53 53 48 72 26 106 48 42 0 (18 Economies*) compliance (hours) Cost to export: Border 254 254 250 267 522 413 321 456 0 (18 Economies*) compliance (USD) Time to export: Documentary 61 72 60 66 21 38 10 72 1 (25 Economies*) compliance (hours) Cost to export: Documentary 139 170 130 170 85 92 45 53 0 (19 Economies*) compliance (USD) Time to import: Border 99 99 80 168 92 283 72 72 0 (25 Economies*) compliance (hours) Doing Business 2017 Indonesia 15 Best performer globally Philippines DB2017 Indonesia DB2017 Indonesia DB2016 Surabaya DB2017 Malaysia DB2017 Jakarta DB2017 Indicator China DB2017 India DB2017 DB2017 Cost to import: Border 383 383 384 376 777 574 321 580 0 (28 Economies*) compliance (USD) Time to import: Documentary 133 144 132 136 66 61 10 96 1 (29 Economies*) compliance (hours) Cost to import: Documentary 164 164 160 180 171 135 60 50 0 (30 Economies*) compliance (USD) Enforcing Contracts 166 171 -- -- 5 172 42 136 1 (Korea, Rep.) (Rank) Enforcing Contracts 38.15 35.37 38.86 35.64 77.98 35.19 66.61 49.24 84.15 (Korea, Rep.) (DTF Score) Time (days) 471.0 471.0 460.0 510.0 452.8 1420.0 425.0 842.0 164.0 (Singapore) Cost (% of claim) 115.7 115.7 118.1 107.3 16.2 39.6 37.3 31.0 9.0 (Iceland) Quality of judicial 7.8 6.3 8.0 7.0 14.3 9.0 12.0 7.5 15.5 (Australia) processes index (0-18) Resolving Insolvency 76 74 -- -- 53 136 46 56 1 (Finland) (Rank) Resolving Insolvency 46.46 46.48 45.80 48.82 55.82 32.75 62.49 55.24 93.89 (Finland) (DTF Score) Recovery rate (cents on 31.2 31.2 29.9 35.5 36.9 26.0 81.3 21.3 92.9 (Norway) the dollar) Time (years) 1.9 1.9 2.0 1.5 1.7 4.3 1.0 2.7 0.4 (22 Economies*) Cost (% of estate) 21.6 21.6 22.0 20.0 22.0 9.0 10.0 32.0 1.0 (22 Economies*) Strength of insolvency 9.5 9.5 9.5 9.5 11.5 6.0 6.0 14.0 15.0 (6 Economies*) framework index (0-16) Source: Doing Business database. Note: DB2016 rankings shown are not last year’s published rankings but comparable rankings for DB2016 that capture the effects of such factors as data revisions and changes to the methodology. The global best performer on time for paying taxes is defined as the lowest Doing Business 2017 Indonesia 16 time recorded among all economies in the DB2016 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” mark if regulation exists but is 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. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Doing Business 2017 Indonesia 17 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Obtaining approval from spouse to start a generating more revenue for the government. business, to leave the home to register the company or open a bank account. What do the indicators cover? Obtaining any gender specific document for Doing Business records all procedures officially company registration and operation, national required, or commonly done in practice, for an identification card or opening a bank entrepreneur to start up and formally operate an account. industrial or commercial business, as well as the time and cost to complete these procedures and the paid- Time required to complete each procedure in minimum capital requirement. These procedures (calendar days) include obtaining all necessary licenses and permits Does not include time spent gathering and completing any required notifications, information verifications or inscriptions for the company and employees with relevant authorities. The ranking of Each procedure starts on a separate day (2 economies on the ease of starting a business is procedures cannot start on the same day). determined by sorting their distance to frontier Procedures that can be fully completed scores for starting a business. These scores are the online are recorded as ½ day. simple average of the distance to frontier scores for Procedure completed once final document is each of the component indicators. received To make the data comparable across economies, No prior contact with officials several assumptions about the business and the procedures are used. It is assumed that any required Cost required to complete each procedure information is readily available and that the (% of income per capita) entrepreneur will pay no bribes. Assumptions about Official costs only, no bribes the business: No professional fees unless services required  Is a limited liability company (or its legal by law or commonly used in practice equivalent). If there is more than one type of limited liability company in the economy, the Paid-in minimum capital (% of income limited liability form most common among per capita) domestic firms is chosen. Information on the Deposited in a bank or with a notary before most common form is obtained from registration (or within 3 months) incorporation lawyers or the statistical office.  Operates in the economy’s largest business  The size of the entire office space is city. For 11 economies the data are also approximately 929 square meters (10,000 square collected for the second largest business city. feet).  Is 100% domestically owned and has five Doing Business 2017 Indonesia 18 owners, none of whom is a legal entity  Does not qualify for investment incentives or any special benefits.  Has start-up capital of 10 times income per capita  Has at least 10 and up to 50 employees one month after the commencement of operations, all  Performs general commercial or industrial of them domestic nationals. activities, such as the production or sale to the public of products or services. The business  Has a turnover of at least 100 times income per does not perform foreign trade activities and capita. does not handle products subject to a special  Has a company deed 10 pages long. tax regime, for example, liquor or tobacco. It is not using heavily polluting production The owners: processes.  Have reached the legal age of majority and are  Leases the commercial plant or offices and is capable of making decisions as an adult. If there not a proprietor of real estate. is no legal age of majority, they are assumed to be 30 years old.  The amount of the annual lease for the office space is equivalent to 1 times income per  Are sane, competent, in good health and have no capita criminal record.  Are married, the marriage is monogamous and registered with the authorities.  Where the answer differs according to the legal system applicable to the woman or man in question (as may be the case in economies where there is legal plurality), the answer used will be the one that applies to the majority of the population. Doing Business 2017 Indonesia 19 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Indonesia? indicator sets refer to a case scenario in the largest According to data collected by Doing Business, starting a business city of an economy, except for 11 economies for business there requires 11.2 procedures , takes 24.9 days, which the data are a population-weighted average of the costs 19.4% of income per capita for men, and requires 2 largest business cities. See the chapter on distance to 11.2 procedures , takes 24.9 days, costs 19.4% of income frontier and ease of doing business ranking at the end of per capita for women. A requirement of paid-in this profile for more details. minimum capital of 0.0% of income per capita (figure . 2.1) is legally mandatory for both men and women. Most Figure 2.1 What it takes to start a business in Indonesia - Jakarta Paid-in minimum capital (% of income per capita): 0.0 Doing Business 2017 Indonesia 20 What it takes to start a business in Indonesia - Surabaya Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Procedures in light blue are for married women only. Doing Business 2017 Indonesia 21 STARTING A BUSINESS Globally, Indonesia stands at 151 in the ranking of 190 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in Indonesia The rankings for comparator economies and the regional to start a business. Figure 2.2 How Indonesia and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2017 Indonesia 22 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Indonesia (table 2.1)? Table 2.1 How has Indonesia made starting a business easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Indonesia eased business start-up by reducing the cost for company name clearance and reservation and the time DB2011 required to reserve the name and approve the deed of incorporation. Indonesia made starting a business easier by introducing a simplified application process allowing an applicant to DB2012 simultaneously obtain both a general trading license and a business registration certificate. Indonesia made starting a business easier by allowing the Ministry of Law and Human Rights to electronically issue the DB2015 approval letter for the deed of establishment. This reform applies to both Jakarta and Surabaya. Indonesia made starting a business in Jakarta easier by DB2016 reducing the time needed to register with the Ministry of Manpower. Indonesia made starting a business easier by creating a single form to apply for the company registration certificate and trading license. This reform applies to Jakarta. Indonesia also made starting a business easier by abolishing the minimum DB2017 capital requirement for small and medium-size enterprises and by encouraging the use of an online system to reserve company names. This reform applies to both Jakarta and Surabaya. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Indonesia 23 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Indonesia is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Perseroan Terbatas (PT) firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid-in minimum capital requirement: IDR 0 the study of laws, regulations and publicly available City: Jakarta, Surabaya information on business entry in that economy. Following is a detailed summary of those procedures, Start-up Capital: 10 times GNI per capita along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Indonesia - Jakarta Time to No. Procedure Cost to complete complete Pay fee for obtaining clearance of company name The process of company name clearance must be done through a computerized processing system, the reservation and clearance is most commonly done in practice by a notary public. The notary must first pay the fee of IDR 200,000 at a bank before obtaining clearance for the IDR 200,000 1 proposed company name. Once the notary pays at a bank, she/he 1 day obtains a payment receipt with a code. Agency: Notary Obtain clearance for the company's name at the Ministry of Law and Human Rights The notary inserts the code online when reserving the company name as proof of payment. The reserved name will be blocked for 60 days. If the founding shareholders are confident that the same name has not been used by another Indonesian company, this procedure is not necessary. Less than one day included in 2 (online procedure) procedure 3 Company must not use a name which: a. has been lawfully used by another company or is similar to the name of another company; b. contravenes public order and/or decency; c. is identical or similar to the name of a state agency, government agency, or international agency, except with their approval; d. does not conform to the purposes and objectives and business activities of the company, or only designates the purposes and Doing Business 2017 Indonesia 24 Time to No. Procedure Cost to complete complete objectives of the company without having its own name; e. consists of numbers or a set of figures, a letter or a set of letters that do not form any words; or f. means a Company, a legal entity, or a civil enterprise (persekutuan perdata). The Ministry of Law and Human Rights may reject a name application reservation if the requested name is, among others, the same or resembles similarities to name of other companies. According to Article 4 of MoLHR Reg. No. 1/2016, an electronic application must be submitted for the use of the company's name to the Ministry of Law and Human Rights ("Minister of MOLHR") through Legal Entity Administration System / Sistem Administrasi Badan Hukum ("SABH"). Such application shall be performed by filing the Company's Name Application Form which at least contains of the following information: a. payment number of the approval of the use of the company's name from bank; and b. booked name of the company. The approval of the company's name by the Minister of MOLHR shall be given electronically, as regulated under MoLHR Reg. No.1/2016, which at least contains of the following information: a. booking number of the name of the company; b. name of the company which may be used; c. date of booking; d. expiry date; and e. payment code. Agency: Notary Arrange for a notary to obtain the standard form of the company deed and notarize company documents Government Regulation No. 43 of 2011 on Use of Names of Limited Liability Companies also provides that an application to use a name that is the same or similar to a well-known trademark shall be rejected unless approval is obtained from the holder of the trademark. Law No. 1 30 of 2004 concerning Notaries (Article 36 paragraph 3) stipulates that day,(simultaneous See procedure 3 the maximum notary fee for objects of deed with an economical value with previous details of above IDR 100,000,000 up to IDR 1,000,000,000 is 1.5% of the total procedure) value of the object of the deed. Agency: Notary Doing Business 2017 Indonesia 25 Time to No. Procedure Cost to complete complete Apply to the Ministry of Law and Human Rights for approval of the deed of establishment Based on Article 9, 10, 29 and 30 Indonesian Company Law No. 40 year 2007, the application for approval of Ministry of Law and Human Rights (the "Ministry of Law") on establishment of company can be filed electronically by attaching with the certificate of bank account and a copy of the relevant bank transmittal advice. The process will be taken as follows: •The application should be filled at the latest 60 days since the date of establishment deed; • Since the application has already fulfilled, the Ministry of Law directly electronically stated no objection on said application. However, if the application is not fulfilled, the Ministry of Law will directly electronically state his objection on said application; • in 30 days since the date of no objection by Ministry of Law, the applicant should submit the original application and supporting documents; • 14 days after fulfillment of above requirements, Ministry of Law will Less than one day included in 4 issue the legalization on the establishment of the company; (online procedure) procedure 7 • Data of company which its establishment has been approved by Ministry of Law i.e. name, domicile, object and purpose, period, Capital Company will be inserted into Company Registry. • The Ministry of Law will announce the establishment of company in Supplement State Gazette (TBNRI) within 14 days of the Ministry's Approval Letter. As of March 2014, the Ministry of Law and Human Rights issues the approval of the deed of establishment electronically. The cost of this procedure is based on the Schedule to the Government Regulation Number 38 of 2009 concerning Types and Tariffs on Non- Tax State Revenues Applied for in the Department of Law and Human Rights which comes into effect on 28 May 2009. Agency: Ministry of Law and Human Rights Apply for the Certificate of Company Domicile All Indonesian limited liability companies must have a certificate of company domicile. This certificate is issued by the head of the village (the Lurah) where the company is located or by the building 5 management if office space is leased. There is no official fee for this 2 days no charge certificate. This certificate is required for tax registration (NPWP) Agency: municipal Doing Business 2017 Indonesia 26 Time to No. Procedure Cost to complete complete Pay the non-tax state revenue (PNBP) fees for legal services at a bank The requirement to pay the non-tax state revenue (PNBP) fee for legal services in relation to the establishment of a PT is obtained from the information stated in the website of the Legal Entity Administration System known as SABH (Sistem Administrasi Badan Hukum) (www.sisminbakum.go.id). The obligation for the company to pay the Non Tax State Revenue/ Penerimaan Negara Bukan Pajak ("PNBP") for the legal services in relation to the establishment of the company is also stated in Article 5 of the MOLHR Reg. No.4/2014. The cost for the PNBP is further regulated under the Government Regulation of the Republic of Indonesia No.45 of 2014 concerning See procedure 6 1 day Types and Rates of Non Tax State Revenues Prevailing in the Ministry of details Law and Human Rights ("GR No. 45/2014") which comes into effect on 3 June 2014. Cost breakdown: 1,000,000 IDR for validation of company as legal entity 30,000 IDR for publication in State Gazette 550,000 for publication in the Supplement State Gazette Agency: Notary Apply at the Ministry of Trade for the permanent business trading license (Surat Izin Usaha Perdagangan, SIUP) and the company registration certificate (Tanda Daftar Perusahaan/TDP) from the BPTS- OSS for Jakarta The Surat Izin Usaha Perdagangan (SIUP) constitutes the business license for a non-facility company engaging in trading business. The SIUP contains details about the company activities and the person in charge of the company (normally the President Director). The Ministry of Trade, which issues the SIUP for a non-facility company, may require a letter of good conduct from the Indonesian police in support of the person in charge of the company. Normally, the following copy of 7 documents should be attached for the application for a SIUP: 7 days no charge • The articles of association (copy). • An attestation of location and address of the company’s offices (building management domicile certificate and certificate of company domicile). • Identity card of the company President Director. • Letter of approval from the Ministry of Law and Human Rights After reviewing the application, the Municipality passes it to the technical agency at the regional office for cooperatives for further review• it takes 2 days to get the signature of the head of that office as the authority is not delegated. Once the application is back, the SUIP is provided. Doing Business 2017 Indonesia 27 Time to No. Procedure Cost to complete complete The Trade Minister Regulation No. 36/M-DAG/PER/9/2007 as amended by the Trade Minister Regulation No. 46/M-DAG/PER/12/2011. There are no changes to Article 3 under this new regulation. classified the SIUP based on the enterprises’ net assets as follows: Article 3 (1) Small Scale SIUP must be held by businesses engaging in trade having a net asset of more than Rp. 50.000.000,- (fifty million Rupiah) up to no more than Rp. 500.000.000,- (five hundred million Rupiah) not including land and building on which the business operates; (2) Medium Scale SIUP must be held by businesses engaging in trade having a net asset of more than Rp. 500.000.000,- (five hundred million Rupiah) up to no more than Rp. 10.000.000.000,- (ten billion Rupiah) not including land and building on which the business operates; (3) Large Scale SIUP must be held by businesses engaging in trade having a net asset of more than Rp. 10.000.000.000,- (ten billion Rupiah) not including land and building on which the business operates. As of February 2016, the application for SUIP and TDP have merged into one application in Jakarta. The OSS (BPTS) has the authority to review the application and issue the approval either online or in person. Once the founder returns to the one-stop shop they will receive two separate registration documents. Agency: One Stop Integrated Service Body of SKI Jakarta Provincial Government - Ministry of Trade Register with the Ministry of Manpower Pursuant to Article 6 of the Law No.7 of 1981 concerning Mandatory Labor Affairs Report ("Law No.7/1981"), the company shall be obliged to submit a manpower report in the company to the Ministry of Manpower and Transmigration ("Minister of Manpower") or the appointed officer within a period of no more than 30 days as of the establishment of the company. Such report shall contain the following information: a. company identification; 8 b. manpower relation; 1 day no charge c. manpower protection; and d. employment opportunity. The provision regarding the manpower report in the company is further governed under the Regulation of the Ministry of Manpower and Transmigration of the Republic of Indonesia No.PER.14/2006 concerning the Guidelines for the Manpower Report in the Company ("MoMTR No.14/2006"). Pursuant to Article 2 of the MoMTR No.14/2006, the manpower report must be submitted in the form of electronic data compiled in the Company's Manpower Database in the Information System on Company's Manpower Mandatory Reports / Doing Business 2017 Indonesia 28 Time to No. Procedure Cost to complete complete Sistem Informasi Wajib Lapor Ketenagakerjaan di Perusahaan ("SINLAPNAKER"). The company which make a use of the Sinlapnaker shall be given an Identity Card from the Directorate General of Development of Labor Supervision. In the event that the region of the company has not yet installed SINLAPNAKER, the report must be submitted in writing and delivered by hand or by registered mail to the government institution having tasks and responsibility in the field of manpower in the Municipality/City where the company is located in accordance with the procedure as stated in Article 5 of the MoMTR No.14/2006. Further, in order to increase the service of the implementation of mandatory labor affairs report, the Minister of Manpower issues the Circular Letter of the Ministry of Manpower and Transmigration of the Republic of Indonesia No.SE.3/MEN/III/2014 concerning the Implementation of Mandatory Labor Affairs Report in the Company ("MoMTCL No.3/2014"). Time: ratification of the registration of mandatory labor affairs report in the company shall be performed within a period of 1 working day as of the receipt of complete application (signed which has been filled in complete and signed with the company stamp (MoMTCL No. 3/2014). Cost: the registration of the mandatory labor affairs report shall not be subject to any fee(s) (MoMTCL No.3/2014). Agency: Ministry of Manpower Apply for the Workers Social Security Program (BPJS Ketenagakerjaan) The Presidential Regulation No. 109 of 2013 on Membership Phasing of Social Security Program regulates that BPJS Ketenagakerjaan covers occupational accident security, old age security, pension security, as well as death security. Under this regulation, every employers have the obligation to register their workers to BPJS Ketenagakerjaan based on their business scale starting from 1 July 2015, which are as follows: 1. Big and medium business scale to participate on programs including occupational accident security, old age security, pension security, and 7 days no charge 9 death security program; 2. Small business scale to participate on programs including occupational accident security, old age security, and death security program; and 3. Micro business scale to participate on programs including occupational accident security and death security. The company shall obtain application forms (form 1 for data and form 1A for employees’ data) at the nearest BPJS Ketenagakerjaan office (list of BPJS Ketenagakerjaan in DKI Jakarta: http://www.bpjsketenagakerjaan.go.id/kanwil/903/KANWIL-DKI- JAKARTA.html). The application forms shall be submitted to the BPJS Doing Business 2017 Indonesia 29 Time to No. Procedure Cost to complete complete Ketenagakerjaan at the latest 30 (thirty) days after obtaining application forms with following attachments: receipt of first contribution payment, SIUP, company’s NPWP, Deed of Establishment, and employees’ National Identity Card, Photograph, and Family Registration Card. After 7 (seven) days of the submission, BPJS Ketenagakerjaan will issue the membership card and certificate of registration. If there is any changes on the company’s address, business activity, and the amount of employees, as well as employee’s wages, at the latest 7(seven) days following to such changes, the employer is obliged to convey it to BPJS Ketenagakerjaan. Agency: Social Security Administrative Bodies (BPJS Ketenagakerjaan) Apply for healthcare insurance with BPJS (Badan Penyelenggara Jaminan Sosial) Kesehatan Manual registration is performed by completing the registration form and providing the data of future participants to BPJS Health or through appointed third parties, and then completing the form and submitting the personal data of the participant candidates. During application, the employer must provide at least the following personal data of the candidate participants: - Name; 7 days - Date of birth; (simultaneous with * 10 no charge - Name of the health service provider selected by the employee; and previous - Other personal information, including: procedure) • Employee and his/her family member(s), who will be covered by the health insurance program; • Employee’s salary information; • Information on participation status Agency: Social Security Administrative Bodies (BPJS Kesehatan) Obtain a taxpayer registration number (NPWP) and a VAT collector number (NPPKP) Regulation of Directorate General of Taxation No. Per- 38/PJ/2013 1 day concerning Procedures of Application of Taxpayer Registration and/or (simultaneous with * 11 no charge Taxable Entrepreneur Number, Amendment of Data and Transfer of previous Taxpayer and/or Taxable Entrepreneur aimed to enhance the service to procedure) the taxpayer. The regulation states that within 1 year as of the issuance of NPWP, the relevant Tax Office will conduct field confirmation regarding the correct data/identity of the taxpayer. Doing Business 2017 Indonesia 30 Time to No. Procedure Cost to complete complete The person/entity can apply for NPWP in the relevant tax office where the company is located or can apply it online through http://www.pajak.go.id, choose e-registration to make account as a taxpayer and then follow the procedures therein, by filling the form and attaching copies of the following - Deed of establishment - Identity card/KTP of one of active Director - Statement letter regarding confirmation on place of business from one of the active Director (form is provided), - POA and identity card/KTP of the authorized. The NPWP card and Registered Statement Letter is obtained within 1 calendar day upon the completeness of the required document without and fee, charge and/or retribution. Agency: Tax Office * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Procedures in light blue are for married women only. Summary of time, cost and procedures for starting a business in Indonesia - Surabaya Time to No. Procedure Cost to complete complete Pay fee for obtaining clearance of company name The process of company name clearance must be done through a computerized processing system, the reservation and clearance is most commonly done in practice by a notary public. The notary must first pay the fee of IDR 200,000 at a bank before obtaining clearance for the 1 proposed company name. Once the notary pays at a bank, she/he 1 day IDR 200,000 obtains a payment receipt with a code. Agency: Notary Obtain clearance for the company's name at the Ministry of Law and Human Rights The notary inserts the code online when reserving the company name included in as proof of payment. The reserved name will be blocked for 60 days. If Less than one day 2 procedure 3 the founding shareholders are confident that the same name has not (online procedure) been used by another Indonesian company, this procedure is not necessary. Government Regulation No. 43 of 2011 on the same matter (“GR Doing Business 2017 Indonesia 31 Time to No. Procedure Cost to complete complete 43/2011”) Limited Liability Companies, company must not use a name which: a. has been lawfully used by another company or is similar to the name of another company; b. contravenes public order and/or decency; c. is identical or similar to the name of a state agency, government agency, or international agency, except with their approval; d. does not conform to the purposes and objectives and business activities of the company, or only designates the purposes and objectives of the company without having its own name; e. consists of numbers or a set of figures, a letter or a set of letters that do not form any words; or f. means a Company, a legal entity, or a civil enterprise (persekutuan perdata). The Ministry of Law and Human Rights may reject a name application reservation if the requested name is, among others, the same or resembles similarities to name of other companies. Agency: Notary Arrange for a notary to obtain the standard form of the company deed and notarize company documents Once the notary gets the company name approval from the Ministry of Law and Human Rights, the founders can sign the deed of establishment. Standard articles of association are available at the notary office. The notary fees associated with this procedure cover the following services: see procedure 3 - Name check 1 day details - Deed drafting and approval Commonly, local notary associations set the scale of notary fees. In practice, the fee depends on the agreement between notary and client. The average notary fee for Surabaya is IDR 7,000,000. Agency: Notary Pay the non-tax state revenue (PNBP) fees for legal services at a bank The requirement to pay the non-tax state revenue (PNBP) fee for legal services in relation to the establishment of a PT is obtained from the see procedure 4 information stated in the website of the Legal Entity Administration 1 day details System known as SABH (Sistem Administrasi Badan Hukum) (www.sisminbakum.go.id). The obligation for the company to pay the Non Tax State Revenue/ Penerimaan Negara Bukan Pajak (""PNBP"") for the legal services in relation to the establishment of the company is also stated in Article 5 of the MOLHR Reg. No.4/2014. Doing Business 2017 Indonesia 32 Time to No. Procedure Cost to complete complete The cost for the PNBP is further regulated under the Government Regulation of the Republic of Indonesia No.45 of 2014 concerning Types and Rates of Non Tax State Revenues Prevailing in the Ministry of Law and Human Rights (""GR No. 45/2014"") which comes into effect on 3 June 2014. Cost breakdown: 1,000,000 IDR for validation of company as legal entity 30,000 IDR for publication in State Gazette 550,000 for publication in the Supplement State Gazette Agency: Notary Apply for the Certificate of Company Domicile All Indonesian limited liability companies must have a certificate of company domicile. This certificate is issued by the head of the village (the Lurah) where the company is located or by the building management if office space is leased. There is no official fee for this 2 days no charge 5 certificate. This certificate is required for several documents (Ministry of Law and Human Rights approval, SIUP, TDP, etc.) Agency: Municipal Apply to the Ministry of Law and Human Rights for approval of the deed of establishment Based on Article 9, 10, 29 and 30 Indonesian Company Law No. 40 year 2007, the application for approval of Ministry of Law and Human Right (the ""Ministry of Law"") on establishment of company should be able to file electronically by attaching with the certificate of bank account, and copy of the relevant bank transmittal advice. The process will be taken as follows: •The application should be filled at the latest 60 days since the date of establishment deed; • Since the application has already fulfilled, the Ministry of Law directly Less than one day included in 6 electronically stated no objection on said application. However, if the (online procedure) procedure 1 application is not fulfilled, the Ministry of Law will directly electronically state his objection on said application; • in 30 days since the date of no objection by Ministry of Law, the applicant should submit the original application and supporting documents; • 14 days after fulfillment of above requirements, Ministry of Law will issue the legalization on the establishment of the company; • Data of company which its establishment has been approved by Ministry of Law i.e. name, domicile, object and purpose, period, Capital Company will be inserted into Company Registry. • The Ministry of Law will announce the establishment of company in Doing Business 2017 Indonesia 33 Time to No. Procedure Cost to complete complete Supplement State Gazette (TBNRI) within 14 days of the Ministry's Approval Letter. As of March 2014, the Ministry of Law and Human Rights issues the approval of the deed of establishment electronically. The cost of this procedure is based on the Schedule to the Government Regulation Number 45 of 2014 concerning Types and Tariffs on Non- Tax State Revenues Applied for in the Department of Law and Human Rights which comes into effect on 30 May 2014. Agency: Ministry of Law and Human Rights Obtain a taxpayer registration number (NPWP) and a Value Added Tax (VAT) collector number (NPPKP) from the local Tax Office Maximum one month from the start of business operations, the company must register with the Tax Office. The company must also obtain a VAT collector number (NPPKP) if it anticipates annual revenue of more than IDR 600 million from the sales of goods and services. The company domicile certificate, articles of association, and identity cards of the directors must be submitted to obtain the tax numbers. NPWP and NPPKP can be arranged simultaneously in one package. The applicant submits the required documents to the Tax Office and gets the receipt of application. The Tax Officer will inform the applicant when the NPWP and NPPKP cards are ready for pick up. 1 day no charge 7 The NPWP application can also be arranged on-line but the applicant still needs to provide hard copies of documents and visit the Tax Office to pick up the NPWP Card. Most applicants visit the Tax Office in person. In practice, unofficial fees may apply and range from IDR 50,000 to IDR 300,000 specifically for the technical surveyor. Agency: Tax Office Apply for the permanent business trading license (Surat Izin Usaha Perdagangan, SIUP) at the One Stop Shop (UPTSA) The Surat Izin Usaha Perdagangan (SIUP) constitutes the business license for a non-facility company engaging in trading business. The SIUP contains details about the company activities and the person in charge of the company. The following documents should be attached 7 days no charge 8 (based on local regulation No. 1 of 2010, enacted in April 2010): a. Copy of ID Card; b. An attestation from the applicant (stamp duty IDR 6,000) regarding the business area; c. Copy of the deed of company establishment; d. Passport photo size 3 x 4 cm (2 pieces); e. Copy of NPWP. Doing Business 2017 Indonesia 34 Time to No. Procedure Cost to complete complete Only the SIUP can be obtained at the one-stop shop. Agency: One Stop Shop Register with the Company Register (Department of Trade) and obtain a registration certificate (Tanda Daftar Perusahaan, TDP) at the City Agency of Trade and Industry Affairs TDP cannot be applied for at the same time as SIUP because SIUP is a pre-requisite for TDP. The following documents should be attached: a. Copy of deed of establishment; b. Copy of ID Card; c. Copy of technical permit related the business; 7 days no charge 9 d. Copy of NPWP; e. Copy of SIUP. Based on Mayor Regulation No. 35 of 2010 concerning the business services industry and the trade sector, it is mandatory to register the company no later than 3 months after the business operations started. Agency: City Agency of Trade and Industry Affairs Register with the Ministry of Manpower at the local Manpower Office According to Law No. 7/1981, companies with more than 10 workers or a monthly payroll of IDR 1 million must register with the Ministry of Manpower. This procedure can be completed concurrently with other post-registration procedures by filing the manpower compulsory report 14 days no charge 10 and company regulations with the Ministry of Manpower. Although there is no official fee, there may an unofficial administrative fee that depends on negotiation and usually starts at IDR 100,000. Agency: Ministry of Manpower Apply for the Workers Social Security Program (BPJS Ketenagakerjaan) According to legal provisions on workers’ social security (Law No. 7 days 3/1992), it is mandatory for every company or individual employing 10 (simultaneous with * 11 workers or more or generating a monthly payroll of at least IDR 1 no charge previous million a month to apply for the Workers Social Security Program (BPJS procedure) Ketenagakerjaan), operated by the executing agency. This social security program covers occupational accident security, death security and old age security. Doing Business 2017 Indonesia 35 Time to No. Procedure Cost to complete complete A company or an individual is not obligated to enroll its employees in the social security program if it offers an independent employee social security program with benefits comparable or better than those offered by the Package of Basic Health Maintenance Security (according to Government Regulation No. 14/1993, as amended by Government Regulation No. 28 /2002). Agency: Social Security Administrative Bodies (BPJS Ketenagakerjaan) Apply for healthcare insurance with BPJS (Badan Penyelenggara Jaminan Sosial) Kesehatan Under the enactment President Decree No. 12/2013, as amended by President Decree No. 111/2013 regarding Health Insurance, PT Jamsostek (Persero) will no longer operate the health maintenance 7 days security program. As of January 1, 2014 BPJS-Kesehatan has taken on (simultaneous with * 12 that role. And Jamsostek has changed its name to BPJS no charge previous Ketenagakerjaan. BPJS health maintenance membership is compulsory procedure) starting from 1 July 2015. Agency: Social Security Administrative Bodies (BPJS Kesehatan) * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Procedures in light blue are for married women only. Doing Business 2017 Indonesia 36 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records all procedures required for a Obtaining utility connections for water and business in the construction industry to build a sewerage warehouse along with the time and cost to complete Registering and selling the warehouse after its each procedure. In addition, this year Doing Business completion introduces a new measure, the building quality Time required to complete each procedure control index, evaluating the quality of building (calendar days) regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and Does not include time spent gathering professional certification requirements. information The ranking of economies on the ease of dealing with Each procedure starts on a separate day. Procedures that can be fully completed online construction permits is determined by sorting their are recorded as ½ day distance to frontier scores for dealing with construction permits. These scores are the simple Procedure considered completed once final average of the distance to frontier scores for each of document is received the component indicators. No prior contact with officials To make the data comparable across economies, Cost required to complete each procedure (% several assumptions about the construction of warehouse value) company, the warehouse project and the utility Official costs only, no bribes connections are used. Building quality control index (0-15) Assumptions about the construction company Sum of the scores of six component indices: The construction company (BuildCo): Quality of building regulations (0-2)  Is a limited liability company (or its legal equivalent). Quality control before construction (0-1)  Operates in the economy’s largest business city. Quality control during construction (0-3) For 11 economies the data are also collected for Quality control after construction (0-3) the second largest business city.  Is 100% domestically and privately owned. Liability and insurance regimes (0-2)  Has five owners, none of whom is a legal entity. Professional certifications (0-4)  Is fully licensed and insured to carry out construction projects, such as building warehouses. The construction company (BuildCo) (continued):  Has 60 builders and other employees, all of them nationals with the technical expertise and Doing Business 2017 Indonesia 37 professional experience necessary to obtain  Will be a new construction (there was no previous construction permits and approvals. construction on the land), with no trees, natural  Has is a licensed architect and a licensed water sources, natural reserves or historical engineer, both registered with the local monuments of any kind on the plot. association of architects or engineers. BuildCo is  Will have complete architectural and technical plans not assumed to have any other employees who prepared by a licensed architect. If preparation of are technical or licensed experts, such as the plans requires such steps as obtaining further geological or topographical experts. documentation or getting prior approvals from  Has paid all taxes and taken out all necessary external agencies, these are counted as procedures. insurance applicable to its general business  Will include all technical equipment required to be activity (for example, accidental insurance for fully operational. construction workers and third-person liability).  Will take 30 weeks to construct (excluding all delays  Owns the land on which the warehouse will be due to administrative and regulatory requirements). built and will sell the warehouse upon its completion. Assumptions about the utility connections  Is valued at 50 times income per capita. The water and sewerage connections:  Will be 150 meters (492 feet) from the existing Assumptions about the warehouse water source and sewer tap. If there is no water delivery infrastructure in the economy, a borehole The warehouse: will be dug. If there is no sewerage infrastructure, a  Will be used for general storage activities, septic tank in the smallest size available will be such as storage of books or stationery. The installed or built. warehouse will not be used for any goods  Will not require water for fire protection reasons; a requiring special conditions, such as food, fire extinguishing system (dry system) will be used chemicals or pharmaceuticals. instead. If a wet fire protection system is required  Will have two stories, both above ground, by law, it is assumed that the water demand with a total constructed area of specified below also covers the water needed for approximately 1,300.6 square meters (14,000 fire protection. square feet). Each floor will be 3 meters (9  Will have an average water use of 662 liters (175 feet, 10 inches) high. gallons) a day and an average wastewater flow of  Will have road access and be located in the 568 liters (150 gallons) a day. Will have a peak periurban area of the economy’s largest water use of 1,325 liters (350 gallons) a day and a business city (that is, on the fringes of the peak wastewater flow of 1,136 liters (300 gallons) a city but still within its official limits). For 11 day. economies the data are also collected for the  Will have a constant level of water demand and second largest business city. wastewater flow throughout the year.  Will not be located in a special economic or  Will be 1 inch in diameter for the water connection industrial zone. Will be located on a land plot and 4 inches in diameter for the sewerage of approximately 929 square meters (10,000 connection. square feet) that is 100% owned by BuildCo and is accurately registered in the cadastre and land registry. Doing Business 2017 Indonesia 38 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build business city of an economy, except for 11 economies for a warehouse in Indonesia? According to data collected which the data are a population-weighted average of the by Doing Business, dealing with construction permits 2 largest business cities. See the chapter on distance to there requires 17.0 procedures, takes 200.2 days and frontier and ease of doing business ranking at the end of costs 5.1% of the warehouse value (figure 3.1). Most this profile for more details. indicator sets refer to a case scenario in the largest Figure 3.1 What it takes to comply with formalities to build a warehouse in Indonesia - Jakarta Doing Business 2017 Indonesia 39 What it takes to comply with formalities to build a warehouse in Indonesia - Surabaya Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2017 Indonesia 40 dealing with construction permits Globally, Indonesia stands at 116 in the ranking of 190 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Indonesia to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Indonesia and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2017 Indonesia 41 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Indonesia are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated value of information collected from experts in construction 2165060273.6 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Jakarta, Surabaya service providers and public officials who deal with building regulations. These procedures are those that apply to a company and structure matching the The procedures, along with the associated time and cost, standard assumptions used by Doing Business in are summarized below. collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Indonesia - Jakarta Time to No. Procedure Cost to complete complete Request and obtain notarized copy of land ownership certificate BuildCo must notarize a copy of the land ownership certificate 1 before applying for the building permit. 1 day IDR 25,000 Agency: Notary Request city planning permit (KRK) and approval of the architectural drawing Pengesahan Gambar Perencanaan Arsitektur (formerly known as building site plan - RTLB) from City Planning Office BuildCo must submit a completed application form, along with the following documentation to the City Planning Office at the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) in order to obtain the city planning permit (KRK): 1. A copy of land ownership certificate (which has been notarized); 2 2. A copy of the latest payment receipt for land and building tax; 1 day IDR 1,482,000 3. A copy of the identity card (KTP/Driving License) of the authorized representative of the applicant; 4. A copy of the deed of establishment of BuildCo and its amendment (if any); 5. A power of attorney (as necessary). The city planning official at the BPTSP will examine the application and will conduct a land situation measurement (the procedural details of which are elaborated in the next section below).] The KRK is a statement that contains planning information about the plot of land that BuildCo intends to build the warehouse on. Doing Business 2017 Indonesia 42 Time to No. Procedure Cost to complete complete The KRK also includes a city planning map scale (1:1000) signed by the Head of Jakarta City Planning Office. The city planning map covers information on: a. Building setback (GSB) - the borders within which BuildCo is allowed to construct the building b. Road border lines (GSJ) - the borders of the front yard or block borders or road control borders c. Land use plan - explanation about the benefits of the land d. Type of building e. Height of building in terms of floors/storey f. Floor area ratio (FAR/KLB) - the multiplication figure used to calculate the total area of building that is permitted g. Building coverage (KDB) h. Blocking - the arrangement of city spaces on certain lanes governing the length and width of the piece of land for which the city planning permit is being applied for BuildCo must also request approval of the architectural drawing Pengesahan Gambar Perencanaan Arsitektur (formerly known as building site plan - RTLB) from the City Planning Office. This plan outlines the exact position of the building on the city planning map and contains the following information (some of which is already contained on the city planning map previously): a. Building setback (GSB) - the borders within which BuildCo is allowed to construct the building b. Road border lines (GSJ) - the borders of the front yard or block borders or road control borders c. Building trace form and location d. Building usage e. Height of building, including KDB (building coverage) and KLB (floor area) f. Building cuts g. Parking lot h. Kelzar circulation/entry of vehicles Once the documents are submitted, BuildCo receives an invoice with the amount of fees that must be paid (SKRD). BuildCo must pay the fees at a local branch of Bank DKI and submit the receipt to the City Planning Office. The total cost to obtain these documents is IDR 1,482,000.00 according to Article 123 of the Regional Regulation No. 1 Year 2006. The following is the detailed calculation: • Land measurement (based on the land certificate, namely 500 - - 1,000 sq. m.) a retribution of IDR 750,000.00 • Print out of the map (scale of 1:1000), a retribution of IDR 1,000.00 per copy x 12 copies or a total of IDR 12,000.00 • KRK for plans to use the land for warehouse construction (Karya pergudangan/Kpg) for a land area of up to 1,000 sq. m. is subject to a fee of IDR 40,000.00 • Pengesahan Gambar Perencanaan Arsitektur (formerly known as building site plan - RTLB) for plans to build warehouse construction is subject to a fee of IDR 40,000.00/100 sq. m. of floor surface, so the total fee for the RTLB: IDR 40,000.00 x 13 (based on a 1,300.6 sq. m. floor surface) = IDR 520,000.00 • Land marking for city planning implementation purposes Doing Business 2017 Indonesia 43 Time to No. Procedure Cost to complete complete (pematokan penerapan rencana kota) is subject to a fee of IDR 80,000.00 x 2 (because the building exceeds 1,000 sq. m.), or a total of IDR 160,000.00 Agency: Local Administrative Building Office - City Planning Office within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Receive inspection from City Planning Office The City Planning Office inspects the site to plant the marks on the borders of the building. 3 1 day no charge Agency: Local Administrative Building Office - City Planning Office within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Obtain KRK and Pengesahan Gambar Perencanaan Arsitektur (formerly known as RTLB) from City Planning Office After the inspection, the application is forwarded to different offices within the City Planning Office for approval. The location officer, the roads officer and the architectural officer approve the application and will prepare the land measurement letter. When the internal procedure is completed, the builder is notified (by 20 days no charge 4 phone, mail or electronically) and can pick up the KRK. The recommendation letter includes the documents listed previously. Agency: Local Administrative Building Office - City Planning Office within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Request and obtain the preparation of the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL) Prior to obtaining a UKL-UPL, BuildCo must obtain the KRK and Pengesahan Gambar Perencanaan Arsitektur (formerly known as building site plan - RTLB). BuildCo hires an external consultant that will prepare the Environmental Management Plan (UKL) and 5 Environmental Monitoring Plan (UPL). When they are ready, 30 days IDR 15,000,000 BuildCo will submit the documents to the relevant mayor or regent, governor of the DKI Jakarta province, or the Minister of Environment, depending on the location of the activities, to obtain a UKL-UPL recommendation. Agency: External Consultant Doing Business 2017 Indonesia 44 Time to No. Procedure Cost to complete complete Request and obtain the approval of the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL) The legal basis for this procedure is: • Law No. 32 of 2009 regarding the Environment 6 10 days no charge • Decision of the Minister of the Environment No 86 of 2002 on Implementation of UKL and UPL Agency: Regional Environmental Control Agency (BPLHD) Request and obtain building construction permit (IMB) When BuildCo has the complete set of documents (see below) and the application is submitted, the Supervision and Control Office will conduct an inspection. Given that the plot where the warehouse will be built is empty, no representative from BuildCo needs to be present. Officials will only verify that the plot is vacant. The legal basis for this procedure is: • Regulation of the Head of the Local Building Supervision and Control (P2B) Office No. 21 Year 2009, Annex I point I.b • The legal basis for the time to complete this step is 15 days working days pursuant to Regulation 129 of 2012. The supporting documents required are: • Photocopy of the ID Card • Photocopy of the Land Certificate (notarized) • Land use permit (SIPPT) • KRK and Pengesahan Gambar Perencanaan Arsitektur (formerly 42 days IDR 68,281,500 7 known as building site plan - RTLB) (description and map of the city, including the complete plan of the building) obtained from the City Planning Office • Architectural, structural, mechnical and electrical as-built drawings (4 sets) • Results of soil investigation (4 sets) • Photocopy of the license to operate as a Building Planner • Photocopy of the license of the supervising director • Photocopy of the license of the architect, the structural engineer, the mechanical engineer and the electrical engineer who prepare the drawings • Statement of uncontested ownership of the land for which IMB is applied • Company’s Deed of Establishment • Company’s tax ID (NPWP) • Completed Application Form • Receipt of UKL-UPL or UKL-UPL •Recommendation from the BPLHD • Copy of evidence of tax payment for the most current year • Budget plan (if required) Doing Business 2017 Indonesia 45 Time to No. Procedure Cost to complete complete The Building Supervision and Control Office has 4 different teams that review the architectural, structural, mechanical and electrical drawings. The application is first reviewed by TPAK (the team that reviews the architectural drawings). This can take 3-4 weeks. The application is then forwarded to TPKB (team that reviews the structural drawings) and in parallel to TPIB (team that reviews the mechanical, electrical and plumbing drawings). This also takes about 3-4 weeks on average. According to Bylaw No. 3 on Building Tariff Rates of October 2012, the permit fee is calculated as follows: RPP = L x It x HSbg = 1,300.6 x 2.1 x 25,000 • L = area of the building (1,300.6 sq. m) • It = index that is calculated as follows: Ikg x If x Ik x Iw x Ipt where Ikg = 1 (for a new building); If = 3 (for commercial buildings); Ik = 0.7; Iw = 1 (for permanent buildings); Ipt = 1 (if the building does not have a basement). Therefore, It = 1 x 3 x 0.7 x 1 x 1 = 2.1 • HSbg = IDR 25,000 / sq. m. Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Receive inspection upon completion of foundation According to the building regulations, the Supervision and Control Office must inspect during the various phases of construction. 8 1 day no charge Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Receive inspection upon completion of the structure According to the building regulations, the Supervision and Control Office must inspect during the various phases of construction. 9 1 day no charge Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Receive inspection upon completion of roofing According to the building regulations, the Supervision and 1 day no charge 10 Control Office must inspect during the various phases of construction. Doing Business 2017 Indonesia 46 Time to No. Procedure Cost to complete complete Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Submit building completion report to Supervision and Control Office The construction completion and compliance report is a prerequisite for obtaining the certificate of proper functioning (SLF) and the usage permit. The party issuing the official report on the completion of the construction and compliance with the building permit is the Supervising Director, who can be an individual, a group of experts, or an entity appointed by the 11 project owner to supervise the construction work. For the Doing 1 day no charge Business case study, the supervising director would most likely be in-house. Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Receive final inspection from the Fire Department The Fire Department must conduct a final inspection once the building is completed. They will then issue a certificate of fire safety recommendations stating the building was built according 12 to the proper safety standards. This fire safety certificate is 1 day no charge needed in order to obtain the SLF. Agency: Fire Department Receive final inspection from the Supervision and Control Office Once the Supervising Director has submitted the completion report, the Supervision Office will conduct a final inspection to ensure that the building was built according to the conditions stipulated in the building permit. This can take about 3 - 7 working days. Once the inspection is completed, the Supervision 1 day no charge * 13 Office will issue an SLF (certificate of proper functioning) within 35 - 38 working days. Agency: Local Administrative Building Office – Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Doing Business 2017 Indonesia 47 Time to No. Procedure Cost to complete complete Obtain water and sewerage connection The application to obtain water and sewerage connection shall be submitted to PAM Jaya through its designated providers, which are PT AETRA Air Jakarta for warehouses located in the North and East regions of Jakarta, and PT PAM Lyonnaise Jaya (PALYJA) for warehouses located in the South, Central, and West regions of Jakarta. The application should be submitted along with the following 14 documents: 20 days IDR 30,492,880 1. A copy of land and building tax documents; 2. A copy of the KTP (the identity card) of BuildCo's director or the applicant; 3. A copy of business license of BuildCo; 4. The prediction on water needs. Agency: PAM Jaya Obtain SLF (certificate of proper functioning) from the Supervision Office The SLF is required under Law No. 25/PRT/M/2007 and Law No. 7/2010 on Buildings. The certificate is a declaration that the building has been built according to the conditions stipulated in the building permit and can be used in accordance with its intended function. BuildCo must submit the following documents in order to obtain the SLF: - Construction completion report from the supervising directors/consultant appointed by BuildCo - Application form - Copy of applicant’s ID card - Copy of notarized proof of land ownership 49 days no charge 15 - Copy of the building permit (IMB) - Architectural, structural and mechnical as-built drawings - Map and city plans (which are appended to the IMB) - Photo of the completed building (showing at least 3 sides of the building) - Notarized copy of the license of the supervising engineer, the architect, the structural engineer and mechanical engineer - Insurance of supervising engineer Agency: Local Administrative Building Office – Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) Register the warehouse with the Regional Tax Services Unit 16 After the warehouse is built BuildCo must update its records at 11 days no charge the Regional Tax Services Unit. While in theory this update can be done automatically, many builders do it in person to avoid Doing Business 2017 Indonesia 48 Time to No. Procedure Cost to complete complete delays. This is critical when a builder wants to sell the property or use it as collateral to obtain a loan. According to the Governor of DKI Jakarta Regulation No. 202 of 2012 on the Registration and Report Procedure as well as the Data Collection of Land and Building Tax for Rural and Urban Area ("Regulation 202/2012"), Regional Regulation of DKI Jakarta No. 16 of 2011 on Land and Building Tax for Rural and Urban Area ("Regulation 16/2011"), the following documents must be submitted by the BuildCo in order to register the warehouse: 1. The completed application form; 2. A copy of identity card of the BuildCo's director who signed the application form or a power of attorney from the director of the BuildCo (if required); 3. A copy of the BuildCo's deed of establishment and its amendments (if any); 4. A copy of the land and/or building certificate of the BuildCo; 5. A copy of building permit (IMB) of the BuildCo; 6. A photo of the building. Agency: Regional Tax Services Unit (Unit Pelayanan Pajak Daerah or UPPD) in the relevant Regional Government Office Register the warehouse with the Regional Office of the Ministry of Trade In order to register the warehouse with the Ministry of Trade and obtain a warehouse registration certificate (Tanda Daftar Gudang or "TDG"), BuildCo must submit the following documents: 1. A copy of the identity card (KTP) of the owner of or person responsible for BuildCo; 2. A copy of the deed of establishment of BuildCo and its amendments (if any): 3. A copy of building permit (IMB) of the warehouse; and 4. Two photos of the owner of or person responsible for BuildCo * 17 with the size 4x6cm. 9 days IDR 100,000 During the submission of the above documents, the applicant must show the original documents to the officer. The holder of warehouse registration certificate is obliged to re-register the certificate every 5 years. Warehouses in a privately owned port, warehouses in a bonded zone, and warehouses adjacent to the plant are exempted from the registration requirement. Agency: Ministry of Trade (Regional Office) Doing Business 2017 Indonesia 49 * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for dealing with construction permits in Indonesia - Surabaya Time to No. Procedure Cost to complete complete Request and obtain notarized copy of land ownership certificate BuildCo must notarize a copy of the land ownership certificate before applying for the city planning permit and building permit. 1 day IDR 25,000 1 Agency: Notary Request city planning permit (SKRK) from Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) In order to obtain the city planning permit (SKRK), BuildCo must submit the following documents: a. Application form (available at Surabaya one-stop shop); b. Copy of identity card of the applicants; c. Copy of property tax invoice and receipt; d. Legalized copy of land ownership certificate. e. BuildCo’s deed of establishment f. License of supervising engineer BuildCo can see the map of Surabaya online and click on the location where they intend to build the project. Majority of applicants apply for the city planning permit in person, although it is possible to submit the documents online. Once it submits the documents, BuildCo is interviewed about the project details. After that, the Surabaya one-stop shop checks adherence of the location with master plan and calculates the retribution charges. BuildCo pays the fees at the Surabaya one-stop 1 day IDR 2,822,000 2 shop and the file is transferred to the City Planning Agency (Dinas Cipta Karya dan Tata Ruang). City Planning Agency representatives inspect the future building site, measure the location, prepare drawings, and position the future building's plot in technical master plan. They also prepare location drawings (with border, base coefficient, size coefficient, and technical requirements). When all is complete, the City Planning Agency evaluates, registers, and approves the application. Once the application has been approved, the City Planning Agency transfers the file back to the Surabaya one-stop shop which then notifies BuildCo that the statement is ready for pick up. Regulations establish a statutory time of 7 days for the city planning statement to be issued, but it usually takes longer. This procedure is governed by the following regulations: a. Local Regulation No. 7 of 2010 on Buildings b. Local Regulation No. 5 of 2012 On City Maps c. Major Regulation No. 39 of 2012 on Guidelines and Technical Standards of Land Use Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) Doing Business 2017 Indonesia 50 Time to No. Procedure Cost to complete complete Receive inspection from City Planning Agency (Dinas Cipta Karya dan Tata Ruang) A technical team of the City Planning Agency inspects the future building site and measures the location in the presence of BuildCo 1 day no charge 3 representatives. Agency: City Planning Agency (Dinas Cipta Karya dan Tata Ruang) Obtain city planning permit (SKRK) from Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) 4 21 days no charge Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) Request and obtain the preparation of the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL) Prior to obtaining a UKL-UPL, BuildCo must obtain the SKRK. BuildCo hires an external consultant that will prepare the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL). 45 days IDR 15,000,000 5 When this is ready BuildCo will submit the documents to the Local Environmental Management Agency (BPLHD) in Surabaya for approval. Agency: External Consultant Request and obtain the approval (HO – ijin gangguan) for the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL) The legal basis for this procedure is: a. Bylaw No. 4 of 2011 on the HO b. Mayor Regulation No. 74 of 2011 on Implementation of Regional Regulation No. 4 of 2011 6 The local environmental agency (BPLHD) will review the UKL and UPL 14 days IDR 3,901,800 and conduct the envirnomental impact assessment. But the letter of approval (HO – ijin gangguan) is issued by the one-stop shop. The one-stop shop charges a fee for the approval letter. According to the fee schedule, buildings over 900 sq. m. are charged at a fee of IDR 500 / sq. m. x 1300.6 sq. m. x 2 (location index) x 3 (environmental index) = IDR 3,901,800. Agency: Local Environmental Control Agency (BPLHD) / Surabaya One- Doing Business 2017 Indonesia 51 Time to No. Procedure Cost to complete complete Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) Request and obtain building construction permit (IMB) The supporting documents required to apply for a building permit (IMB) are: a. Application form and statement letter of construction requirement adherence; b. Copy of ID card of BuildCo's director; c. Copy of property tax receipt; d. Copy of land ownership certificate; e. City planning permit (SKRK); f. Construction accountability statement, prepared by BuildCo's architect; g. Picture of the site and building plans, prepared by BuildCo's architect. h. Design drawings (3 copies): - Landscaping (scale 1:1000/1:5000), - Lay out (scale 1:100), - Foundation base, roof, sanitation (1:100); 45 days IDR 14,225,800 7 i. Structural drawings. j. Copy of UKL / UPL It is possible to submit the required documents online. According to Regulation No. 53 of 2011 and No. 37 of 2012, the legal time limit to issue the IMB is 20 days. But in practice, it takes much longer. Architects and engineers will review all the drawings. There is usually a lot of back and forth interactions between the one-stop shop and the applicant. Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) Receive inspection upon completion of foundation According to the building regulations, the Local Administrative Building Office must inspect during the various phases of construction, although 8 this rarely happens in practice. 1 day no charge Agency: Local Administrative Building Office Receive inspection upon completion of the structure According to the building regulations, the Local Administrative Building 1 day no charge 9 Office must inspect during the various phases of construction, although this rarely happens in practice. Doing Business 2017 Indonesia 52 Time to No. Procedure Cost to complete complete Agency: Local Administrative Building Office Receive inspection upon completion of roofing According to the building regulations, the Local Administrative Building Office must inspect during the various phases of construction, although 10 this rarely happens in practice. 1 day no charge Agency: Local Administrative Building Office Submit building completion report to the one-stop shop The construction completion and compliance report is a prerequisite for obtaining the certificate of proper functioning (SLF) and the usage permit. The party issuing the official report on the completion of the construction and compliance with the building permit is the Supervising Director, who can be an individual, a group of experts, or 1 day no charge 11 an entity appointed by the project owner to supervise the construction work. Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) Receive final inspection from the Fire Department The Fire Department must conduct a final inspection once the building is completed. They will then issue a certificate of fire safety recommendations stating the building was built according to the 12 proper safety standards. This fire safety certificate is needed in order to 1 day no charge obtain the SLF. Agency: Fire Department Receive final inspection from the Administrasi Surabaya & Dinas Cipta Karya dan Tata Ruang (Surabaya Administration and Office of Human Settlements and Spatial Planning) Once the Fire Department has conducted the final inspection and the Supervising Director has submitted the completion report, the Local Administrative Building Office will conduct a final inspection to ensure that the building was built according to the conditions stipulated in the 1 day no charge * 13 building permit. Once the inspection is completed, the Local Administrative Building Office will issue an SLF (certificate of proper functioning). However, the final inspection does not always occur in practice, although it is legally required. Agency: Local Administrative Building Office Doing Business 2017 Indonesia 53 Time to No. Procedure Cost to complete complete Obtain water and sewerage connection The company notifies the industrial manager that the warehouse is ready for utility hook-ups. 20 days IDR 57,812,876 14 Agency: PDAM Surya Obtain SLF (certificate of proper functioning) from the Local Administrative Building Office The SLF is a declaration that the building has been built according to the conditions stipulated in the building permit and can be used in 49 days no charge 15 accordance with its intended function. Agency: Local Administrative Building Office Register warehouse with the Land and Building Tax Office (PBB) After the warehouse is built and the SLF (Certificate of proper functionning ) is obtained, BuildCo needs to update its records at the Land and Building Tax Office. The process can take 1-2 months because 30 days no charge 16 the office must appraise the value of the building. Agency: Land and Building Tax Office Register the warehouse with Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap) In order to register the warehouse with the one-stop shop, BuildCo must submit the following documents: a. Copy of ID Card; b. Copy of building permit (IMB); c. Copy of certificate of land ownership; d. Copy of business trading license (SIUP) and company registration (TDP); e. BuildCo's director's pictures (2 copies - size 4x6 cm) * 17 1 day no charge The legal basis for this procedure is: a. Local Regulation No. 1/2010, regarding warehouse registration charges b. Mayor Regulation No. 35/2010, regarding warehouse registration procedures. Both regulations have been implemented since 2010. Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. . Doing Business 2017 Indonesia 54 Doing Business 2017 Indonesia 55 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index The building quality control index is the sum of the The index ranges from 0 to 15, with higher values scores on the quality of building regulations, quality indicating better quality control and safety mechanisms in control before construction, quality control during the construction permitting system. construction, quality control after construction, The indicator is based on the same case study liability and insurance regimes, and professional assumptions as the measures of efficiency. certifications indices. Table 3.3 Summary of time quality control and safety mechanisms in Indonesia Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Building quality control index (0-15) 13.0 13.0 Licensed Licensed Which third-party entities are required by law to verify architect; architect; that the building plans are in compliance with existing Licensed Licensed building regulations? (0-1) engineer. engineer. Quality of building regulations index (0-2) 1.0 1.0 Available 1.0 How accessible are building laws and regulations in your Available online; Free 1.0 economy? (0-1) online. of charge. List of 0.0 List of Which requirements for obtaining a building permit are required required clearly specified in the building regulations or on any documents; documents; 0.0 accessible website, brochure or pamphlet? (0-1) Fees to be Fees to be paid. paid. Quality control before construction index (0-1) 1.0 1.0 Licensed 1.0 Licensed Which third-party entities are required by law to verify architect; architect; that the building plans are in compliance with existing 1.0 Licensed Licensed building regulations? (0-1) engineer. engineer. Quality control during construction index (0-3) 2.0 2.0 Inspections 1.0 Inspections by by in-house in-house engineer; engineer; Inspections Inspections at at various various What types of inspections (if any) are required by law to phases; No phases; No 1.0 be carried out during construction? (0-2) inspections inspections are legally are legally required required during during constructio construction. Doing Business 2017 Indonesia 56 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) n. Mandatory 1.0 Mandatory inspections inspections Do legally mandated inspections occur in practice during are always are always 1.0 construction? (0-1) done in done in practice. practice. Quality control after construction index (0-3) 3.0 3.0 Yes, final 2.0 Yes, final inspection inspection is is done by done by government government Is there a final inspection required by law to verify that agency; Yes, agency; Yes, the building was built in accordance with the approved in-house in-house 2.0 plans and regulations? (0-2) engineer engineer submits submits report for report for final final inspection. inspection. Final 1.0 Final inspection Do legally mandated final inspections occur in practice? inspection always 1.0 (0-1) always occurs occurs in in practice. practice. Liability and insurance regimes index (0-2) 2.0 2.0 Architect or 1.0 Architect or engineer; engineer; Professional Professional Which parties (if any) are held liable by law for structural in charge of in charge of flaws or problems in the building once it is in use (Latent 1.0 the the Defect Liability or Decennial Liability)? (0-1) supervision; supervision; Constructio Construction n company. company. No party is 1.0 No party is required by required by law to Which parties (if any) are required by law to obtain an law to obtain obtain insurance policy to cover possible structural flaws or insurance ; insurance ; 1.0 problems in the building once it is in use (Latent Defect Insurance is Insurance is Liability Insurance or Decennial Insurance)? (0-1) commonly commonly taken in taken in practice. practice. Professional certifications index (0-4) 4.0 4.0 Minimum 2.0 Minimum What are the qualification requirements for the number of number of 2.0 professional responsible for verifying that the years of years of architectural plans or drawings are in compliance with experience; experience; Doing Business 2017 Indonesia 57 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) existing building regulations? (0-2) University University degree in degree in architecture architecture or or engineering engineering; ; Being a Being a registered registered architect or architect or engineer. engineer. Minimum 2.0 number of Minimum years of number of experience; years of University experience; degree in University engineering degree in What are the qualification requirements for the , engineering, professional who supervises the construction on the constructio construction 2.0 ground? (0-2) n or or constructio construction n management; manageme Being a nt; Being a registered registered architect or architect or engineer. engineer. Source: Doing Business database. Doing Business 2017 Indonesia 58 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity connection a customer is always to gain access by obtaining a (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, Obtaining external installation works and as well as the time and cost to complete them. These possibly purchasing material for these works procedures include applications and contracts with Concluding any necessary supply contract and electricity utilities, clearances from other agencies obtaining final supply and the external and final connection works. In addition, this year Doing Business adds two new Time required to complete each procedure measures: the reliability of supply and transparency (calendar days) of tariffs index (included in the aggregate distance to Is at least 1 calendar day frontier score and ranking on the ease of doing Each procedure starts on a separate day business) and the price of electricity (omitted from these aggregate measures). The ranking of Does not include time spent gathering economies on the ease of getting electricity is information determined by sorting their distance to frontier Reflects the time spent in practice, with little scores for getting electricity. These scores are the follow-up and no prior contact with officials simple average of the distance to frontier scores for Cost required to complete each procedure (% each of the component indicators. To make the data of income per capita) comparable across economies, several assumptions are used. Official costs only, no bribes Excludes value added tax Assumptions about the warehouse 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 city. Duration and frequency of outages For 11 economies the data are also collected for Tools to monitor power outages the second largest business city. Tools to restore power supply  Is located in an area where similar warehouses are typically located. In this area a new electricity Regulatory monitoring of utilities’ performance connection is not eligible for a special investment Financial deterrents aimed at limiting outages promotion regime (offering special subsidization Transparency and accessibility of tariffs or faster service, for example). Price of electricity (cents per kilowatt-hour)*  Is located in an area with no physical constraints. For example, the property is not near a railway. Price based on monthly bill for commercial warehouse in case study  Is a new construction and is being connected to electricity for the first time. *Price of electricity is not included in the calculation of distance to frontier nor ease of doing business ranking The warehouse (continued): Doing Business 2017 Indonesia 59  Has two stories, both above ground, with a total surface area of approximately 1,300.6 square Assumptions about the monthly consumption meters (14,000 square feet). The plot of land on which it is built is 929 square meters (10,000  It is assumed that the warehouse operates 30 days square feet). a month from 9:00 a.m. to 5:00 p.m. (8 hours a day),  Is used for storage of goods. with equipment utilized at 80% of capacity on average and that there are no electricity cuts Assumptions about the electricity connection (assumed for simplicity reasons).  The monthly energy consumption is 26,880 The electricity connection: kilowatt-hours (kWh); hourly consumption is 112  Is a permanent one. kWh.  Is a three-phase, four-wire Y connection with a  If multiple electricity suppliers exist, the warehouse subscribed capacity of 140-kilo-volt-ampere is served by the cheapest supplier. (kVA) with a power factor of 1, when 1 kVA = 1  Tariffs effective in March of the current year are kilowatt (kW). used for calculation of the price of electricity for the  Has a length of 150 meters. The connection is to warehouse. Although March has 31 days, for either the low- or medium-voltage distribution calculation purposes only 30 days are used. network and is 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.  Does not require work to install the internal wiring of the warehouse. This has already been completed up to and including the customer’s service panel or switchboard and the meter base Doing Business 2017 Indonesia 60 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection business city of an economy, except for 11 economies for in Indonesia? According to data collected by Doing which the data are a population-weighted average of the Business, getting electricity there requires 4.8 procedures, 2 largest business cities. See the chapter on distance to takes 57.7 days and costs 357.0% of income per capita frontier and ease of doing business ranking at the end of (figure 4.1). this profile for more details. Most indicator sets refer to a case scenario in the largest Figure 4.1 What it takes to obtain an electricity connection in Indonesia - Jakarta Doing Business 2017 Indonesia 61 What it takes to obtain an electricity connection in Indonesia - Surabaya Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2017 Indonesia 62 GETTING ELECTRICITY Globally, Indonesia stands at 49 in the ranking of 190 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Indonesia to The rankings for comparator economies and the regional connect a warehouse to electricity. Figure 4.2 How Indonesia and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2017 Indonesia 63 GETTING ELECTRICITY Obtaining an electricity connection is essential to enable ensure safety in the connection process while keeping a business to conduct its most basic operations. In many connection costs reasonable, governments around the economies the connection process is complicated by the world have worked to consolidate requirements for multiple laws and regulations involved—covering service obtaining an electricity connection. What reforms in quality, general safety, technical standards, procurement getting electricity has Doing Business recorded in practices and internal wiring installations. In an effort to Indonesia (table 4.1)? Table 4.1 How has Indonesia made getting electricity easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Indonesia made getting electricity more difficult by increasing DB2012 connection fees. Indonesia made getting electricity easier by eliminating the requirement for new customers applying for an electricity DB2013 connection to show a neighbor’s electricity bill as a way to help determine their address. In Indonesia the electricity company in Jakarta made getting electricity easier by eliminating the need for electrical contractors to obtain multiple certificates guaranteeing the DB2015 safety of internal installations—though. The utility in Jakarta and Surabaya also increased the cost by introducing a security deposit for new connections. Indonesia made the process for getting an electricity connection faster by reducing the time for contractors to perform external work thanks to an increase in the stock of DB2017 electrical material supplied by the utility. In Surabaya, getting electricity was also made easier as the utility streamlined and hastened the process for new connection requests. Source: Doing Business database. Doing Business 2017 Indonesia 64 GETTING ELECTRICITY What are the details? The indicators reported here for Indonesia are based on OBTAINING AN ELECTRICITY CONNECTION* a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— identified by Doing Business. Data are collected from the distribution utility, then completed and verified by electricity regulatory agencies and independent Name of utility - Jakarta: PT PLN professionals such as electrical engineers, electrical contractors and construction companies. The electricity distribution utility surveyed is the one serving the area Name of utility - PT Perusahaan Listrik (or areas) in which warehouses are located. If there is a Surabaya: Negara (PLN) choice of distribution utilities, the one serving the largest number of customers is selected. Price of electricity (US cents per kWh) - 11.0 The procedures are those that apply to a warehouse and Jakarta: electricity connection matching the standard assumptions used by Doing Business in collecting the Price of electricity data (see the section in this chapter on what the (US cents per kWh) - 11.3 indicators cover). The procedures, along with the Surabaya: associated time and cost, are summarized below. City: Jakarta, Surabaya *Price is calculated as a monthly consumption of 26,880 kWh for business customers, based on a standardized case study adopted by the Getting Electricity methodology. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. Table 4.2 Summary of time, cost and procedures for getting electricity in Indonesia Time to No. Procedure Cost to complete complete Obtain inspection and compliance certificate for internal wiring installation The client needs to obtain a certificate that guarantees the proper operation of the internal installation from the Komite Nasional Keselamatan Untuk Instalasi Listrik (KONSUIL), Perkumpulan 1 Perlindungan Instalasi Listrik Nasional (PPILN) or Jasa Sertifikasi 7 calendar days IDR 2,572,500 Indonesia. KONSUIL, PPILN and JASERINDO act as independent bodies in charge of inspecting and verifying the conformity of the installation works vis-a-vis the norms in place. This is in accordance with articles 21 paragraph (7) and 22 paragraph (2) of the Government Regulation number 3 Year Doing Business 2017 Indonesia 65 Time to No. Procedure Cost to complete complete 2005, amending Government Regulation number 10 Year 1989 on the Supply and Electricity Connections. The following documents need to be submitted: • Installation drawings • List of materials used: brand, size / specs After Konsuil/PPILN/Jaserindo certify the installation, then Konsuil/PPILN/Jaserindo will produce an SLO. PLN recommends its client to apply once the installation has already been certified and there is an SLO. Agency: KONSUIL/ PPILN/ JASERINDO Submit connection application to PLN and await approval and estimate The client can apply for a new connection through PLN's web-site www.pln.co.id - or through its call center. The client needs to input the following information with the application: - Identity Card number - Capacity of electricity connection - Address of warehouse - SLO number: PLN recommends its customers to apply once they have already obtained a certificate from KONSUIL/PPILN/Jaserindo As part of the application process, PLN may carry-out an external site 2 inspection in Jakarta. This is the case for most locations in West Jakarta 9 calendar days IDR 152,017,987.99 like the Tegal Alur area where PLN has to ensure that the existing network can take an additional load and if a new transformer needs to be installed. Upon his application, the client receives a registration number. The registration number is a code with which the client can pay the connection fee and the security deposit charge. The payment can be done through most local banks and their delivery channels (e.g. ATM, e- banking). As the payment is then processed, one of the vendors of PLN will be informed that the external works can commence. Agency: PT Perusahaan Listrik Negara (PLN) Receive external inspection by PLN An inspection of the site is needed to carry out a technical study of the *3 connection works. 1 calendar day IDR 0 Agency: PT Perusahaan Listrik Negara (PLN) Doing Business 2017 Indonesia 66 Time to No. Procedure Cost to complete complete Obtain external works from PLN's contractor The external works consist of expanding the distribution network by installing an overhead transformer and connecting the warehouse to the network. PLN will typically contract-out the external works to approved 4 vendors, but it provides the main materials needed (e.g. transformer, 40 calendar days IDR 0 cables). Agency: PT Perusahaan Listrik Negara (PLN)'s contractor Obtain final connection from PLN Once the works are finished, the PLN officer who monitored the external works informs PLN's inspection body. The inspection body then comes to check the technical readiness of the installation until the connection 5 (meter) point, after which the electricity can be turned on. The client 3 calendar days IDR 0 needs to be present when the installation gets energized. Agency: PT Perusahaan Listrik Negara (PLN) * Takes place simultaneously with previous procedure. Source: Doing Business database. Summary of time, cost and procedures for getting electricity in Indonesia - Surabaya Time to No. Procedure Cost to complete complete Obtain inspection and compliance certificate for internal wiring installation The client needs to obtain a certificate that guarantees the proper operation of the internal installation from the Komite Nasional Keselamatan Untuk Instalasi Listrik (KONSUIL), Perkumpulan Perlindungan Instalasi Listrik Nasional (PPILN) or Jasa Sertifikasi Indonesia (JASERINDO). 1 7 calendar days IDR 2,572,500 KONSUIL, PPILN and JASERINDO act as independent bodies in charge of inspecting and verifying the conformity of the installation works vis-a-vis the norms in place. This is in accordance with articles 21 paragraph (7) and 22 paragraph (2) of the Government Regulation number 3 Year 2005, amending Government Regulation number 10 Year 1989 on the Supply and Electricity Connections. The following documents need to be submitted: • Installation drawings Doing Business 2017 Indonesia 67 Time to No. Procedure Cost to complete complete • List of materials used: brand, size / specs After Konsuil/PPILN/Jaserindo certify the installation, then Konsuil/PPILN/Jaserindo will produce an SLO. PLN recommends its client to apply once the installation has already been certified and there is an SLO. Agency: KONSUIL/ PPILN/ JASERINDO Submit connection application to PLN and await approval and estimate The client can apply for a new connection through PLN's web-site www.pln.co.id - or through its call center. The client needs to input the following information with the application: - Identity Card number - Capacity of electricity connection - Address of warehouse (the client can show the exact location by tagging a map on PLN's website) - SLO number: PLN recommends its customers to apply once they have already obtained a certificate from KONSUIL/PPILN/Jaserindo 3 calendar days IDR 152,017,987.99 2 Upon his application, the client receives a registration number. The registration number is a code with which the client can pay the connection fee and the security deposit charge. The payment can be done through most local banks and their delivery channels (e.g. ATM, e- banking). As the payment is then processed, one of the vendors of PLN will be informed that the external works can commence. On-site external inspections are no-longer carried-out by PLN thanks to a GIS system. Agency: PT Perusahaan Listrik Negara (PLN) Obtain external works from PLN's contractor The external works consist of expanding the distribution network by installing an overhead transformer and connecting the warehouse to the network. PLN will typically contract-out the external works to approved 3 vendors, but it provides the main materials needed (e.g. transformer, 40 calendar days IDR 0 cables). Agency: PT Perusahaan Listrik Negara (PLN) 's contractor Obtain final connection from PLN Once the works are finished, the PLN officer who monitored the external 3 calendar days IDR 0 4 works informs PLN's inspection body. The inspection body then comes to check the technical readiness of the installation until the connection (meter) point, after which the electricity can be turned on. The client Doing Business 2017 Indonesia 68 Time to No. Procedure Cost to complete complete needs to be present when the installation gets energized. Agency: PT Perusahaan Listrik Negara (PLN) * Takes place simultaneously with previous procedure. Source: Doing Business database. Doing Business 2017 Indonesia 69 GETTING ELECTRICITY Reliability of supply and transparency of tariffs index The reliability of supply and transparency of tariffs Doing Business uses the system average interruption index encompasses quantitative data on the duration duration index (SAIDI) and the system average and frequency of power outages as well as interruption frequency index (SAIFI) to measure the qualitative information on the mechanisms put in duration and frequency of power outages in the largest place by the utility for monitoring power outages business city of each economy (for 11 economies the data and restoring power supply, the reporting are also collected for the second largest business city). relationship between the utility and the regulator for SAIDI is the average total duration of outages over the power outages, the transparency and accessibility of course of a year for each customer served, while SAIFI is tariffs and whether the utility faces a financial the average number of service interruptions experienced deterrent aimed at limiting outages (such as a by a customer in a year. Annual data (covering the requirement to compensate customers or pay fines calendar year) are collected from distribution utility when outages exceed a certain cap). companies and national regulators on SAIDI and SAIFI. Both SAIDI and SAIFI estimates include load shedding. The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Table 4.3 Reliability of Supply and Transparency of Tariff Index in Indonesia Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Reliability of supply and transparency of tariff index 6.0 6.0 (0-8) Total duration and frequency of outages per customer 2.0 2.0 a year (0-3) System average interruption duration index (SAIDI) 2.61 2.34 System average interruption frequency index (SAIFI) 1.72 1.39 Mechanisms for monitoring outages (0-1) 1.0 1.0 Does the distribution utility use automated tools to Yes Yes monitor outages? Mechanisms for restoring service (0-1) 1.0 1.0 Does the distribution utility use automated tools to Yes Yes restore service? Regulatory monitoring (0-1) 1.0 1.0 Does a regulator—that is, an entity separate from the utility—monitor the utility’s performance on reliability Yes Yes of supply? Financial deterrents aimed at limiting outages (0-1) 1.0 1.0 Doing Business 2017 Indonesia 70 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Does the utility either pay compensation to customers or face fines by the regulator (or both) if outages Yes Yes exceed a certain cap? Communication of tariffs and tariff changes (0-1) 0.0 0.0 Are effective tariffs available online? Yes Yes www.pln.co www.pln.co.id .id/blog/tar Link to the website, if available online /blog/tarif- if-tenaga- tenaga-listrik listrik Are customers notified of a change in tariff ahead of No No the billing cycle? Price of electricity (US cents per kWh) 11.0 11.3 Source: Doing Business database. Note: If data on power outages is not collected or if the SAIFI index or SAIDI index are above the threshold of 100, the economy is not eligible to obtain a score in the Reliability of Supply and Transparency of Tariff Index. If SAIDI and SAIFI are 12 (equivalent to an outage of one hour each month) or below, a score of 1 is assigned. If SAIDI and SAIFI are 4 (equivalent to an outage of one hour each quarter) or below, 1 additional point is assigned. Finally, if SAIDI and SAIFI are 1 (equivalent to an outage of one hour per year) or below, 1 more point is assigned. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. The price of electricity is measured in cents per kilowatt-hour. On the basis of the assumptions about monthly consumption, a monthly bill for a commercial warehouse in the largest business city of the economy is computed for the month of March (for 11 economies the data are also collected for the second largest business city). As noted, the warehouse uses electricity 30 days a month, from 9:00 a.m. to 5:00 p.m., so different tariff schedules may apply if a time-of- use tariff is available. Doing Business 2017 Indonesia 71 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 city2 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 perform . The parties (buyer and seller): general commercial activities in the economy’s largest business city.  Are limited liability companies, 100% domestically and privately owned and perform general  Have 50 employees each, all of whom are commercial activities in the economy’s largest nationals. business city. The property (fully owned by the seller):  Have 50 employees each, all of whom are nationals.  Has a value of 50 times income per capita. The The property (fully owned by the seller): sale price equals the value and entire property will be transferred.  Has a value of 50 times income per capita. The sale price equals the value and entire property will be  Is registered in the land registry or cadastre, or transferred. both, and is free of title disputes.  Is registered in the land registry or cadastre, or both, Is located in a periurban commercial zone, and no and is free of title disputes. rezoning is required. Doing Business 2017 Indonesia 72 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Indonesia? According to data collected by Doing business city of an economy, except for 11 economies for Business, registering property there requires 5.0 which the data are a population-weighted average of the procedures, takes 27.4 days and costs 10.8% of the 2 largest business cities. See the chapter on distance to property value (figure 5.1). The score on the quality of frontier and ease of doing business ranking at the end of land administration index is 12.3 this profile for more details. Figure 5.1 What it takes to register property in Indonesia - Jakarta What it takes to register property in Indonesia - Surabaya Doing Business 2017 Indonesia 73 Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2017 Indonesia 74 REGISTERING PROPERTY Globally, Indonesia stands at 118 in the ranking of 190 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Indonesia to transfer property. Figure 5.2 How Indonesia and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2017 Indonesia 75 REGISTERING PROPERTY Economies worldwide have been making it easier for the time required substantially—enabling buyers to use entrepreneurs to register and transfer property—such as or mortgage their property earlier. What property by computerizing land registries, introducing time limits registration reforms has Doing Business recorded in for procedures and setting low fixed fees. Many have cut Indonesia (table 5.1)? Table 5.1 How has Indonesia made registering property easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Indonesia made it easier to register property by digitizing its DB2017 cadastral records and setting up a geographic information system. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Indonesia 76 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: 2165060273.6 notaries and property registries. These procedures are those that apply to a transaction matching the City: Jakarta, Surabaya standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Indonesia Jakarta Time to No. Procedure Cost to complete complete Land certificate examination at the Land Office A land certificate examination is carried out by a Land Deed Official. If the land book concerned is available at the Land Office, it usually takes a few hours to 1 day. However, sometimes the land book is unavailable, misplaced or being used by another division of the Land Office, so then the examination process will be pending and it usually takes a few days to obtain the information from the Land Office. The land title search would also involve a check at the local city planning office located at the local government office to determine the intended use of the said plot of 3 days Rp. 50,000 1 land, whether for residences, industry or green belt. No written statement is given, but a note made on the certificate saying 'Has been examined and in accordance with the register at the Land Office'. The cost for this procedure is IRD 50,000. The PPAT pays this fee at a bank and brings the payment receipt to the Land Office for the examination to start. Agency: Land Office Payment of the transfer and acquisition taxes 5% of the property price (Transfer Tax) The seller must pay the Transfer Tax prior to the execution of the transfer deed. The tax on Transfer of Land and Building (Transfer Tax) in the + 5% of the amount of 5% which is calculated on the sale or transfer value. In case property price the sale value is higher than the Sales Value of the Tax Object ("NJOP"), minus Rp. 2 1 day then the sale value will be used. If the sale value is lower than the NJOP, 80,000,000 which then the NJOP value will be used. is tax-free (Tax on Acquisition of The Transfer Tax is paid to a Bank Persepsi - bank appointed by the Land and Building) Ministry of Finance to accept tax payments. Tax to the local government is paid at the Local Government Bank (Bank Badan Usaha Milik Daerah) Doing Business 2017 Indonesia 77 Time to No. Procedure Cost to complete complete and/or other private commercial bank (Article 4.2 of Law No. 7/1983, amended by Law No. 10/1994 and Law 17/2000 concerning Income Tax) and Parts 2.1 and 5.1 of the Director General of Taxation Circular No. SE- 04/P.J.33/1996 dated August 26, 1996. The buyer pays the Tax on Acquisition of Land and Building (BPHTB) in the amount of 5% of the sale value or transfer value. The BPHTB Formula: The buyer pays the BPHTB in the amount of 5% x Sale value or Transfer value or Nilai Perolehan Obyek Pajak or NPOP – Non-Taxable Sale Value or Nilai Perolehan Obyek Pajak Tidak Kena Pajak or NPOPTKP, which is determined regionally. (According to Article 7 of Law No. 20/2000 concerning the amendment of law No. 21/1997 concerning the Tax on Acquisition of Land and Building). In Jakarta, the NPOPTKP is Rp. 80,000,000 (according to Article 5 paragraph 7 of the Regional Decree of Special Province of Jakarta No. 18/2010 concerning the Tax on Acquisition of Land and Building (BPHTB). This tax is paid at a Bank Persepsi, appointed by the State Treasury to accept tax payments, or at a post office where the land is located. Agency: Bank Execution of sale and purchase of Land Deed by a PPAT official The execution of the sale and purchase of Land Deed is made before Land Officials (who are often public notaries as well) appointed by the Head of the National Land Office (PPAT) or a local Head of a District (Camat PPAT), after the taxes in Procedures 3 and 4 have been paid. For convenience, those payments are usually made by the notary three days before the execution of the sale-purchase deed. The PPAT obtains an appointment with the Land Office using the online platform (loket.bpn.go.id) to register the land deed. The documentation shall include: (i) Original land certificate 1% of the property 3 (ii) Evidence of the latest payment of Tax on Land and Building (PBB). 5 days value Every year, the local PBB Tax Office issues a tax assessment to land owners. By custom, the buyer usually wants to obtain the original of the payment of PBB for the past three years and utility bills for the last three months--though in practice the office will check the last 10 years. The Land Deed Officer drawing up the sale and purchase deed will only need to see the most recent PBB while the Land Office will need a copy of the most recent PBB for registering the land into the name of the new owner. (iii) Evidence of payment of Tax on Transfer of Land and Building (Transfer Tax) (iv) Evidence of deed of Company Establishment which was already authorized by the Ministry of Justice (v)Company Tax-Registration Numbers (NPWP) of the seller and the Doing Business 2017 Indonesia 78 Time to No. Procedure Cost to complete complete purchaser (vi) Deed of Establishment and its amendments of both the seller and purchaser; (vii) Corporate approvals of the seller to dispose of the land and the purchaser to acquire the land as required in the Articles of Association of both the seller and purchaser (viii) Advise Planning from the City Administration Institution (ix) Permit for Building Establishment Agency: Land Deed/PPAT Official Registration of the Land Deed at the local Land Office under the name of the buyer Registration of the Land Deed at the local Land Office to have the purchaser’s name registered and recorded in the land certificate. At the 1/1000 of the latest of 7 (seven) days as of the signing date of the sale and purchase of property value + Land Deed, the notary submits such deed including its supporting Rp. 50,000 documents to the Land Office, but in practice the wait is much longer (administrative 4 because of the backlog. (Article 40 sub 1 of Government Regulation No. 15 days fee) + Stamp duty 24/1997 concerning the Land Registration). In theory, the registration of Rp. 6,000 per process should be completed within the 5 days statutory time limit. The document (2 Land Office crosses out the name of the previous owner and inserts the name of the buyer, stamps and signs it. required) Agency: Land Office Registration of the Land Deed at the Jakarta Regional Government Revenue Office under the name of a buyer In connection to the registration of the Land Deed at the Tax on Land and Building Office, the change of ownership must be registered with the Tax Office. The taxpayer should report manually to the Tax Office 5 with regard to the transfer of land title. 1 day no cost Agency: Jakarta Regional Government Revenue Office ("Regional Tax Office") * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for registering property in Indonesia Surabaya Time to No. Procedure Cost to complete complete Doing Business 2017 Indonesia 79 Time to No. Procedure Cost to complete complete Land certificate examination at the local Land Office (BPN) A land certificate examination is carried out by a Land Deed Official. If the land book concerned is available at the Land Office, it usually takes 1 day. However, sometimes the land book is unavailable, misplaced or being used by another division of the Land Office, so then the examination process will be pending and it usually takes a few days to obtain the information from the Land Office. The Regulation of the National Land Agency Number 1 of 2010 stipulates that the requirements to examine the land certificate include the following: a. Land Ownership Certificate; b. Copy of the applicant’s identification or its proxy; 3 days c. Letter of request from the Land Deed Official (PPAT) for the transfer of (simultaneous IDR 50,000 1 rights by virtue of the Deed of the Land Deed Officer. with procedure 2) The land title search would also involve a check at the local City Planning Office, located at the local government office, to determine the intended use of the said plot of land, whether for residences, industry or green belt. No written statement is given, but a note made on the certificate saying 'Has been examined and according to the Land Registry/ Land Book at the Land Office, dated_______, time ________' and initialed by the officer at the Land Office. Agency: Land Office Payment of the transfer and acquisition tax The seller pays the Tax on Transfer of Land and Building (Transfer Tax) in the amount of 5% which is calculated on the transfer value. Taxes to the central government can be paid at any commercial bank. The buyer pays the Tax on Acquisition of Land and Building (BPHTB) in the amount of 5% x [(transfer value or sale value or Nilai Perolehan Obyek Pajak (NPOP)) – (non-taxable sale value or Nilai Perolehan Obyek Seller pays 5% of Pajak Tidak Kena Pajak (NPOPTKP))]. According to the law on Local Tax property value and (Law No. 28/2009), the BPHTB belongs to the local government. Taxes to 1 day buyer pays 5% of *2 the local government are paid at a Local Government Bank (as per Article (simultaneous property minus 4.2 of Law No. 7/1983, amended by Law No. 10/1994 and Law 17/2000 with procedure 1) IDR 75 million, concerning Income Tax and Parts 2.1 and 5.1 of the Director General of which is tax free Taxation Circular No. SE-04/P.J.33/1996 dated August 26, 1996). Article 87 point 4 of the Law sets a minimum value for the NPOPTKP at IDR 60,000,000. For Surabaya, the local regulation (Perda No. 11/2010) stipulates a NPOPTKP of IDR 75,000,000. Agency: Commercial Bank Doing Business 2017 Indonesia 80 Time to No. Procedure Cost to complete complete Execution of sale and purchase agreement of Land Deed by a Land Deed Official (PPAT) appointed by the Head of the National Land Office or a local Head of a Sub-District The execution of the sale and purchase of the Land Deed is made before Land Officials, namely a Land Deed Official (PPAT) appointed by the Head of the National Land Office after the taxes in procedures 3 and 4 have been paid.The documentation shall include: a. Original land certificate; b. Evidence of the latest payment of Tax on Land and Building (PBB). Every year, the local PBB Tax Office issues a tax assessment to land owners. By custom, the buyer usually wants to obtain the original of the payment of PBB for the past three years and utility bills for the last three months--though in practice the office will check the last 10 years. The Land Deed Officer drawing up the sale and purchase deed will only need to see the most recent PBB while the Land Office will need a copy of the most recent PBB for registering the land into the name of the new owner; c. Evidence of payment of the Tax on Transfer of Land and Building 0.5% of property 3 (Transfer Tax) (obtained in Procedure 2); 1-3 days value d. Evidence of payment of the Tax on Acquisition of Land and Building (BPHTB) (obtained in Procedure 3); e. Evidence of deed of Company Establishment which was already authorized by the Ministry of Law and Human Rights; f. Company Tax-Registration Numbers (NPWP) of the seller and the purchaser g. Deed of Establishment and its amendments of both the seller and purchaser; h. Corporate approvals of the seller to dispose of the land and the purchaser to acquire the land as required in the Articles of Association of both the seller and purchaser; i. Advise Planning from the City Administration Institution; j. Permit for Building Establishment. (h) Copy of buyer and seller’s identification cards Agency: Land deed official Registration of the Land Deed at the local Land Office (BPN) under IDR 50000 + 0.1% the name of the buyer of property value 4 30 days + IDR 6,000 stamp After the buyer submits the registration of the Land Deed, she/he leaves it there and has to return some days later to pick up the Land Deed that duty per has been registered under the buyer's name. In between submission of document (2 Doing Business 2017 Indonesia 81 Time to No. Procedure Cost to complete complete the deed and pick-up, the buyer has to phone the Officer at the Land required) Office to ask about the progress. The Land Office crosses out the name of the previous owner and inserts the name of the buyer, stamps and signs it. Agency: Land Office Registration of the Land Deed at the Surabaya Regional Government Revenue Office under the name of a buyer In connection to the registration of the Land Deed, the change of ownership must be registered with the Land and Building Tax Office (PBB).Surabaya Regional Government Revenue Office. The taxpayer 1 day no cost 5 reports the transfer of land title. He must present a copy of his identification card and the new land deed. Agency: Regional Government Revenue Office * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2017 Indonesia 82 REGISTERING PROPERTY Quality of land administration The quality of land administration index is the sum of If private sector entities were unable to register property the scores on the reliability of infrastructure, transfers in an economy between June 2014 and June transparency of information, geographic coverage 2015, the economy receives a “no practice” mark on the and land dispute resolution indices. procedures, time and cost indicators. A “no practice” economy receives a score of 0 on the quality of land The index ranges from 0 to 30, with higher values administration index even if its legal framework includes indicating better quality of the land administration provisions related to land administration. system. Table 5.3 Summary of quality of land administration in Indonesia Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Quality of the land administration index (0-30) 12.5 11.5 Reliability of infrastructure index (0-8) 4.0 4.0 Badan Badan Pertanahan Pertanahan Nasional Nasional (BPN, (BPN, National What is the institution in charge of immovable National Land Land property registration? Agency) / Agency) / Kantor Kantor Pertanahan Pertanahan (Land Office) (Land Office) In what format are the majority of title or deed records kept in the largest business city—in a paper format or in Paper 0.0 Paper 0.0 a computerized format (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, mortgages, restrictions and the No 0.0 No 0.0 like)? In what format are the majority of maps of land plots Computer/Ful Computer/ kept in the largest business city—in a paper format or in 2.0 2.0 ly digital Fully digital a computerized format (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral Yes 1.0 Yes 1.0 information (geographic information system)? Is the information recorded by the immovable property Separate Separate registration agency and the cadastral or mapping 0.0 0.0 databases databases agency kept in a single database, in different but linked Doing Business 2017 Indonesia 83 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) databases or in separate databases? Do the immovable property registration agency and cadastral or mapping agency use the same Yes 1.0 Yes 1.0 identification number for properties? Transparency of information index (0–6) 3.5 3.5 Anyone Who is able to obtain information on land ownership at Anyone who who pays the agency in charge of immovable property pays the 1.0 1.0 the official registration in the largest business city? official fee fee Is the list of documents that are required to complete any type of property transaction made publicly Yes, online 0.5 Yes, online 0.5 available–and if so, how? http://site.bp http://site.b n.go.id/o/Lay pn.go.id/o/ Link for online access: anan- Layanan- Pertanahan.as Pertanahan. px aspx Is the applicable fee schedule for any property transaction at the agency in charge of immovable Yes, online 0.5 Yes, online 0.5 property registration in the largest business city made publicly available–and if so, how? http://www.b http://site.b pn.go.id/Laya pn.go.id/o/ Link for online access: nan- Layanan- Publik/Standa Pertanahan. rd-Layanan aspx Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property ownership within a Yes, online 0.5 Yes, online 0.5 specific time frame–and if so, how does it communicate the service standard? http://site.bp http://site.b n.go.id/o/Lay pn.go.id/o/ Link for online access: anan- Layanan- Pertanahan.as Pertanahan. px aspx Is there a specific and separate mechanism for filing complaints about a problem that occurred at the No 0.0 No 0.0 agency in charge of immovable property registration? Doing Business 2017 Indonesia 84 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Contact information: Are there publicly available official statistics tracking the number of transactions at the immovable property No 0.0 No 0.0 registration agency? Number of property transfers in the largest business city in 2015: Only Only intermediarie intermediar Who is able to consult maps of land plots in the largest s and 0.0 ies and 0.0 business city? interested interested parties parties Is the applicable fee schedule for accessing maps of Yes, online 0.5 Yes, online 0.5 land plots made publicly available—and if so, how? http://site.b pn.go.id/o/ http://site.bp Beranda/La n.go.id/o/Ber yanan- anda/Layana Pertanahan n- /PELAYANA Pertanahan/P N- ELAYANAN- PENCATAT PENCATATAN AN-DAN- Link for online access: -DAN- INFORMASI INFORMASI- - PERTANAHA PERTANAH N/INFORMAS AN/INFOR I- MASI- PERTANAHA PERTANAH N/INFORMAS AN/INFOR I-PETA.aspx MASI- PETA.aspx Does the cadastral or mapping agency commit to delivering an updated map within a specific time Yes, online 0.5 Yes, online 0.5 frame—and if so, how does it communicate the service standard? http://site.bp http://site.b n.go.id/o/Ber pn.go.id/o/ anda/Layana Beranda/La Link for online access: n- yanan- Pertanahan/P Pertanahan ELAYANAN- /PELAYANA PEMELIHARA N- Doing Business 2017 Indonesia 85 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) AN-DATA- PENCATAT PENDAFTARA AN-DAN- N- INFORMASI TANAH/PERA - LIHAN-HAK- PERTANAH ATAS- AN/INFOR TANAH- MASI- DAN- PERTANAH SATUAN- AN/INFOR RUMAH- MASI- SUSUN/JUAL- PETA.aspx BELI.aspx Is there a specific and separate mechanism for filing complaints about a problem that occurred at the No 0.0 No 0.0 cadastral or mapping agency? Geographic coverage index (0–8) 0.0 0.0 Are all privately held land plots in the economy No 0.0 No 0.0 formally registered at the immovable property registry? Are all privately held land plots in the largest business city formally registered at the immovable property No 0.0 No 0.0 registry? Are all privately held land plots in the economy No 0.0 No 0.0 mapped? Are all privately held land plots in the largest business No 0.0 No 0.0 city mapped? Land dispute resolution index (0–8) 5.0 4.0 Does the law require that all property sale transactions be registered at the immovable property registry to Yes 1.5 Yes 1.5 make them opposable to third parties? Is the system of immovable property registration Yes 0.5 Yes 0.5 subject to a state or private guarantee? Is there a specific compensation mechanism to cover for losses incurred by parties who engaged in good faith in a property transaction based on erroneous No 0.0 No 0.0 information certified by the immovable property registry? Does the legal system require a control of legality of the documents necessary for a property transaction Yes 0.5 Yes 0.5 (e.g., checking the compliance of contracts with Doing Business 2017 Indonesia 86 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) requirements of the law)? If yes, who is responsible for checking the legality of Registrar; Registrar; the documents? Notary. Notary. Does the legal system require verification of the Yes 0.5 Yes 0.5 identity of the parties to a property transaction? If yes, who is responsible for verifying the identity of Registrar; Registrar; the parties? Notary. Notary. Is there a national database to verify the accuracy of Yes 1.0 Yes 1.0 identity documents? For a standard land dispute between two local businesses over tenure rights of a property worth 50 District times gross national income (GNI) per capita and District Court Court located in the largest business city, what court would be in charge of the case in the first instance? How long does it take on average to obtain a decision Between 2 More than from the first-instance court for such a case (without 1.0 0.0 and 3 years 3 years appeal)? Are there any statistics on the number of land disputes No 0.0 No 0.0 in the first instance? Number of land disputes in the largest business city in 2015: Equal access to property rights index (-2–0) 0.0 0.0 Do unmarried men and unmarried women have equal Yes 0.0 Yes 0.0 ownership rights to property? Do married men and married women have equal Yes 0.0 Yes 0.0 ownership rights to property? Source: Doing Business database. Doing Business 2017 Indonesia 87 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 to view and consider a potential borrower’s Strength of legal rights index (0–12) financial history (positive or negative) when assessing Rights of borrowers and lenders through risk and they allow borrowers to establish a good collateral laws credit history that will facilitate their access to credit. Protection of secured creditors’ rights through Sound collateral laws enable businesses to use their bankruptcy laws assets, especially movable property, as security to generate capital—while strong creditors’ rights have Depth of credit information index (0–8) been associated with higher ratios of private sector Scope and accessibility of credit information credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting credit Notes section of the Doing Business 2017 report). is determined by sorting their distance to frontier These scenarios assume that the borrower: scores for getting credit. These scores are the distance to frontier score for the strength of legal rights index  Is a domestic limited liability company. and the depth of credit information index.  Has its headquarters and only base of 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 2017 Indonesia 88 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Indonesia stands at 62 in the ranking of 190 and bankruptcy laws in Indonesia facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 6.0 on the depth of rankings for comparator economies provide useful credit information index and a score of 6.0 on the information for assessing how well regulations and strength of legal rights index (see the summary of institutions in Indonesia support lending and borrowing. scoring at the end of this chapter for details). Higher scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Indonesia and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2017 Indonesia 89 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Indonesia and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Source: Doing Business database. Source: Doing Business database. Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2017 Indonesia 90 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Indonesia (table 6.1)? Table 6.1 How has Indonesia made getting credit easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Indonesia improved its credit information system through a DB2014 new regulation setting up a legal framework for establishing credit bureaus. Indonesia improved access to credit by enabling searches of the DB2016 collateral registry by the debtor’s name. This reform applies to both Jakarta and Surabaya. Indonesia strengthened access to credit by establishing a DB2017 modern collateral registry. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Indonesia 91 GETTING CREDIT What are the details? The getting credit indicators reported here for Indonesia The data on the legal rights of borrowers and lenders are are based on detailed information collected in that gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as well collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Jakarta Surabaya Strength of legal rights index (0–12) Index score: 6.0 Index score: 6.0 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional 0 0 equivalents to security interests in movable assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of movable assets, without requiring a specific description 1 1 of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without requiring a specific description of 0 0 collateral? May a security right extend to future or after-acquired assets, and may it extend automatically to the products, proceeds or replacements of the 1 1 original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between 1 1 parties; and can the collateral agreement include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non- incorporated entities, that is unified geographically and by asset type, with 1 1 an electronic database indexed by debtor's name? Can banks and financial institutions access borrowers’ credit information online (for example, through a web interface, a system-to-system 0 0 connection or both)? Does a modern collateral registry exist in which registrations, amendments, cancellations and searches can be performed online by any 1 1 interested third party? Are secured creditors paid first (i.e. before tax claims and employee 0 0 claims) when a debtor defaults outside an insolvency procedure? Doing Business 2017 Indonesia 92 Jakarta Surabaya Strength of legal rights index (0–12) Index score: 6.0 Index score: 6.0 Are secured creditors paid first (i.e. before tax claims and employee 0 0 claims) when a business is liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law 1 1 protect secured creditors’ rights by providing clear grounds for relief from the stay and/or sets a time limit for it? Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor 0 0 to sell the collateral through public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 6.0 Are data on both firms and individuals distributed? No Yes 1 Are both positive and negative credit data distributed? No Yes 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - No No 0 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years of negative data or erase data on No Yes 1 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per No Yes 1 capita distributed? By law, do borrowers have the right to access their No Yes 1 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an No Yes 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions No No 0 assess the creditworthiness of borrowers? Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2017 Indonesia 93 Coverage Credit bureau Credit registry Number of individuals 0 88,916,927 Number of firms 0 602,452 Total 0 89,519,379 Total percentage of adult population 0.0 51.8 Source: Doing Business database. Doing Business 2017 Indonesia 94 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions; Disclosure requirements for related- What do the indicators cover? party transactions Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold indicators and shareholders’ rights in corporate interested directors liable for prejudicial related- governance through another. The ranking of economies party transactions; Available legal remedies on the strength of minority investor protections is (damages, disgorgement of profits, fines, determined by sorting their distance to frontier scores imprisonment, rescission of the transaction) for protecting minority investors. These scores are the Ease of shareholder suits index (0–10) simple average of the distance to frontier scores for the extent of conflict of interest regulation index and the Access to internal corporate documents; Evidence extent of shareholder governance index. To make the obtainable during trial and allocation of legal data comparable across economies, a case study uses expenses several assumptions about the business and the Extent of conflict of interest regulation index transaction. (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of shareholder indices  Is a publicly traded corporation listed on the economy’s most important stock exchange If the Extent of shareholder rights index (0-10) number of publicly traded companies listed on that Shareholders’ rights and role in major corporate exchange is less than 10, or if there is no stock decisions exchange in the economy, it is assumed that Buyer is a large private company with multiple Extent of ownership and control index (0-10) shareholders. Governance safeguards protecting shareholders  Has a board of directors and a chief executive from undue board control and entrenchment officer (CEO) who may legally act on behalf of Buyer Extent of corporate transparency index (0-10) where permitted, even if this is not specifically required by law. Corporate transparency on ownership stakes,  Has a supervisory board (applicable to economies compensation, audits and financial prospects with a two-tier board system) on which 60% of the Extent of shareholder governance index shareholder-elected members have been appointed (0–10) by Mr. James, who is Buyer’s controlling Simple average of the extent of shareholders rights, shareholder and a member of Buyer’s board of extent of ownership and control and extent of directors. corporate transparency indices  Has not adopted any bylaws or articles of Strength of minority investor protection association that differ from default minimum index (0–10) standards and does not follow any nonmandatory codes, principles, recommendations or guidelines Simple average of the extent of conflict of interest regulation and extent of shareholder governance relating to corporate governance. indices Doing Business 2017 Indonesia 95  Is a manufacturing company with its own distribution network. The transaction involves the following details:  Mr. James owns 60% of Buyer and elected two directors to Buyer’s five-member board.  Mr. James also owns 90% of Seller, a company that operates a chain of retail hardware stores. Seller recently closed a large number of its stores Mr. James proposes that Buyer purchase Seller’s unused fleet of trucks to expand Buyer’s distribution of its food products, a proposal to which Buyer agrees. The price is equal to 10% of Buyer’s assets and is higher than the market value.  The proposed transaction is part of the company’s ordinary course of business and is not outside the authority of the company.  Buyer enters into the transaction. All required approvals are obtained, and all required disclosures made (that is, the transaction is not fraudulent).  The transaction causes damages to Buyer. Shareholders sue Mr. James and the other parties that approved the transaction. Doing Business 2017 Indonesia 96 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Indonesia? The economy has a score of not measure all aspects related to the protection of 5.7 on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Indonesia stands at 70 in the ranking of 190 economies on the strength of minority investor Figure 7.1 How Indonesia and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2017 Indonesia 97 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the A summary of scoring for the protecting minority investors protecting minority investors indicators into context indicators at the end of this chapter provides details on is to see where the economy stands in the how the indices were calculated. distribution of scores across comparator economies. Figure 7.2 highlights the scores on the various minority investor protection indices for Indonesia. Figure 7.2 Summary of the various minority investor protection indices for Indonesia and comparator economies. Source: Doing Business database. Doing Business 2017 Indonesia 98 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Indonesia are based on detailed information shareholder rights, ownership and control and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2017 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Indonesia. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Indonesia Answer Score Answer (Jakarta) Score (Jakarta) (Surabaya) (Surabaya) Strength of minority investor protection index (0-10) 5.7 5.7 Extent of conflict of interest regulation index (0-10) 5.7 5.7 Extent of disclosure index (0-10) 10.0 10.0 Shareholders Shareholders Which corporate body is legally sufficient to approve the excluding excluding 3.0 3.0 Buyer-Seller transaction? (0-3) interested interested parties parties Full disclosure Must Mr. James disclose his conflict of interest to the board Full disclosure of 2.0 of all material 2.0 of directors? (0-2) all material facts facts Disclosure on Disclosure on the the transaction Must Buyer disclose the transaction in published periodic transaction and 2.0 and on the 2.0 filings (annual reports)? (0-2) on the conflict of conflict of interest interest Disclosure on Disclosure on the the transaction Must Buyer immediately disclose the transaction to the transaction and 2.0 and on the 2.0 public and/or shareholders? (0-2) on the conflict of conflict of interest interest Must an external body review the terms of the transaction Yes 1.0 Yes 1.0 before it takes place? (0-1) Extent of director liability index (0-10) 5.0 5.0 Can shareholders representing 10% of Buyer's share capital sue directly or derivatively for the damage the transaction Yes 1.0 Yes 1.0 caused to Buyer? (0-1) Can shareholders hold the interested director liable for the Liable if Liable if negligent 1.0 1.0 damage the transaction caused to Buyer? (0-2) negligent Can shareholders hold the other directors liable for the Not liable 0.0 Not liable 0.0 damage the transaction caused to Buyer (0-2) Must Mr. James pay damages for the harm caused to Buyer Yes 1.0 Yes 1.0 upon a successful claim by shareholders? (0-1) Must Mr. James repay profits made from the transaction No 0.0 No 0.0 upon a successful claim by shareholders? (0-1) Is Mr. James disqualifed or fined and imprisoned upon a No 0.0 No 0.0 Doing Business 2017 Indonesia 99 successful claim by shareholders? (0-1) Voidable if Can a court void the transaction upon a successful claim by Voidable if unfair 2.0 unfair or 2.0 shareholders? (0-2) or prejudicial prejudicial Ease of shareholder suits index (0-10) 2.0 2.0 Before suing can shareholders representing 10% of Buyer's Yes 1.0 Yes 1.0 share capital inspect the transaction documents? (0-1) Can the plaintiff obtain any documents from the defendant No 0.0 No 0.0 and witnesses at trial? (0-3) Can the plaintiff request categories of documents from the No 0.0 No 0.0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Preapproved Preapproved 1.0 1.0 witnesses at trial? (0-2) questions only questions only Is the level of proof required for civil suits lower than that of No 0.0 No 0.0 criminal cases? (0-1) At the Can shareholder plaintiffs recover their legal expenses from At the discretion 0.0 discretion of 0.0 the company? (0-2) of the court the court Extent of shareholder governance index (0-10) 5.7 5.7 Extent of shareholder rights index (0-10) 6.0 6.0 Does the sale of 51% of Buyer's assets require shareholder Yes 1.0 Yes 1.0 approval? Can shareholders representing 10% of Buyer's share capital Yes 1.0 Yes 1.0 call for an extraordinary meeting of shareholders? Must Buyer obtain its shareholders’ approval every time it Yes 1.0 Yes 1.0 issues new shares? Do shareholders automatically receive preemption rights No 0.0 No 0.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the No 0.0 No 0.0 external auditor? Are changes to the rights of a class of shares only possible if No 0.0 No 0.0 the holders of the affected shares approve? Assuming that Buyer is a limited company, does the sale of Yes 1.0 Yes 1.0 51% of its assets require member approval? Assuming that Buyer is a limited company, can members representing 10% call for an extraordinary meeting of Yes 1.0 Yes 1.0 members? Assuming that Buyer is a limited company, must all members No 0.0 No 0.0 consent to add a new member? Assuming that Buyer is a limited company, must a member first offer to sell his interest to the existing members before Yes 1.0 Yes 1.0 selling to a non-member? Extent of ownership and control index (0-10) 6.0 6.0 Is it forbidden to appoint the same individual as CEO and Yes 1.0 Yes 1.0 chair of the board of directors? Must the board of directors include independent and No 0.0 No 0.0 nonexecutive board members? Can shareholders remove members of the board of directors Yes 1.0 Yes 1.0 without cause before the end of their term? Must the board of directors include a separate audit No 0.0 No 0.0 committee exclusively comprising board members? Must a potential acquirer make a tender offer to all Yes 1.0 Yes 1.0 Doing Business 2017 Indonesia 100 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by Yes 1.0 Yes 1.0 law after the declaration date? Is a subsidiary prohibited from acquiring shares issued by its Yes 1.0 Yes 1.0 parent company? Assuming that Buyer is a limited company, is there a Yes 1.0 Yes 1.0 management deadlock breaking mechanism? Assuming that Buyer is a limited company, must a potential acquirer make a tender offer to all shareholders upon No 0.0 No 0.0 acquiring 50% of Buyer? Assuming that Buyer is a limited company, must Buyer distribute profits within a maximum period set by law after No 0.0 No 0.0 the declaration date? Extent of corporate transparency index (0-10) 5.0 5.0 Must Buyer disclose direct and indirect beneficial ownership No 0.0 No 0.0 stakes representing 5%? Must Buyer disclose information about board members’ other directorships as well as basic information on their Yes 1.0 Yes 1.0 primary employment? Must Buyer disclose the compensation of individual Yes 1.0 Yes 1.0 managers? Must a detailed notice of general meeting be sent 21 days No 0.0 No 0.0 before the meeting? Can shareholders representing 5% of Buyer’s share capital Yes 1.0 Yes 1.0 put items on the agenda for the general meeting? Must Buyer's annual financial statements be audited by an Yes 1.0 Yes 1.0 external auditor? Must Buyer disclose its audit reports to the public? Yes 1.0 Yes 1.0 Assuming that Buyer is a limited company, must members No 0.0 No 0.0 meet at least once a year? Assuming that Buyer is a limited company, can members No 0.0 No 0.0 representing 5% put items on the meeting agenda? Assuming that Buyer is a limited company, must Buyer's annual financial statements be audited by an external No 0.0 No 0.0 auditor? Source: Doing Business database. Doing Business 2017 Indonesia 101 PAYING TAXES Taxes are essential. The level of tax rates needs to be WHAT THE PAYING TAXES INDICATORS carefully chosen—and needless complexity in tax rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2014 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business records the Method and frequency of filing and payment taxes and mandatory contributions that a medium- size company must pay in a given year as well as Time required to comply with 3 major taxes measures of the administrative burden of paying (hours per year) taxes and contributions and dealing with postfiling Collecting information and computing the tax processes. This case scenario uses a set of financial payable statements and assumptions about transactions made over the year. Information is also compiled on Completing tax return forms, filing with the frequency of filing and payments, time taken to proper agencies comply with tax laws, time taken to comply with the Arranging payment or withholding requirements of postfiling processes and time Preparing separate tax accounting books, if waiting for these processes to be completed. The required ranking of economies on the ease of paying taxes is 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 Profit or corporate income tax the simple average of the distance to frontier scores Social contributions and labor taxes paid by for each of the four component indicators – number the employer of tax payments. time, total tax rate and postfiling index – with a threshold and a nonlinear Property and property transfer taxes transformation applied to one of the component Dividend, capital gains and financial indicators, the total tax rate1. If both VAT (or GST) transactions taxes and corporate income tax apply, the postfiling index Waste collection, vehicle, road and other taxes is the simple average of the distance to frontier scores for each of the four components: the time to Postfiling Index comply with a VAT or GST refund, the time to obtain The time to comply with a VAT or GST refund a VAT or GST refund, the time to comply with a corporate income tax audit and the time to complete The time to receive a VAT or GST refund a corporate income tax audit. If only VAT (or GST) or The time to comply with a corporate income corporate income tax applies, the postfiling index is tax audit the simple average of the scores for only the two The time to complete a corporate income tax components pertaining to the applicable tax. If audit neither VAT (or GST) nor corporate income tax 1 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. 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 2017 Indonesia 102 applies, the postfiling index is not included in the Assumptions about the corporate income tax ranking of the ease of paying taxes. audit process: Taxes and mandatory contributions include  An error in the calculation of the income tax corporate income tax, turnover tax and all labor liability (for example, use of incorrect tax taxes and contributions paid by the company. A depreciation rates, or incorrectly treating an range of standard deductions and exemptions are expense as tax deductible) leads to an also recorded. incorrect income tax return and consequently All financial statement variables are proportional to an underpayment of corporate income tax. 2012 income per capita. To make the data  TaxpayerCo. discovered the error and comparable across economies, several assumptions voluntarily notified the tax authority of the are used. error in the corporate income tax return. TaxpayerCo is a medium-size business that started operations on January 1, 2014. The business starts from the same financial position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded. Taxes and mandatory contributions are measured at all levels of government. Assumptions about the VAT refund process:  In June 2015, TaxpayerCo. makes a large capital purchase: one additional machine for manufacturing pots.  The value of the machine is 65 times income per capita of the economy.  Sales are equally spread per month (that is, 1,050 times income per capita divided by 12).  Cost of goods sold are equally expensed per month (that is, 875 times income per capita divided by 12).  The seller of the machinery is registered for VAT or general sales tax (GST).  Excess input VAT incurred in June will be fully recovered after four consecutive months if the VAT or GST rate is the same for inputs, sales and the machine and the tax reporting period is every month. . Doing Business 2017 Indonesia 103 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with tax the end of this chapter for details). Most indicator sets obligations and postfiling processes in Indonesia—and refer to a case scenario in the largest business city of an how much do firms pay in taxes? Globally, Indonesia economy, except for 11 economies for which the data stands at in the ranking of 190 economies on the ease are a population-weighted average of the 2 largest of paying taxes (figure 8.1). The rankings for comparator business cities. See the chapter on distance to frontier economies and the regional average ranking provide and ease of doing business ranking at the end of this other useful information for assessing the tax compliance profile for more details. burden for businesses in (see table 8.2 and table 8.3 at . Figure 8.1 How Indonesia and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2017 Indonesia 104 PAYING TAXES Economies around the world have made paying taxes and exemptions. Many have lowered tax rates. Changes faster, easier and less costly for businesses—such as by have brought concrete results. Some economies consolidating payments and filings of taxes, offering simplifying tax payment and reducing rates have seen electronic systems for filing and payment, establishing tax revenue rise. What tax reforms has Doing Business taxpayer service centers or allowing for more deductions recorded in Indonesia (table 8.1)? Table 8.1 How has Indonesia made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform DB2011 Indonesia reduced its corporate income tax rate. Indonesia made paying taxes less costly for companies by DB2015 reducing employers’ health insurance contribution rate. This reform applies to both Jakarta and Surabaya. Indonesia made paying taxes easier and less costly for companies by introducing an online system for paying social DB2016 security contributions and by reducing both the rate paid by employers and the ceiling for the contributions. This reform applies to both Jakarta and Surabaya. Indonesia made paying taxes easier by introducing an online system for filing and paying health contributions. Indonesia also DB2017 made paying taxes more costly by levying a new pension contribution at a rate of 2% paid by employers. These reforms apply to both Jakarta and Surabaya. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Indonesia 105 PAYING TAXES What are the details? The indicators reported here for Indonesia are based LOCATION OF STANDARDIZED COMPANY on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Jakarta, Surabaya chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of The taxes and contributions paid are listed in table 8.2 assumptions and transactions that the company below, along with the associated number of payments, completed during its 2nd year of operation. time and tax rate. Respondents are asked how much taxes and mandatory contributions the business must pay how The postfiling index is based on four components—the these taxes are filed and paid, how much time time to comply with a VAT or GST refund, the time to taxpayers spend preparing, filing and paying three obtain a VAT or GST refund, the time to comply with a major taxes (profit taxes, labor taxes including corporate income tax audit and the time to complete a mandatory contributions and consumption taxes) and corporate income tax audit. These components are how much time taxpayers spend complying with based on expanded case study assumptions. If only VAT postfiling processes and waiting for these processes (or GST) or corporate income tax applies for an to be completed. economy, the postfiling index is the simple average of the scores for only the two components pertaining to the applicable tax. If neither VAT (or GST) nor corporate income tax applies, the postfiling index is not included in the ranking of the ease of paying taxes. Table 8.2 Summary of tax rates and administration Total tax Notes on Jakarta: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate 6% (2% pension Employer paid - Social gross 1 Online 56 contributio 5.91 security contributions salary n as of July 1, 2015) Employer paid - Health gross 1 online 4% 4.38 insurance contributions salary Capital gains tax 1 5% proceed 3.03 12.5% - taxable Corporate income tax 13 75 16.90 25% * income Doing Business 2017 Indonesia 106 Total tax Notes on Jakarta: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate value of the land and building Property tax 1 0.2% 0.29 determine d by the governme nt sales price Vehicle registration tax 1 1% and 0.08 weight transactio not Value added tax (VAT) 12 90 10% 0.00 n value included Employee paid - Social gross 0 Jointly 2% 0.00 withheld security contributions salary Employee paid - Payroll tax gross 12 5% - 30% 0.00 withheld on employee salary Employee paid - Health Care gross 0 Jointly 0.5% 0.00 withheld contributions salary Stamp duty 1 Rp 6,000 fixed fee 0.00 Totals 43.0 221.0 30.6 Total tax Notes on Surabaya: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Employer paid - Social gross 1 online 56 4.24% 5.91 security contributions salary Employer paid - Health gross 1 online 4% 4.38 insurance contributions salary Capital gains tax 1 5% proceed 3.03 12.5% - taxable Corporate income tax 13 75 16.90 25% * income Doing Business 2017 Indonesia 107 Total tax Notes on Surabaya: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate value of the land and building Property tax 1 0.2% 0.29 determine d by the governme nt sales price Vehicle registration tax 1 1% and 0.08 weight transactio not Value added tax (VAT) 12 90 10% 0.00 n value included Employee paid - Social gross 0 Joint 2% 0.00 withheld security contributions salary Employee paid - Payroll tax gross 12 5% - 30% 0.00 withheld on employee salary Employee paid - Health Care gross 0 Joint 0.5% 0.00 withheld contributions salary Stamp duty 1 Rp 6,000 fixed fee 0.00 Totals 43.0 221.0 30.6 Source: Doing Business database. Doing Business 2017 Indonesia 108 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 use of paper documents, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead Documentary compliance – cost & time to extra costs and delays for exporters and Obtain, prepare and submit documents: importers, stifling trade potential. -During transport, clearance, inspections and port What do the indicators cover? or border handling in origin economy Doing Business records the time and cost -Required by origin, destination and transit associated with the logistical process of exporting economies and importing goods. Under the new Covers all documents by law and in practice methodology introduced this year, Doing Business Border compliance – cost & time measures the time and cost (excluding tariffs) associated with three sets of procedures — Customs clearance and inspections documentary compliance, border compliance and Inspections by other agencies if applied to more domestic transport—within the overall process of than 10% of shipments) exporting or importing a shipment of goods. The Port or border handling ranking of economies on the ease of trading across borders is determined by sorting their Processing documents during clearance, distance to frontier scores for trading across inspections and port or border handling borders. These scores are the simple average of Domestic transport* the distance to frontier scores for the time and Loading and unloading of shipment cost for documentary compliance and border compliance to export and import (domestic Transport between warehouse and terminal/port transport is not used for calculating the ranking). Transport between terminal/port and border Traffic delays and road police checks while To make the data comparable across economies, a shipment is en route few assumptions are made about the traded goods and the transactions: * Although Doing Business collects and publishes data on the time and cost for domestic transport, it does not use these Time data in calculating the distance to frontier score for trading  Time is measured in hours, and 1 day is 24 across borders or the ranking on the ease of trading across hours (for example, 22 days are recorded as 22 borders. × 24 = 528 hours). If customs clearance takes 7.5 hours, the data are recorded as is. Cost Alternatively, suppose that documents are  Insurance cost and informal payments for which no submitted to a customs agency at 8:00 a.m., are receipt is issued are excluded from the costs recorded. processed overnight and can be picked up at Costs are reported in U.S. dollars. Contributors are 8:00 a.m. the next day. In this case the time for asked to convert local currency into U.S. dollars based customs clearance would be recorded as 24 on the exchange rate prevailing on the day they answer hours because the actual procedure took 24 the questionnaire. hours. Doing Business 2017 Indonesia 109 Assumptions of the case study  If government fees are determined by the value of the shipment, the value is assumed to be $50,000.  For each of the 190 economies covered by Doing Business, it is assumed that a shipment  The product is new, not secondhand or used travels from a warehouse in the largest business merchandise. city of the exporting economy to a warehouse in the largest business city of the importing  The exporting firm is responsible for hiring and paying economy. For 11 economies the data are also for a freight forwarder or customs broker (or both) and collected, under the same case study pays for all costs related to international shipping, assumptions, for the second largest business domestic transport, clearance and mandatory city. inspections by customs and other government agencies, port or border handling, documentary  The import and export case studies assume compliance fees and the like for exports. The importing different traded products. It is assumed that firm is responsible for the above costs for imports. each economy imports a standardized shipment of 15 metric tons of containerized  The mode of transport is the one most widely used for auto parts (HS 8708) from its natural import the chosen export or import product and the trading partner—the economy from which it imports partner, as is the seaport, airport or land border the largest value (price times quantity) of auto crossing. parts. It is assumed that each economy exports the product of its comparative advantage  All electronic submissions of information requested by (defined by the largest export value) to its any government agency in connection with the natural export partner—the economy that is the shipment are considered to be documents obtained, largest purchaser of this product. Special prepared and submitted during the export or import products such as precious metal and gems, live process. animals and pharmaceuticals are excluded from the list of possible export products. However,  A port or border is defined as a place (seaport, airport the second largest product category is or land border crossing) where merchandise can enter considered as needed. or leave an economy.  A shipment is a unit of trade. Export shipments  Government agencies considered relevant are agencies do not necessarily need to be containerized, such as customs, port authorities, road police, border while import shipments of auto parts are guards, standardization agencies, ministries or assumed to be containerized. departments of agriculture or industry, national security agencies and any other government authorities. Doing Business 2017 Indonesia 110 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Borders indicator refers to a case Globally, Indonesia stands at 108 in the ranking of 190 study scenario of a warehouse in the largest business city economies on the ease of trading across borders (figure of an economy (except for 11 economies for which the 9.1). data are a population-weighted average of the 2 largest While not included in the distance to frontier or ease of business cities) trading with the main import and export doing business ranking, data on domestic transportation partner through the economy’s main border crossing. is also recorded for all economies and provided in Table 9.3. Figure 9.1 How Indonesia and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2017 Indonesia 111 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing Business tools to facilitate trade—including single windows, risk- recorded in Indonesia (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Indonesia made trading across borders easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Indonesia reduced the time to export by launching a single- DB2011 window service. In Indonesia trading across borders became more difficult DB2015 because of insufficient infrastructure at the Tanjung Priok Port Jakarta. This change applies to both Jakarta and Surabaya. Indonesia made exporting and importing easier by improving DB2017 the customs services and document submission functions of the Indonesia National Single Window. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Indonesia 112 TRADING ACROSS BORDERS What are the details? The indicators reported here for Indonesia are based LOCATION OF STANDARDIZED COMPANY on a set of specific predefined procedures for trading a shipment of goods by the most widely used mode of transport (whether sea or land). The information City: Jakarta, Surabaya on the time and cost to complete export and import is collected from local freight forwarders, customs The details on the predefined set of procedures, and the brokers and traders. associated time and cost, for exporting and importing a shipment of goods are listed in the summary bellow, along with the required documents. Table 9.2 Summary of export and import time and cost for trading across borders in Indonesia Jakarta Surabaya East Asia & Pacific Time to export: Border compliance 48 72 57 (hours) Cost to export: Border compliance 250 267 402 (USD) Time to export: Documentary 60 66 73 compliance (hours) Cost to export: Documentary 130 170 132 compliance (USD) Time to import: Border compliance 80 168 71 (hours) Cost to import: Border compliance 384 376 436 (USD) Time to import: Documentary 132 136 71 compliance (hours) Cost to import: Documentary 160 180 128 compliance (USD) Source: Doing Business database. Table 9.3 Summary of trading details, transport time and documents for trading across borders in Indonesia Jakarta Surabaya Export Import Export Import HS 15 : Animal or HS 8708: Parts and HS 15 : Animal or HS 8708: Parts and Product vegetable fats and accessories of vegetable fats and accessories of oils and their motor vehicles oils and their motor vehicles Doing Business 2017 Indonesia 113 Jakarta Surabaya Export Import Export Import cleavage products; cleavage products; prepared edible prepared edible fats; animal or fats; animal or vegetable waxes vegetable waxes Trade partner India Japan India Japan Border Jakarta port Jakarta port Surabaya port Surabaya port Distance (km) 21 21 15 15 Domestic transport time (hours) 7 7 5 5 Domestic transport cost (USD) 198 198 138 138 Source: Doing Business database. Documents used to export Bill of lading Commercial invoice Packing list Customs export declaration Documents used to import Bill of lading Cargo release order Commercial invoice Insurance documentation Packing list Customs import declaration (PIB) Terminal handling receipts Proof of payments of Customs Excise and Taxation (SSPCP) Source: Doing Business database. Note: Doing Business continues to collect data on the number of documents needed to trade internationally. Unlike in previous years, however, these data are excluded from the calculation of the distance to frontier score and ranking. The time and cost for documentary compliance serve as better measures of the overall cost and complexity of compliance with documentary requirements than does the number of documents required. Doing Business 2017 Indonesia 114 Figure 9.2 Summary of Indonesia on the ease of trading across borders Export (Jakarta) Import (Jakarta) Export (Surabaya) Import (Surabaya) Source: Doing Business database. Doing Business 2017 Indonesia 115 ENFORCING CONTRACTS WHAT THE ENFORCING CONTRACTS Effective commercial dispute resolution has many 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 Time to enforce the judgment court dispute. Cost required to enforce a contract through What do the indicators cover? the courts (% of claim) Doing Business measures the time and cost for Attorney fees resolving a standardized commercial dispute through 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 Quality of judicial processes index (0-18) has adopted a series of good practices that promote quality and efficiency in the court system. This new Court structure and proceedings (0-6) index replaces the indicator on procedures, which Case management (0-6) was eliminated this year. The ranking of economies 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 seller requests a pretrial attachment to secure sales contract between 2 domestic businesses. The the claim. case study assumes that the court hears an expert on  The dispute on the quality of the goods requires an the quality of the goods in dispute. This distinguishes expert opinion. the case from simple debt enforcement. To make the  The judge decides in favor of the seller; there is no data comparable across economies, Doing Business appeal. uses several assumptions about the case:  The seller enforces the judgment through a public  The dispute concerns a lawful transaction sale of the buyer’s movable assets. between two businesses (Seller and Buyer), both located in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city.  The buyer orders custom-made goods, then fails to pay.  The value of the dispute is 200% of the income per capita or the equivalent in local currency of USD 5,000, whichever is greater.  The seller sues the buyer before the court with jurisdiction over commercial cases worth 200% of income per capita or $5,000. Doing Business 2017 Indonesia 116 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial frontier and ease of doing business ranking at the end of dispute through the courts in Indonesia? According to this profile for more details. data collected by Doing Business, contract enforcement Globally, Indonesia stands at 166 in the ranking of 190 takes 471.0 days and costs 115.7% of the value of the economies on the ease of enforcing contracts (figure claim. Most indicator sets refer to the largest business 10.1). The rankings for comparator economies and the city of an economy, except for 11 economies for which regional average ranking provide other useful the data are a population-weighted average of the 2 benchmarks for assessing the efficiency of contract largest business cities. See the chapter on distance to enforcement in Indonesia. Figure 10.1 How Indonesia and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2017 Indonesia 117 ENFORCING CONTRACTS 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 contract enforcement faster. What reforms making it for ways to enhance efficiency by introducing new easier (or more difficult) to enforce contracts has Doing technology. Lower-income economies often work on Business recorded in Indonesia (table 10.1)? Table 10.1 How has Indonesia made enforcing contracts easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Indonesia made enforcing contracts easier by introducing a DB2017 dedicated procedure for small claims that allows for parties' self-representation. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Indonesia 118 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for ECONOMY DETAILS Indonesia are built by following the step-by-step evolution of a commercial sale dispute within the Claim value - court, under the assumptions about the case IDR 80,706,641 Jakarta: described above (figure 10.2). The time and cost of resolving the standardized dispute are identified Claim value - through study of the codes of civil procedure and IDR 80,706,641 Surabaya: other court regulations, as well as through questionnaires completed by local litigation lawyers Court name - (and, in a quarter of the economies covered by Jakarta District Court Jakarta: Doing Business, by judges as well). Court name - Surabaya District Court Surabaya: City: Jakarta, Surabaya Doing Business 2017 Indonesia 119 Figure 10.2 Time and cost of contract enforcement in Indonesia and comparator economies Source: Doing Business database. Doing Business 2017 Indonesia 120 Table 10.2 Details on time and cost for enforcing contracts in Indonesia East Asia & Indicator Jakarta Surabaya Pacific average Time (days) 460.0 510.0 560 Filing and service 60 60 Trial and judgment 220 180 Enforcement of judgment 180 270 Cost (% of claim) 118.1 107.3 49.1 Attorney fees 90.0 75.0 Court fees 3.1 2.3 Enforcement fees 25.0 30.0 Source: Doing Business database. Doing Business 2017 Indonesia 121 ENFORCING CONTRACTS Quality of judicial processes index The quality of judicial processes index measures The scores reported here show which of these good whether each economy has adopted a series of good practices are available in Indonesia (figure 10.3). practices in its court system in four areas: court This methodology was initially developed by Djankov and structure and proceedings, case management, court others (2003) and is adopted here with several changes. automation and alternative dispute resolution. The The quality of judicial processes index was introduced in score on the quality of judicial processes index is the Doing Business 2016. The good practices tested in this sum of the scores on these 4 sub-components. The index were developed on the basis of internationally index ranges from 0 to 18, with higher values recognized good practices promoting judicial efficiency. indicating better, more efficient judicial processes. Figure 10.3 Quality of judicial processes index in Indonesia and comparator economies Source: Doing Business database. Doing Business 2017 Indonesia 122 Table 10.3 Details of the quality of judicial processes index in Indonesia Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Quality of judicial processes index (0-18) 8.0 7.0 Court structure and proceedings (0-5) 3.0 3.0 1. Is there a court or division of a court dedicated No 0.0 No 0.0 solely to hearing commercial cases? 2. Small claims court 1.5 1.5 2.a. Is there a small claims court or a fast-track Yes Yes procedure for small claims? 2.b. If yes, is self-representation allowed? Yes Yes 3. Is pretrial attachment available? Yes 1.0 Yes 1.0 Yes, but Yes, but 4. Are new cases assigned randomly to judges? 0.5 0.5 manual manual 5. Does a woman's testimony carry the same Yes 0.0 Yes 0.0 evidentiary weight in court as a man's? Case management (0-6) 2.0 1.0 1. Time standards 1.0 1.0 1.a. Are there laws setting overall time standards for Yes Yes key court events in a civil case? 1.b. If yes, are the time standards set for at least Yes Yes three court events? 1.c. Are these time standards respected in more than Yes Yes 50% of cases? 2. Adjournments 0.0 0.0 2.a. Does the law regulate the maximum number of No No adjournments that can be granted? 2.b. Are adjournments limited to unforeseen and No No exceptional circumstances? 2.c. If rules on adjournments exist, are they respected n.a. n.a. in more than 50% of cases? 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) clearance rate report; (iii) age of Yes 1.0 No 0.0 pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case No 0.0 No 0.0 management techniques used before the competent Doing Business 2017 Indonesia 123 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) court? 5. Are there any electronic case management tools in No 0.0 No 0.0 place within the competent court for use by judges? 6. Are there any electronic case management tools in No 0.0 No 0.0 place within the competent court for use by lawyers? Court automation (0-4) 0.5 0.5 1. Can the initial complaint be filed electronically through a dedicated platform within the competent No 0.0 No 0.0 court? 2. Is it possible to carry out service of process electronically for claims filed before the competent No 0.0 No 0.0 court? 3. Can court fees be paid electronically within the No 0.0 No 0.0 competent court? 4. Publication of judgments 0.5 0.5 4.a Are judgments rendered in commercial cases at all levels made available to the general public No No through publication in official gazettes, in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made available to the general public through publication in official Yes Yes gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 2.5 2.5 1. Arbitration 1.5 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or section Yes Yes of the applicable code of civil procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy— No No that cannot be submitted to arbitration? 1.c. Are valid arbitration clauses or agreements Yes Yes usually enforced by the courts? 2. Mediation/Conciliation 1.0 1.0 2.a. Is voluntary mediation or conciliation available? Yes Yes Doing Business 2017 Indonesia 124 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or section Yes Yes of the applicable code of civil procedure encompassing substantially all their aspects? 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or No No conciliation is successful, a refund of court filing fees, income tax credits or the like)? Source: Doing Business database. Doing Business 2017 Indonesia 125 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By clarifying the expectations of creditors and debtors about the outcome of insolvency Appeals and requests for extension are proceedings, well-functioning insolvency systems can included facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and sustainably grow the economy. estate) What do the indicators cover? Measured as percentage of estate value Doing Business studies the time, cost and outcome of Court fees insolvency proceedings involving domestic legal Fees of insolvency administrators entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Lawyers’ fees dollar recovered by secured creditors through Assessors’ and auctioneers’ fees reorganization, liquidation or debt enforcement Other related fees (foreclosure or receivership) proceedings. To determine the present value of the amount Outcome recovered by creditors, Doing Business uses the Whether business continues operating as a lending rates from the International Monetary Fund, going concern or business assets are sold supplemented with data from central banks and the piecemeal Economist Intelligence Unit. Recovery rate for creditors To make the data on the time, cost and outcome Measures the cents on the dollar recovered comparable across economies, several assumptions by secured creditors about the business and the case are used: Outcome for the business (survival or not)  A hotel located in the largest city (or cities) has determines the maximum value that can be 201 employees and 50 suppliers. The hotel recovered experiences financial difficulties. Official costs of the insolvency proceedings  The value of the hotel is 100% of the income per are deducted capita or the equivalent in local currency of USD Depreciation of furniture is taken into 200,000, whichever is greater. account  The hotel has a loan from a domestic bank, Present value of debt recovered secured by a mortgage over the hotel’s real estate. The hotel cannot pay back the loan, but Strength of insolvency framework index (0- makes enough money to operate otherwise. 16) In addition, Doing Business evaluates the adequacy Sum of the scores of four component indices: and integrity of the existing legal framework Commencement of proceedings index (0-3) applicable to liquidation and reorganization Management of debtor’s assets index (0-6) proceedings through the strength of insolvency framework index. The index tests whether economies Reorganization proceedings index (0-3) adopted internationally accepted good practices in Creditor participation index (0-4) four areas: commencement of proceedings, management of debtor’s assets, reorganization proceedings and creditor participation. Doing Business 2017 Indonesia 126 RESOLVING INSOLVENCY Where does the economy stand today? Globally, Indonesia stands at 76 in the ranking of 190 framework index. The Resolving Insolvency indicator economies on the ease of resolving insolvency (figure does not measure insolvency proceedings of individuals 11.1). The ranking of economies on the ease of resolving and financial institutions. The data are derived from insolvency is determined by sorting their distance to questionnaire responses by local insolvency practitioners frontier scores for resolving insolvency. These scores are and verified through a study of laws and regulations as the simple average of the distance to frontier scores for well as public information on bankruptcy systems. the recovery rate and the strength of insolvency Figure 11.1 How Indonesia and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2017 Indonesia 127 RESOLVING INSOLVENCY Recovery of debt in insolvency Data on the time, cost and outcome refer to the most scenario in the largest business city of an economy, likely in-court insolvency procedure applicable under except for 11 economies for which the data are a specific case study assumptions. population-weighted average of the 2 largest business cities. According to data collected by Doing Business, resolving insolvency takes 1.9 years on average and costs 21.6% of the debtor’s estate. The average recovery rate is 31.2 cents on the dollar. Most indicator sets refer to a case Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in Indonesia and comparator economies. Source: Doing Business database. Note: The recovery rate is calculated based on the time, cost and outcome of insolvency proceedings involving domestic legal entities and is recorded as cents on the dollar recovered by secured creditors. The calculation takes into account the outcome: whether the business emerges from the proceedings as a going concern or the assets are sold piecemeal. Then the costs of the proceedings are deducted. Finally, the value lost as a result of the time the money remains tied up in insolvency proceedings is taken into account. The recovery rate is the present value of the remaining proceeds, based on end-2015 lending rates. Doing Business 2017 Indonesia 128 Table 11.1 Summary of data for the strength of insolvency framework index Indonesia Answer Explanation After a maximum of 90 days since the declaration of bankruptcy is made or when the insolvency condition (rejection of the composition plan) starts, Mirage is entitled to initiate the Jakarta, enforcement of a deed of mortgage which is carried out through an Proceeding foreclosure Surabaya Indonesian district court by a motion to foreclose and a court- supervised public auction conducted by the SAO (State Auction Office). After the suspension of payment period, BizBank would gain Jakarta, Outcome piecemeal sale possession of Mirage's assets and sell them piecemeal in a public Surabaya auction. The total foreclosure procedure, which will be suspended temporarily by the initiation of the bankruptcy proceedings, would take approximate 2 years in total. BizBank would initiate foreclosure after Mirage's default on payment. According to Part Six of Law No.37 of 2004 regarding Bankruptcy and Suspension of Obligation for Debt Payment, Mirage would petition to the Commercial Court for a suspension of payments. The foreclosure procedure then gets converted to reorganization. Bankruptcy cases are heard before the Commercial Court. It takes about 2 months from when the case is Jakarta, filed until the first hearing. The Commercial Court must then grant a Time (in years) 2.0 Surabaya provisional moratorium, and appoint a supervisory judge and an administrator or receiver to assist the debtor in managing its estate. Provisional moratorium is 90 days, but permanent moratorium, which can be granted as an extension of time is 270 days. During this time, Mirage must propose a composition plan and creditors will decide whether to accept the plan, reject it or proceed to a permanent moratorium. BizBank is likely to vote against the composition plan, which will lead to Mirage being declared bankrupt. At that time, moratorium ends, and BizBank can proceed with foreclosure proceedings. The costs associated with the case would amount to approximately 22% of the value of the debtor's estate. Cost incurred during the Cost (% of Jakarta, 22.0 entire insolvency process mainly include court or government estate) Surabaya agency fees (1%), attorneys’ fees (up to 10%), curator’s fees (up to 10%), fees of accountants, assessors, inspectors (up to 3%). Recovery rate: 31.2 Source: Doing Business database. Doing Business 2017 Indonesia 129 RESOLVING INSOLVENCY Strength of resolving insolvency index The strength of insolvency framework index is the with higher values indicating insolvency legislation that is sum of the scores on the commencement of better designed for rehabilitating viable firms and proceedings index, management of debtor’s assets liquidating nonviable ones. Indonesia scores 9.5 out of 16 index, reorganization proceedings index and creditor on the strength of resolving insolvency index. participation index. The index ranges from 0 to 16, Figure 11.3 Strength of insolvency framework index (0-16) in Indonesia and comparator economies Source: Doing Business database. Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice”. Doing Business 2017 Indonesia 130 Table 11.2 Summary of data for the strength of insolvency framework index Indonesia Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) Strength of insolvency framework index (0-16) 9.5 9.5 Commencement of proceedings index (0-3) 3.0 3.0 (a) Debtor (a) Debtor may file for may file for both both What procedures are available to a DEBTOR when liquidation 1.0 liquidation 1.0 commencing insolvency proceedings? and and reorganizatio reorganizati n on (a) Yes, a (a) Yes, a creditor creditor may may file for file for both Does the insolvency framework allow a CREDITOR to both liquidation 1.0 1.0 file for insolvency of the debtor? liquidation and and reorganizatio reorganizati n on (a) Debtor (a) Debtor is is generally What basis for commencement of the insolvency generally unable to proceedings is allowed under the insolvency unable to pay 1.0 pay its 1.0 framework? its debts as debts as they mature they mature Management of debtor's assets index (0-6) 5.0 5.0 Does the insolvency framework allow the continuation of contracts supplying essential goods and services to Yes 1.0 Yes 1.0 the debtor? Does the insolvency framework allow the rejection by Yes 1.0 Yes 1.0 the debtor of overly burdensome contracts? Does the insolvency framework allow avoidance of Yes 1.0 Yes 1.0 preferential transactions? Does the insolvency framework allow avoidance of Yes 1.0 Yes 1.0 undervalued transactions? Does the insolvency framework provide for the possibility of the debtor obtaining credit after Yes 1.0 Yes 1.0 commencement of insolvency proceedings? Doing Business 2017 Indonesia 131 Answer Score Answer Score (Jakarta) (Jakarta) (Surabaya) (Surabaya) (c) No (c) No priority priority is is assigned to assigned to Does the insolvency framework assign priority to post- post- 0.0 post- 0.0 commencement credit? commencem commence ent creditors ment creditors Reorganization proceedings index (0-3) 0.5 0.5 Which creditors vote on the proposed reorganization (a) All (a) All 0.5 0.5 plan? creditors creditors Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as No 0.0 No 0.0 what they would obtain in a liquidation? Are the creditors devided into classes for the purposes of voting on the reorganization plan, does each class No 0.0 No 0.0 vote separately and are creditors in the same class treated equally? Creditor participation index (0-4) 1.0 1.0 Does the insolvency framework require approval by the creditors for selection or appointment of the insolvency No 0.0 No 0.0 representative? Does the insolvency framework require approval by the No 0.0 No 0.0 creditors for sale of substantial assets of the debtor? Does the insolvency framework provide that a creditor has the right to request information from the insolvency No 0.0 No 0.0 representative? Does the insolvency framework provide that a creditor has the right to object to decisions accepting or Yes 1.0 Yes 1.0 rejecting creditors' claims? Source: Doing Business database. Doing Business 2017 Indonesia 132 LABOR MARKET REGULATION Doing Business studies the flexibility of regulation of  Operates a supermarket or grocery store in the employment, specifically as it relates to the areas of economy’s largest business city. For 11 hiring, working hours and redundancy. Doing Business economies the data are also collected for the also measures several aspects of job quality such as the second largest business city. availability of maternity leave, paid sick leave and the  Has 60 employees. equal treatment of men and women at the workplace.  Is subject to collective bargaining agreements if such agreements cover more than 50% of the Doing Business 2017 presents the data for the labor food retail sector and they apply even to firms market regulation indicators in an annex. The report that are not party to them. does not present rankings of economies on these  Abides by every law and regulation but does not indicators or include the topic in the aggregate distance grant workers more benefits than those to frontier score or ranking on the ease of doing mandated by law, regulation or (if applicable) business. Detailed data collected on labor market collective bargaining agreements. regulation are available on the Doing Business website (http://www.doingbusiness.org). The data on labor market regulation are based on a detailed questionnaire on employment regulations that is completed by local lawyers and public officials. Employment laws and regulations as well as secondary sources are reviewed to ensure accuracy. To make the data comparable across economies, several assumptions about the worker and the business are used. The worker:  Is a cashier in a supermarket or grocery store, age 19, with one year of work experience.  Is a full-time employee.  Is not a member of the labor union, unless membership is mandatory. The business:  Is a limited liability company (or the equivalent in the economy). Doing Business 2017 Indonesia 133 LABOR MARKET REGULATION What are the details? The data reported here for Indonesia are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Hiring Data on hiring cover five areas: (i) whether fixed-term minimum wage to the average value added per worker contracts are prohibited for permanent tasks; (ii) the (the ratio of an economy’s GNI per capita to the maximum cumulative duration of fixed-term contracts; working-age population as a percentage of the total (iii) the minimum wage for a cashier, age 19, with one population). year of work experience; and (iv) the ratio of the Jakarta Surabaya Hiring Data Data Fixed-term contracts prohibited for permanent tasks? Yes Yes 24 Months 24 Months extendable for extendable for Maximum length of a single fixed-term contract (months) another 12 months another 12 months (Art. 59 (4)) (Art. 59 (4)) Maximum length of fixed-term contracts, including renewals (months) 36.0 36.0 Minimum wage applicable to the worker assumed in the case study 262.6 241.9 (US$/month) Ratio of minimum wage to value added per worker 0.6 0.6 Source: Doing Business database. Doing Business 2017 Indonesia 134 LABOR MARKET REGULATION Working hours Data on working hours cover nine areas: i) the maximum and nonnursing women can work the same night hours number of working days allowed per week; (ii) the as men; (vii) whether there are restrictions on weekly premium for night work (as a percentage of hourly pay); holiday work; (viii) whether there are restrictions on (iii) the premium for work on a weekly rest day (as a overtime work; and (ix) the average paid annual leave for percentage of hourly pay); (iv) the premium for overtime workers with 1 year of tenure, 5 years of tenure, and 10 work (as a percentage of hourly pay); (v) whether there years of tenure. are restrictions on night work; (vi) whether nonpregnant Jakarta Surabaya Working Hours Data Data Maximum number of working days per week 6.0 6.0 Premium for night work (% of hourly pay) 0.0 0.0 Premium for work on weekly rest day (% of hourly pay) 0.0 0.0 Premium for overtime work (% of hourly pay) 75.0 75.0 Restrictions on night work? No No Whether nonpregnant and nonnursing women can work the same Yes Yes night hours as men Restrictions on weekly holiday? No No Restrictions on overtime work? No No Paid annual leave for a worker with 1 year of tenure (working days) 12.0 12.0 Paid annual leave for a worker with 5 years of tenure (working days) 12.0 12.0 Paid annual leave for a worker with 10 years of tenure (working days) 12.0 12.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, 12.0 12.0 in working days) Source: Doing Business database. Doing Business 2017 Indonesia 135 LABOR MARKET REGULATION Redundancy rules Data on redundancy cover nine areas: (i) the length of whether the employer needs approval from a third party the maximum probationary period (in months) for to terminate one redundant worker; (vi) whether the permanent employees; (ii) whether redundancy is employer needs approval from a third party to terminate allowed as a basis for terminating workers; (iii) whether a group of nine redundant workers; (vii) whether the law the employer needs to notify a third party (such as a requires the employer to reassign or retrain a worker government agency) to terminate one redundant worker; before making the worker redundant; (viii) whether (iv) whether the employer needs to notify a third party to priority rules apply for redundancies; and (ix) whether terminate a group of nine redundant workers; (v) priority rules apply for reemployment. Jakarta Surabaya Difficulty of redundancy index Data Data Maximum length of probationary period (months) 3.0 3.0 Dismissal due to redundancy allowed by law? Yes Yes Third-party notification if one worker is dismissed? Yes Yes Third-party approval if one worker is dismissed? Yes Yes Third-party notification if nine workers are dismissed? Yes Yes Third-party approval if nine workers are dismissed? Yes Yes Retraining or reassignment obligation before redundancy? Yes Yes Priority rules for redundancies? No No Priority rules for reemployment? No No Source: Doing Business database. Doing Business 2017 Indonesia 136 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice severance payments applicable to a worker with 1 year requirements and severance payments due when of tenure, a worker with 5 years and a worker with 10 terminating a redundant worker, expressed in weeks of years is considered. One month is recorded as 4 and salary. The average value of notice requirements and 1/3 weeks. Jakarta Surabaya Redundancy cost indicator (in salary weeks) Data Data Notice period for redundancy dismissal for a worker with 1 year of 0.0 0.0 tenure Notice period for redundancy dismissal for a worker with 5 years of 0.0 0.0 tenure Notice period for redundancy dismissal for a worker with 10 years of 0.0 0.0 tenure Notice period for redundancy dismissal (average for workers with 1, 5 0.0 0.0 and 10 years of tenure) Severance pay for redundancy dismissal for a worker with 1 year of 17.3 17.3 tenure Severance pay for redundancy dismissal for a worker with 5 years of 60.7 60.7 tenure Severance pay for redundancy dismissal for a worker with 10 years of 95.3 95.3 tenure Severance pay for redundancy dismissal (average for workers with 1, 5 57.8 57.8 and 10 years of tenure) Source: Doing Business database. Doing Business 2017 Indonesia 137 LABOR MARKET REGULATION Job quality Doing Business introduced new data on job quality in 2015. Doing Business 2017 covers eight questions on job quality (i) whether the law mandates equal remuneration for work of equal value; (ii) whether the law mandates nondiscrimination based on gender in hiring; (iii) whether the law mandates paid or unpaid maternity leave; (iv) the minimum length of paid maternity leave (in calendar days); (v) whether employees on maternity leave receive 100% of wages; (vi) the availability of five fully paid days of sick leave a year; (vii) whether a worker is eligible for an unemployment protection scheme after one year of service; and (viii) the minimum duration of the contribution period (in months) required for unemployment. Jakarta Surabaya Job Quality Data Data Equal remuneration for work of equal value? No No Gender nondiscrimination in hiring? No No Paid or unpaid maternity leave mandated by law? Yes Yes Minimum length of maternity leave (calendar days)? 90.0 90.0 Receive 100% of wages on maternity leave? Yes Yes Five fully paid days of sick leave a year? Yes Yes Unemployment protection after one year of employment? No No Minimum contribution period for unemployment protection (months)? n.a. n.a. Source: Doing Business database. Doing Business 2017 Indonesia 138 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 defined as 1 hour even though in many economies the Distance to Frontier time is less than that. The distance to frontier score captures the gap between In the same formulation, to mitigate the effects of an economy’s performance and a measure of best extreme outliers in the distributions of the rescaled data practice across the entire sample of 36 indicators for 10 for most component indicators (very few economies Doing Business topics (the labor market regulation need 700 days to complete the procedures to start a indicators are excluded). For starting a business, for business, but many need 9 days), the worst performance example, the former Yugoslav Republic of Macedonia is calculated after the removal of outliers. The definition and New Zealand have the smallest number of of outliers is based on the distribution for each procedures required (1), and New Zealand the shortest component indicator. To simplify the process two rules time to fulfill them (0.5 days). Slovenia has the lowest were defined: the 95th percentile is used for the cost (0.0), and Australia, Colombia and 103 other indicators with the most dispersed distributions economies have no paid-in minimum capital (including minimum capital, number of payments to pay requirement (table 14.1 in the Doing Business 2016 taxes, and the time and cost indicators), and the 99th report). percentile is used for number of procedures. No outlier is removed for component indicators bound by definition Calculation of the distance to frontier score or construction, including legal index scores (such as the Calculating the distance to frontier score for each depth of credit information index, extent of conflict of economy involves two main steps. In the first step interest regulation index and strength of insolvency individual component indicators are normalized to a framework index) and the recovery rate. common unit where each of the 36 component In the second step for calculating the distance to frontier indicators y (except for the total tax rate) is rescaled score, the scores obtained for individual indicators for using the linear transformation (worst − y)/(worst − each economy are aggregated through simple averaging frontier). In this formulation the frontier represents the into one distance to frontier score, first for each topic best performance on the indicator across all economies and then across all 10 topics: starting a business, dealing since 2005 or the third year in which data for the with construction permits, getting electricity, registering indicator were collected. Both the best performance and property, getting credit, protecting minority investors, the worst performance are established every five years paying taxes, trading across borders, enforcing contracts based on the Doing Business data for the year in which and resolving insolvency. More complex aggregation they are established, and remain at that level for the five methods—such as principal components and years regardless of any changes in data in interim years. unobserved components—yield a ranking nearly Thus an economy may set the frontier for an indicator Doing Business 2017 Indonesia 139 identical to the simple average used by Doing Business2. The nonlinear transformation is not based on any Thus Doing Business uses the simplest method: economic theory of an “optimal tax rate” that minimizes weighting all topics equally and, within each topic, giving distortions or maximizes efficiency in an economy’s equal weight to each of the topic components 3. overall tax system. Instead, it is mainly empirical in nature. The nonlinear transformation along with the An economy’s distance to frontier score is indicated on a threshold reduces the bias in the indicator toward scale from 0 to 100, where 0 represents the worst economies that do not need to levy significant taxes on performance and 100 the frontier. All distance to frontier companies like the Doing Business standardized case calculations are based on a maximum of five decimals. study company because they raise public revenue in However, indicator ranking calculations and the ease of other ways—for example, through taxes on foreign doing business ranking calculations are based on two companies, through taxes on sectors other than decimals. manufacturing or from natural resources (all of which are The difference between an economy’s distance to outside the scope of the methodology). In addition, it frontier score in any previous year and its score in 2015 acknowledges the need of economies to collect taxes illustrates the extent to which the economy has closed from firms. the gap to the regulatory frontier over time. And in any Calculation of scores for economies with 2 cities given year the score measures how far an economy is covered from the best performance at that time. For each of the 11 economies in which Doing Business Treatment of the total tax rate collects data for the second largest business city as well The total tax rate component of the paying taxes as the largest one, the distance to frontier score is indicator set enters the distance to frontier calculation in calculated as the population-weighted average of the a different way than any other indicator. The distance to distance to frontier scores for these two cities (table frontier score obtained for the total tax rate is 13.1). This is done for the aggregate score, the scores for transformed in a nonlinear fashion before it enters the each topic and the scores for all the component distance to frontier score for paying taxes. As a result of indicators for each topic. the nonlinear transformation, an increase in the total tax rate has a smaller impact on the distance to frontier score for the total tax rate—and therefore on the distance to frontier score for paying taxes—for economies with a below-average total tax rate than it would have had before this approach was adopted in Doing Business 2015 (line B is smaller than line A in figure 14.2 in the Doing Business 2016 report). And for economies with an extreme total tax rate (a rate that is very high relative to the average), an increase has a greater impact on both these distance to frontier scores than it would have had before (line D is bigger than line C in figure 14.2 in the Doing Business 2016 report). 2 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. 3 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 2017 Indonesia 140 Table 13.1 Weights used in calculating the distance to implemented regulatory reforms making it easier to do frontier scores for economies with 2 cities covered business in 3 or more of the 10 topics included in this year’s aggregate distance to frontier score. Changes Economy City Weight (%) making it more difficult to do business are subtracted Dhaka 78 Bangladesh from the total number of those making it easier to do Chittagong 22 São Paulo 61 business. Twenty-four economies meet this criterion: Brazil Armenia; Azerbaijan; Benin; Costa Rica; Côte d’Ivoire; Rio de Janeiro 39 Shanghai 55 Cyprus; Hong Kong SAR, China; Indonesia; Jamaica; China Beijing 45 Kazakhstan; Kenya; Lithuania; Madagascar; Mauritania; Mumbai 47 Morocco; Romania; the Russian Federation; Rwanda; India Delhi 53 Senegal; Togo; Uganda; the United Arab Emirates; Jakarta 78 Uzbekistan; and Vietnam. Second, Doing Business sorts Indonesia Surabaya 22 these economies on the increase in their distance to Tokyo 65 Japan frontier score from the previous year using comparable Osaka 35 data. Mexico City 83 Mexico Monterrey 17 Selecting the economies that implemented regulatory Lagos 77 reforms in at least three topics and had the biggest Nigeria Kano 23 improvements in their distance to frontier scores is Karachi 65 intended to highlight economies with ongoing, broad- Pakistan Lahore 35 based reform programs. The improvement in the Moscow 70 Russian Federation distance to frontier score is used to identify the top St. Petersburg 30 New York 60 improvers because this allows a focus on the absolute United States improvement—in contrast with the relative improvement Los Angeles 40 Source: United Nations, Department of Economic and Social shown by a change in rankings—that economies have Affairs, Population Division, World Urbanization Prospects, made in their regulatory environment for business. 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Ease of Doing Business ranking Economies that improved the most across 3 or more Doing Business topics in 2014/15 The ease of doing business ranking ranges from 1 to 190. The ranking of economies is determined by sorting the Doing Business 2016 uses a simple method to calculate aggregate distance to frontier scores, rounded to 2 which economies improved the ease of doing business decimals. the most. First, it selects the economies that in 2014/15 Doing Business 2017 Indonesia 141 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 190 Contributors http://www.doingbusiness.org/rankings More than 11,400 specialists in 190 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 190 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 190 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 DB2017 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 2017 Indonesia 142