Doing Business 2017 Pakistan Economy Profile 2017 Pakistan Doing Business 2017 Pakistan 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 Pakistan 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 17 Dealing with construction permits ........................................................................................... 33 Getting electricity ....................................................................................................................... 50 Registering property .................................................................................................................. 61 Getting credit .............................................................................................................................. 76 Protecting minority investors ................................................................................................... 83 Paying taxes ................................................................................................................................ 90 Trading across borders .............................................................................................................. 97 Enforcing contracts .................................................................................................................. 105 Resolving insolvency ................................................................................................................ 114 Labor market regulation ......................................................................................................... 121 Distance to frontier and ease of doing business ranking .................................................... 127 Resources on the Doing Business website ............................................................................ 130 Doing Business 2017 Pakistan 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 Pakistan. To allow useful comparison, it Doing Business 2017 Pakistan 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 Pakistan 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: South Asia 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: 188,924,874 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 1,440 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2017 rank: 144 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2016 rank: 148* 0 represents the worst performance and 100 the frontier. Change in rank: 4 (See the chapter on the distance to frontier and ease of doing business). DB 2017 DTF: 51.77 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2016 DTF: 49.48 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: 2.29 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 Pakistan 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 Pakistan 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 Pakistan 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 Pakistan 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Pakistan (Scale: Rank 190 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Pakistan (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 Pakistan 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 Pakistan 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 Pakistan 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 Pakistan Egypt, Arab Rep. DB2017 Best performer globally Bangladesh DB2017 Pakistan DB2017 Pakistan DB2016 Karachi DB2017 Lahore DB2017 Indicator China DB2017 India DB2017 DB2017 Starting a Business 141 135 -- -- 122 127 39 155 1 (New Zealand) (Rank) Starting a Business (DTF 77.88 77.43 77.88 77.88 81.74 81.02 92.43 74.31 99.96 (New Zealand) Score) Procedure – Men 12.0 12.0 12.0 12.0 9.0 9.0 4.0 12.9 1.0 (New Zealand) (number) Time – Men (days) 18.0 19.0 18.0 18.0 19.5 28.9 6.0 26.0 0.5 (New Zealand) Cost – Men (% of 12.4 13.9 12.4 12.4 13.8 0.7 7.4 13.8 0.0 (Slovenia) income per capita) Procedure – Women 12.0 12.0 12.0 12.0 9.0 9.0 5.0 12.9 1.0 (New Zealand) (number) Time – Women (days) 18.0 19.0 18.0 18.0 19.5 28.9 7.0 26.0 0.5 (New Zealand) Cost – Women (% of 12.4 13.9 12.4 12.4 13.8 0.7 7.4 13.8 0.0 (Slovenia) income per capita) Paid-in min. capital (% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (127 Economies*) of income per capita) Dealing with 150 150 -- -- 138 177 64 185 1 (New Zealand) Construction Permits Doing Business 2017 Pakistan 12 Egypt, Arab Rep. DB2017 Best performer globally Bangladesh DB2017 Pakistan DB2017 Pakistan DB2016 Karachi DB2017 Lahore DB2017 Indicator China DB2017 India DB2017 DB2017 (Rank) Dealing with Construction Permits 59.07 58.56 57.65 61.70 61.60 48.52 72.46 32.83 87.40 (New Zealand) (DTF Score) Procedures (number) 15.0 15.0 15.0 15.0 14.2 22.0 17.0 35.1 7.0 (4 Economies*) Time (days) 264.2 264.2 260.0 272.0 269.0 244.3 145.0 190.0 28.0 (Korea, Rep.) Cost (% of warehouse 0.1 (Trinidad and 7.0 7.4 9.1 3.1 2.7 7.0 1.6 25.9 value) Tobago) Building quality control 12.0 12.0 12.5 11.0 10.0 9.0 12.0 11.5 15.0 (Luxembourg*) index (0-15) Getting Electricity 170 163 -- -- 187 97 88 26 1 (Korea, Rep.) (Rank) Getting Electricity (DTF 42.05 43.73 39.78 46.28 16.17 68.73 70.33 85.09 99.88 (Korea, Rep.) Score) Procedures (number) 5.3 5.3 5.0 6.0 9.0 5.5 6.0 5.0 3.0 (15 Economies*) Time (days) 180.7 180.7 215.0 117.0 428.9 143.2 54.0 45.9 18.0 (Korea, Rep.*) Cost (% of income per 1771.9 1230.4 1773.9 1768.2 2860.9 390.4 244.9 133.2 0.0 (Japan) capita) Reliability of supply and transparency of tariff 0.0 0.0 0.0 0.0 0.0 6.0 4.0 7.0 8.0 (26 Economies*) index (0-8) Registering Property 169 173 -- -- 185 42 109 138 1 (New Zealand) (Rank) Registering Property 40.70 39.22 32.73 55.51 27.58 76.15 58.30 50.00 94.46 (New Zealand) (DTF Score) Procedures (number) 7.7 7.7 8.0 7.0 8.0 4.0 8.0 7.0 1.0 (4 Economies*) Doing Business 2017 Pakistan 13 Egypt, Arab Rep. DB2017 Best performer globally Bangladesh DB2017 Pakistan DB2017 Pakistan DB2016 Karachi DB2017 Lahore DB2017 Indicator China DB2017 India DB2017 DB2017 Time (days) 154.8 154.8 208.0 56.0 244.0 19.5 60.0 46.8 1.0 (3 Economies*) Cost (% of property 4.6 4.6 4.3 5.2 7.0 3.4 0.5 7.7 0.0 (Saudi Arabia) value) Quality of the land administration index (0- 6.8 5.0 5.0 10.0 4.5 18.3 7.0 7.0 29.0 (Singapore) 30) Getting Credit (Rank) 82 134 -- -- 157 62 82 44 1 (New Zealand) Getting Credit (DTF 50.00 30.00 50.00 50.00 25.00 60.00 50.00 65.00 100.00 (New Zealand) Score) Strength of legal rights 3.0 3.0 3.0 3.0 5.0 4.0 2.0 6.0 12.0 (3 Economies*) index (0-12) Depth of credit 7.0 3.0 7.0 7.0 0.0 8.0 8.0 7.0 8.0 (30 Economies*) information index (0-8) Credit registry coverage 9.4 6.7 9.4 9.4 0.9 91.1 7.1 0.0 100.0 (3 Economies*) (% of adults) Credit bureau coverage 5.8 4.8 5.8 5.8 0.0 21.3 21.6 21.4 100.0 (23 Economies*) (% of adults) Protecting Minority 27 25 -- -- 70 123 114 13 1 (New Zealand*) Investors (Rank) Protecting Minority 66.67 66.67 66.67 66.67 56.67 45.00 48.33 73.33 83.33 (New Zealand*) Investors (DTF Score) Strength of minority investor protection 6.7 6.7 6.7 6.7 5.7 4.5 4.8 7.3 8.3 (New Zealand) index (0-10) Extent of conflict of interest regulation 6.0 6.0 6.0 6.0 6.3 5.0 4.7 6.7 9.3 (New Zealand) index (0-10) Extent of shareholder 7.3 7.3 7.3 7.3 5.0 4.0 5.0 8.0 8.3 (Norway) governance index (0- Doing Business 2017 Pakistan 14 Egypt, Arab Rep. DB2017 Best performer globally Bangladesh DB2017 Pakistan DB2017 Pakistan DB2016 Karachi DB2017 Lahore DB2017 Indicator China DB2017 India DB2017 DB2017 10) 1 (United Arab Paying Taxes (Rank) 156 154 -- -- 151 131 162 172 Emirates) Paying Taxes (DTF 99.44 (United Arab 53.4 53.74 53.43 53.34 55.56 60.46 51.96 46.58 Score) Emirates) Payments (number per 3.0 (Hong Kong SAR, 47.0 47.0 47.0 47.0 33.0 9.0 29.0 25.0 year) China*) Time (hours per year) 311.5 307.0 311.5 311.5 435.0 259.0 392.0 241.0 55.0 (Luxembourg) Total tax rate (% of 33.3 32.9 33.2 33.5 34.4 68.0 43.5 60.6 26.1 (32 Economies*) profit) Postfiling index (0-100) 37.6 37.6 29.1 98.5 (Estonia) Trading across Borders 172 172 -- -- 173 96 168 143 1 (10 Economies*) (Rank) Trading across Borders 100.00 (10 39.41 38.11 39.41 39.41 34.86 69.13 42.23 57.61 (DTF Score) Economies*) Time to export: Border 75 79 75 75 100 26 48 106 0 (18 Economies*) compliance (hours) Cost to export: Border 426 426 426 426 408 522 258 413 0 (18 Economies*) compliance (USD) Time to export: Documentary 59 62 59 59 147 21 88 38 1 (25 Economies*) compliance (hours) Cost to export: Documentary 307 307 307 307 225 85 100 92 0 (19 Economies*) compliance (USD) Time to import: Border 129 141 129 129 183 92 240 283 0 (25 Economies*) compliance (hours) Doing Business 2017 Pakistan 15 Egypt, Arab Rep. DB2017 Best performer globally Bangladesh DB2017 Pakistan DB2017 Pakistan DB2016 Karachi DB2017 Lahore DB2017 Indicator China DB2017 India DB2017 DB2017 Cost to import: Border 957 957 957 957 1294 777 554 574 0 (28 Economies*) compliance (USD) Time to import: Documentary 147 153 147 147 144 66 265 61 1 (29 Economies*) compliance (hours) Cost to import: Documentary 786 786 786 786 370 171 1000 135 0 (30 Economies*) compliance (USD) Enforcing Contracts 157 156 -- -- 189 5 162 172 1 (Korea, Rep.) (Rank) Enforcing Contracts 43.49 43.49 44.36 41.86 22.21 77.98 40.90 35.19 84.15 (Korea, Rep.) (DTF Score) Time (days) 1071.2 1071.2 1096.0 1025.0 1442.0 452.8 1010.0 1420.0 164.0 (Singapore) Cost (% of claim) 20.5 20.5 18.1 25.0 66.8 16.2 26.2 39.6 9.0 (Iceland) Quality of judicial 5.7 5.7 6.0 5.0 7.5 14.3 4.5 9.0 15.5 (Australia) processes index (0-18) Resolving Insolvency 85 85 -- -- 151 53 109 136 1 (Finland) (Rank) Resolving Insolvency 45.01 43.87 44.42 46.12 27.02 55.82 39.51 32.75 93.89 (Finland) (DTF Score) Recovery rate (cents on 43.0 40.9 41.9 45.0 27.0 36.9 27.0 26.0 92.9 (Norway) the dollar) Time (years) 2.6 2.6 2.8 2.3 4.0 1.7 2.5 4.3 0.4 (22 Economies*) Cost (% of estate) 4.0 4.0 4.0 4.0 8.0 22.0 22.0 9.0 1.0 (22 Economies*) Strength of insolvency 7.0 7.0 7.0 7.0 4.0 11.5 8.0 6.0 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 Pakistan 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 Pakistan 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 Pakistan 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 Pakistan 19 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Pakistan? 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 12.0 procedures , takes 18.0 days, which the data are a population-weighted average of the costs 12.4% of income per capita for men, and requires 2 largest business cities. See the chapter on distance to 12.0 procedures , takes 18.0 days, costs 12.4% 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 Pakistan - Karachi Paid-in minimum capital (% of income per capita): 0.0 Doing Business 2017 Pakistan 20 What it takes to start a business in Pakistan - Lahore 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 Pakistan 21 STARTING A BUSINESS Globally, Pakistan stands at 141 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 Pakistan The rankings for comparator economies and the regional to start a business. Figure 2.2 How Pakistan and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2017 Pakistan 22 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Pakistan is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Private Limited Liability Company firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid-in minimum capital requirement: PKR 0 the study of laws, regulations and publicly available City: Karachi, Lahore 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 Pakistan - Karachi Time to No. Procedure Cost to complete complete Reserve a company name online via the Securities and Exchange Commission of Pakistan (SECP) E-services website The entrepreneur can check the availability of the desired company name via the website of the Securities and Exchange Commission of Pakistan (SECP). To reserve a company name, the applicant proposes one or more names in order of preference, and submits the application form to SECP either online or in person. The official confirmation (or rejection) of the chosen name and its availability is received by email or via courier upon payment of the name reservation fee of PKR 200 (online name reservation) or PKR 500 (offline name reservation) at the SECP- 1 day no charge 1 designated bank. The approved name is reserved for 90 days, during which the company must be incorporated. SECP recently introduced the Fast Track Registration Services (FTRS), processing the company name reservation applications within 4 hours of submission for an expedited fee of PKR 500 online and PKR 1,000 in person payable in addition to the normal fees. Agency: Securities and Exchange Commission of Pakistan (SECP) Pay the name reservation and company incorporation fees at the MCB Bank included in procedure 1 (name 2 The company must pay the name reservation and incorporation fees at 1 day reservation fees) the designated MCB Bank (formerly Muslim Commercial Bank) or at the and procedure 3 United Bank Limited. The form indicating the amount due is obtained (registration fees) from SECP either online (downloaded) or on-site, or from the bank. Doing Business 2017 Pakistan 23 Time to No. Procedure Cost to complete complete The SECP launched online payment facility for its stakeholders in April 2014, therefore, online filing and payment is now possible for SECP’s online filers, without visiting the Bank or the SECP offices. Agency: Bank (MCB) Obtain a digital signature from the National Institutional Facilitation Technologies (NIFT) system of SECP The digital signature is obtained from the National Institutional Facilitation Technologies (NIFT) through e-Services or at the SECP PKR 837 (certificate offices. To apply, the company must submit the Digital Signature charges) + PKR 163 Certificate Request Form, along with scanned copies of the Directors’ (sales tax at 19.5%) 3 identity cards, the Name Availability Certificate and the proof of 1 day + PKR 500 payment. For obtaining the Digital Signature within 1-2 hours under the (validation charges) Fast Track Registration Service (FTRS), an additional urgent fee of PKR for each 300 would apply. shareholder Agency: National Institutional Facilitation Technologies Complete online registration on the Securities & Exchange Commission of Pakistan (SECP) e-portal Registration can either be completed online or in person at SECP. The following documents are required for submission: a. Form 1: Declaration of compliance b. Form 21: Identification of the location of the office c. Form 29: Particulars of directors, secretary, chief accountant, auditors, and others d. One copy of the Memorandum and Articles of Associations with the signature of each member (in presence of a witness) PKR 8,500 registration fee + According to the 6th Schedule of Fee effective October 2010, the fees PKR +1,600 filing for incorporation of a company depends on the authorized capital as: fees of Form 1, - Online submission: PKR 2,500 for registration of a company whose 2 days Form 21, Form 29, 4 nominal share capital does not exceed PKR 100,000 and an additional and Copy of the fee of PKR 500 for every PKR 100,000 of nominal share capital or part memorandum and thereof, up to PKR 10,000,000. The online filing fee is PKR 600 per document. articles of - Physical submission: PKR 5,000 for registration of a company whose association nominal share capital does not exceed PKR 100,000 and an additional fee of PKR 1,000 for every PKR 100,000 of nominal share capital or part thereof, up to PKR 10,000,000. The filing fee is PKR 1,500 per document. A confirmation of the online or physical submission is received instantly, and the actual certificate a few days later via email or courier. The entrepreneur can register with any Company Registration Office, irrespective of the jurisdiction. All regional SECP offices are computerized. In February 2012, SECP launched the Fast Track Registration Services (FTRS), under which the incorporation of a Doing Business 2017 Pakistan 24 Time to No. Procedure Cost to complete complete company can take place within 4 hours for an expedited fee of PKR 20,000 for on-site incorporation and PKR 10,000 for online incorporation payable in addition to the normal fees above. To register a company online, the entrepreneur must first obtain a digital signature through the National Institutional Facilitation Technologies (NIFT) system. If the application is received with less than four hours remaining in the working day, the same shall be disposed of in the next working day. Agency: Securities and Exchange Commission of Pakistan (SECP) Open a bank account for tax registration A bank account number in the name of the company is needed in order to register for taxes. A copy of the registration certificate is needed in 5 order to open a bank account. 1 day No charge Agency: Bank Apply for a national tax number (NTN) and register for income tax To apply, the company must submit a simple one page form called the NTN Form as well as a proof of registration, the Memorandum and Articles of Association, bank account number, copies of the national identity cards of its directors, and an attestation of the registered business address at the nearest tax facilitation counter of the Regional Tax Office in Pakistan. All applications are forwarded to the Central Registration Office (CRO) in Islamabad that allocates a uniform NTN number to each company. The center processes the application and issues the NTN at no charge. The certificate is then sent to the registered address of the applicant. 2 days no charge 6 The company can track the application online or through the RTO helpline. If undelivered, the NTN certification can be collected from the specified office at the Central Board of Revenue. Recently, the Federal Board of Revenue launched electronic services enabling online applications for NTN numbers to be made through its website: www.fbr.gov.pk. Agency: Tax facilitation center of the Regional Tax Office (RTO) of the Federal Board of Revenue (FBR) in Karachi Apply for a Sales Tax Number (STN) at the tax facilitation center of the Regional Tax Office (RTO) of the Federal Board of Revenue (FBR) in Karachi 7 1 day no charge According to the Sections 14, 15 and 16 of the Sales Tax Act 1990 and Sales Tax Rules 2006, the company must register for sales tax by submitting the application Form STR-1 at any tax facilitation counter at Doing Business 2017 Pakistan 25 Time to No. Procedure Cost to complete complete the nearest Regional Tax Office (RTO). The local RTO forwards all applications to the Central Registration Office. After verification, the CRO issues a Registration Certificate bearing the registration number and mails the same to the registered company, on a prescribed From STR-5. The Sales Tax General Order No. 4/2007 introduced electronic filing of the sales tax returns; and as of July 1st 2008, electronic filing was made mandatory for all categories of taxpayers. Agency: Tax facilitation center of the Regional Tax Office (RTO) of the Federal Board of Revenue (FBR) in Karachi Register for Professional Tax with the Excise & Taxation Department of the District Following the Devolution Plan 2001, professional tax is enforced at the district level by the Excise and Taxation Department of the relevant provincial district. The tax is levied upon businesses, professionals, trades, callings or companies employing such professionals. The responsible district Excise and Taxation Officer (ET officer) is 7 days empowered to enroll in survey register every person who carries on any (simultaneous with *8 such business or profession and thereafter, give notice to such enrolled no charge the previous person. In case of a new business, the company is required to make a procedure) request to the ET officer to get enrolled by submitting a simple assessment form. The ET officer issues a registration number that acts as the reference number for the registered company and is noted down on every Bank Challan when assessments are paid into the Bank. Agency: Excise & Taxation Department of the District Register with the Sindh Employees Social Security Institution (SESSI) Registration with the Sindh Employees Social Security Institution is 7 days governed at the provincial level by an independent institution called the (simultaneous with *9 Sindh ESSI. no charge the previous procedure) Agency: Sindh Employees Social Security Institution (SESSI) Register with Employees Old-Age Benefits Institution (EOBI) According to the Amendment in EOBI Act 1976 effective as of July 2008, 1 week every industry or a commercial establishment with 5 or more (simultaneous with * 10 employees must register with the federal Employees Old Age Benefits no charge the previous Institution. Under the Employees Old Age Benefit Scheme, insured procedure) persons are entitled to pension upon retirement, invalidity in the case of a disability, old-age grant in the case of a retiring elder lacking the minimum threshold for pension, and survivor’s pension. A contribution Doing Business 2017 Pakistan 26 Time to No. Procedure Cost to complete complete of 5% of minimum wage must be paid by the employer and 1% of minimum wage must be paid by the employee. An employer shall before expiration of thirty days from the day on which the Act becomes applicable to the industry or establishment in respect of which he/she is the employer, communicate to the Institution the name and particulars of the industry or establishment in Form PR- 01 and of every insured person employed therein in Form PE-01 and, in the case of Form PE-01, give the receipt appended to the Form to the insured persons. An insured person may also communicate his/her name and other particulars to the Institution in Form PE-02. Upon receipt of the requisite particulars in Forms PR-01 and PE-01 from an employer, the Institution shall register the name of the industry or establishment in respect of which he/she is the employer and of the insured person and issue to the employer a Certificate of Registration in Form PI-02 and to each insured person a Registration Card in Form PI- 03. The institution may send the Registration Card in Form PI-03 to the employer for delivery to the insured person to whom it relates. The minimum Pension has been increased from PKR 3000 per month to PKR 3600 per month. Agency: Employees Old-Age Benefits Institution (EOBI) Register under the West Pakistan Shops and Establishment Ordinance 1969 with the Labor Department of the District Pakistan Shops and Establishment Ordinance 1969 requires every establishment other than a one man shop to be registered with the Deputy Chief Inspector of the Labor Department in each district. This is to safeguard the labor standards of the workers. To register, the employer must submit the application Form A accompanied by a bank challan. The application for a new establishment shall be made within 2 months of setting up the establishment. The registration fees have been changed to the following pursuant to the Punjab Shops and Establishments (Amendment) Act 2014 (II of 2014): 7 days (simultaneous with * 11 PKR 1,000 Rs. 200 in the case of an establishment employing 1 to 5 workers. the previous Rs. 300 in the case of an establishment employing 6 to 10 workers. procedure) Rs. 500 in the case of an establishment employing 11 to 20 workers. Rs. 1000 in the case of an establishment employing more than 20 workers. Once the payment is settled, the Deputy Chief Inspection lists the establishment in the Register of Establishments maintained in Form B and issues a registration certificate in Form C. The registration certificate shall be prominently displayed by the employer at the establishment, and shall be renewed after every two years upon payment of fees. Doing Business 2017 Pakistan 27 Time to No. Procedure Cost to complete complete Agency: Labour Department of the District Register the appointed CEO with the SECP Pursuant to the Companies Ordinance 1984, articles 198 - 205, a CEO is to be appointed within 15 days of the company's incorporation. The Half a day (online PKR 400 for the * 12 company needs to register said CEO within 14 days of the decision. procedure) cost of form 29 Agency: SECP * 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 Pakistan - Lahore Time to No. Procedure Cost to complete complete Reserve a company name online via the Securities and Exchange Commission of Pakistan (SECP) E-services website The entrepreneur can check the availability of the desired company name via the website of the Securities and Exchange Commission of Pakistan (SECP). To reserve a company name, the applicant proposes one or more names in order of preference, and submits the application form to SECP either online or in person. The official confirmation (or rejection) of the chosen name and its availability is received by email or via courier upon payment of the name reservation fee of PKR 200 (online name reservation) or PKR 500 (offline name reservation) at the SECP- 1 day Free of charge 1 designated bank. The approved name is reserved for 90 days, during which the company must be incorporated. SECP recently introduced the Fast Track Registration Services (FTRS), processing the company name reservation applications within 4 hours of submission for an expedited fee of PKR 500 online and PKR 1,000 in person payable in addition to the normal fees. Agency: Securities and Exchange Commission of Pakistan (SECP) Pay the name reservation and company incorporation fees at the included in MCB Bank 1 day procedure 1 (name 2 The company must pay the name reservation and incorporation fees at reservation fees) the designated MCB Bank (formerly Muslim Commercial Bank) or at the and procedure 3 Doing Business 2017 Pakistan 28 Time to No. Procedure Cost to complete complete United Bank Limited. The form indicating the amount due is obtained (registration fees) from SECP either online (downloaded) or on-site, or from the bank. The SECP launched online payment facility for its stakeholders in April 2014, therefore, online filing and payment is now possible for SECP’s online filers, without visiting the Bank or the SECP offices. Agency: Bank (MCB) Obtain a digital signature from the National Institutional Facilitation Technologies (NIFT) system of SECP The digital signature is obtained from the National Institutional Facilitation Technologies (NIFT) through e-Services or at the SECP offices. To apply, the company must submit the Digital Signature PKR 837 (certificate Certificate Request Form, along with scanned copies of the Directors’ charges) + PKR 163 3 identity cards, the Name Availability Certificate and the proof of 1 day (sales tax at 19.5%) payment. For obtaining the Digital Signature within 1-2 hours under the + PKR 500 Fast Track Registration Service (FTRS), an additional urgent fee of PKR (validation charges) 300 would apply. Agency: National Institutional Facilitation Technologies Complete online registration on the Securities & Exchange Commission of Pakistan (SECP) e-portal Registration can either be completed online or in person at SECP. The following documents are required for submission: a. Form 1: Declaration of compliance b. Form 21: Identification of the location of the office c. Form 29: Particulars of directors, secretary, chief accountant, auditors, and others d. One copy of the Memorandum and Articles of Associations with the PKR 8500 signature of each member (in presence of a witness) registration fee + PKR 1600 filing fees According to the 6th Schedule of Fee effective October 2010, the fees of Form 1, Form 21, for incorporation of a company depends on the authorized capital as: 2 days Form 29, and Copy 4 - Online submission: PKR 2,500 for registration of a company whose of the nominal share capital does not exceed PKR 100,000 and an additional memorandum and fee of PKR 500 for every PKR 100,000 of nominal share capital or part thereof, up to PKR 10,000,000. The online filing fee is PKR 600 per articles of document. association - Physical submission: PKR 5,000 for registration of a company whose nominal share capital does not exceed PKR 100,000 and an additional fee of PKR 1,000 for every PKR 100,000 of nominal share capital or part thereof, up to PKR 10,000,000. The filing fee is PKR 1,500 per document. A confirmation of the online or physical submission is received instantly, and the actual certificate a few days later via email or courier. The entrepreneur can register with any Company Registration Office, irrespective of the jurisdiction. All regional SECP offices are Doing Business 2017 Pakistan 29 Time to No. Procedure Cost to complete complete computerized. In February 2012, SECP launched the Fast Track Registration Services (FTRS), under which the incorporation of a company can take place within 4 hours for an expedited fee of PKR 20,000 for on-site incorporation and PKR 10,000 for online incorporation payable in addition to the normal fees above. To register a company online, the entrepreneur must first obtain a digital signature through the National Institutional Facilitation Technologies (NIFT) system. If the application is received with less than four hours remaining in the working day, the same shall be disposed of in the next working day. Agency: Securities and Exchange Commission of Pakistan (SECP) Open a bank account for tax registration A bank account number in the name of the company is needed in order to register for taxes. A copy of the registration certificate is needed in 5 order to open a bank account. 1 day No charge Agency: Bank Apply for a national tax number (NTN) and register for income tax To apply, the company must submit a simple one page form called the NTN Form as well as a proof of registration, the Memorandum and Articles of Association, bank account number, copies of the national identity cards of its directors, and an attestation of the registered business address at the nearest tax facilitation counter of the Regional Tax Office in Pakistan. All applications are forwarded to the Central Registration Office (CRO) in Islamabad that allocates a uniform NTN number to each company. The center processes the application and issues the NTN at no charge. The certificate is then sent to the registered address of the applicant. 2 days no charge 6 The company can track the application online or through the RTO helpline. If undelivered, the NTN certification can be collected from the specified office at the Central Board of Revenue. Recently, the Federal Board of Revenue launched electronic services enabling online applications for NTN numbers to be made through its website: www.fbr.gov.pk. Agency: Tax facilitation center of the Regional Tax Office (RTO) of the Federal Board of Revenue (FBR) in Lahore Doing Business 2017 Pakistan 30 Time to No. Procedure Cost to complete complete Apply for a Sales Tax Number (STN) at the tax facilitation center of the Regional Tax Office (RTO) of the Federal Board of Revenue (FBR) in Lahore According to the Sections 14, 15 and 16 of the Sales Tax Act 1990 and Sales Tax Rules 2006, the company must register for sales tax by submitting the application Form STR-1 at any tax facilitation counter at the nearest Regional Tax Office (RTO). The local RTO forwards all applications to the Central Registration Office. After verification, the CRO issues a Registration Certificate bearing the registration number 7 and mails the same to the registered company, on a prescribed From 1 day no charge STR-5. The Sales Tax General Order No. 4/2007 introduced electronic filing of the sales tax returns; and as of July 1st 2008, electronic filing was made mandatory for all categories of taxpayers. Agency: Tax facilitation center of the Regional Tax Office (RTO) of the Federal Board of Revenue (FBR) in Lahore Register for Professional Tax with the Excise & Taxation Department of the District Following the Devolution Plan 2001, professional tax is enforced at the district level by the Excise and Taxation Department of the relevant provincial district. According to the Punjab Finance Act 1977, the tax is levied upon businesses, professionals, trades, callings or companies employing such professionals. The responsible district Excise and Taxation Officer (ET officer) is empowered to enroll in survey register 7 days every person who carries on any such business or profession and (simultaneous with *8 no charge thereafter, give notice to such enrolled person. In case of a new the previous business, the company is required to make a request to the ET officer to procedure) get enrolled by submitting a simple assessment form. The ET officer issues a registration number that acts as the reference number for the registered company and is noted down on every Bank Challan when assessments are paid into the Bank. Agency: Excise & Taxation Department of the District Register with the Punjab Employees Social Security Institution (SESSI) According to the Punjab Industrial Policy 2003, registration with the Sindh Employees Social Security Institution is governed at the provincial 1 week level by an independent institution called the Punjab ESSI. Employers (simultaneous with *9 no charge covered under the scheme contribute 6% of the wages to their insured the previous workers. The wage ceiling should not exceed PKR 15,000 per month or procedure) PKR 600 per day 2 as per Notification No: N-L-II (SEESI) 5-12- 91 dated 30 October, 2013. Registration is compulsory. The company has to complete a simple form to be allotted a registration number and to later receive an employee card. Doing Business 2017 Pakistan 31 Time to No. Procedure Cost to complete complete Agency: Punjab Employees Social Security Institution (PESSI) Register with Employees Old-Age Benefits Institution (EOBI) According to the Amendment in EOBI Act 1976 effective as of July 2008, every industry or a commercial establishment with 5 or more employees must register with the federal Employees Old Age Benefits Institution. Under the Employees Old Age Benefit Scheme, insured persons are entitled to pension upon retirement, invalidity in the case of a disability, old-age grant in the case of a retiring elder lacking the minimum threshold for pension, and survivor’s pension. A contribution of 5% of minimum wage must be paid by the employer and 1% of minimum wage must be paid by the employee. An employer shall before expiration of thirty days from the day on which the Act becomes applicable to the industry or establishment in respect of which he/she is the employer, communicate to the Institution the name and particulars of the industry or establishment in Form PR- 1 week 01 and of every insured person employed therein in Form PE-01 and, in (simultaneous with no charge * 10 the case of Form PE-01, give the receipt appended to the Form to the the previous insured persons. An insured person may also communicate his/her procedure) name and other particulars to the Institution in Form PE-02. Upon receipt of the requisite particulars in Forms PR-01 and PE-01 from an employer, the Institution shall register the name of the industry or establishment in respect of which he/she is the employer and of the insured person and issue to the employer a Certificate of Registration in Form PI-02 and to each insured person a Registration Card in Form PI- 03. The institution may send the Registration Card in Form PI-03 to the employer for delivery to the insured person to whom it relates. The minimum Pension has been increased from PKR 3000 per month to PKR 3600 per month. Agency: Employees Old-Age Benefits Institution (EOBI) Register under the West Pakistan Shops and Establishment Ordinance 1969 with the Labor Department of the District Pakistan Shops and Establishment Ordinance 1969 requires every establishment other than a one man shop to be registered with the Deputy Chief Inspector of the Labor Department in each district. This is 7 days to safeguard the labor standards of the workers. (simultaneous with * 11 PKR 1,000 To register, the employer must submit the application Form A the previous accompanied by a bank challan. The application for a new procedure) establishment shall be made within 2 months of setting up the establishment. The registration fees have been changed to the following pursuant to the Punjab Shops and Establishments (Amendment) Act 2014 (II of 2014): Doing Business 2017 Pakistan 32 Time to No. Procedure Cost to complete complete Rs. 200 in the case of an establishment employing 1 to 5 workers. Rs. 300 in the case of an establishment employing 6 to 10 workers. Rs. 500 in the case of an establishment employing 11 to 20 workers. Rs. 1000 in the case of an establishment employing more than 20 workers. Once the payment is settled, the Deputy Chief Inspection lists the establishment in the Register of Establishments maintained in Form B and issues a registration certificate in Form C. The registration certificate shall be prominently displayed by the employer at the establishment, and shall be renewed after every two years upon payment of fees. Agency: Labour Department of the District Register CEO at SECP As per companies ordinance 1984, the company is required to a appoint a CEO within 15 days of commencement of activities. The appointed CEO is then required by law to be registered at the Less than a day PKR 400 for form * 12 company's registry. This registration is a submission of a form online (online 29 that costs PKR 400. procedures) Confirmed by public sector and private. Agency: SECP * 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 Pakistan 33 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 Pakistan 34 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 Pakistan 35 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build an economy, except for 11 economies for which the data a warehouse in Pakistan? According to data collected by are a population-weighted average of the 2 largest Doing Business, dealing with construction permits there business cities. See the chapter on distance to frontier requires 15.0 procedures, takes 264.2 days and costs and ease of doing business ranking at the end of this 7.0% of the warehouse value (figure 3.1). Most indicator profile for more details. sets refer to a case scenario in the largest business city of Figure 3.1 What it takes to comply with formalities to build a warehouse in Pakistan - Karachi Doing Business 2017 Pakistan 36 What it takes to comply with formalities to build a warehouse in Pakistan - Lahore 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 Pakistan 37 dealing with construction permits Globally, Pakistan stands at 150 in the ranking of 190 economies and the regional average ranking provide economies on the ease of dealing with construction other useful information for assessing how easy it is for permits (figure 3.2). The rankings for comparator an entrepreneur in Pakistan to legally build a warehouse. Figure 3.2 How Pakistan and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2017 Pakistan 38 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Pakistan 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 7675940.1 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Karachi, Lahore 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 Pakistan - Karachi Time to No. Procedure Cost to complete complete Obtain letter from the relevant land owning authority confirming the land title BuildCo must obtain a letter from the relevant authority confirming the title or land use, the dimensions of the plot, and 1 the possible existence of any road widening, cut line, or 14 days no charge reservation. Agency: Relevant Land Owning Authority Obtain building permit An application form is to be submitted to the Sindh Building Control Authority (SBCA) along with the following documents: • A building plan (initially three copies and then six copies) together with: 1. Full particulars of the land plot with a specification of its intended use (such as residential, commercial, etc.) 2. Two sets of all documents relating to the plot and a letter from the concerned authority confirming the title or land use, the plot dimensions, and the possible existence of any road widening, cut 2 line, or reservation 60 days PKR 224,000 • A plan description: 1. Any proposed and/or revised addition and/or alteration 2. Any previous approval, if applicable 3. Details of any litigation relating to the plot The drawings should show plans, sections, and elevations, together with other necessary details pertaining to RCC elements, joinery work, and covered areas of every floor, including the basement (if applicable). In addition, a block plan of the site, drawn to a scale of not less than 1:500 (1”:8’) should be included. Such a plan and sections should show the building’s Doing Business 2017 Pakistan 39 Time to No. Procedure Cost to complete complete intended use; the access to and from the various parts of the building; the position dimensions; the means of ventilation; the proposed plinth height; the superstructure at each floor level; and the dimensions and descriptions of all the walls, floors, roofs, staircases, elevators, and the like. • A description of the proposed construction: 1. Type of building 2. Total floor area 3. Number of floors 4. Number of units (for public sale projects only) 5. Car parking space 6. Area of amenity space • Particulars of the licensed professionals employed to prepare the plan and supervise work: 1. Name 2. License number/professional registration number from the Public Electricity Corporation (PEC) 3. National identity card number 4. Mailing and permanent address/ telephone number 5. Office address and telephone number • A specification of the building’s intended use (i.e., is it being built for public sale) • A list of other documents to be attached to the application (photocopies should be duly attested by the professional): 1. Lease/sale deed, allotment order, mutation (or transfer) order (or extract) 2. Possession order 3. Acknowledgement of possession 4. Site plan 5. No-objection certificate (NOC), if applicable 6. National identity card 7. Letter from the owner, or attorney of the owner, authorizing a named professional whose license or registration number should also be provided, to complete and comply with the requirements of the Sindh Building Control Ordinance of 1979, as amended, and with the requirements of the regulations framed under the ordinance for and on behalf of the owner. The letter should also indicate that a plinth certificate notice would be provided at the completion of the plinth as required under section 3-2.10 of the Karachi Building and Town Planning Regulations of 2002. The letter should also specify that the owner would abide by all the aforementioned rules and regulations, and it must be signed by the owner or the owner’s attorney, contain their national identity card number, email address, mailing and permanent address, telephone number, and the signature and particulars of the architect and structural engineer. • A form specifying the architect’s and structural engineer’s undertaking: 1. The SBCA operates under the Sindh Local Government Ordinance of 2002, and falls under the control of the Karachi City District Government of which the Nazim (elected head of Karachi Doing Business 2017 Pakistan 40 Time to No. Procedure Cost to complete complete city local council) is the chief executive. If the property is in a military cantonment jurisdiction, BuildCo must send the documents to the Cantonment Board, which takes about 30 days. The Doing Business case study considered here assumes that the property is not located in this type of jurisdiction. Agency: Sindh Building Control Authority File an environmental checklist with the Environmental Protection Agency According to the Sindh Environmental Protection Agency Regulations 2014, warehouses shall file environmental checklist *3 with the Agency and the provisions of section 17 shall apply to 30 days PKR 30,000 such projects. Agency: Environmental Protection Agency Notify the Sindh Building Control Authority (SBCA) in writing of the completion of foundations Upon completion of the plinth level, BuildCo is required to notify 4 the SBCA so that they can verify the building lines. 1 day no charge Agency: Sindh Building Control Authority Receive foundations work inspection from the Sindh Building Control Authority (SBCA) and await approval Except for Category 1 building works, Regulation No. 3-2.10 of the 2002 Regulations requires BuildCo to notify the SBCA upon completion of plinth level and, in the case of a basement, upon the completion of foundations, so that SBCA can verify the building lines. Regulation No. 3-2.10 also indicates that no further work can be carried out for a 15-day period following the notification date. 5 15 days no charge During this period, the SBCA either approves the building lines or informs the owner or owner’s representative of any possible errors found. If no response is received from the SBCA within the 15-day period, the owner can proceed with the building works after notifying the SBCA, provided that the construction is consistent with the approved building plan. Agency: Sindh Building Control Authority Doing Business 2017 Pakistan 41 Time to No. Procedure Cost to complete complete Submit the first floor Certificate Form to the Sindh Building Control Authority (SBCA) For Category “III” and Category “IV” buildings, the owner and Professionals shall submit to the Authority floor certificate (Form ZP-5) casting of slab of each floor, certifying that all the building line and structural members on the said floor are in conformity 1 day no charge 6 with the design as approved by the Authority subject to clause 3- 2.4 and 3-2.5. If the owner/professional fails to submit the floor certificate the authority shall stop further construction work. Agency: Sindh Building Control Authority (SBCA) Receive first floor slab casting inspection from the Sindh Building Control Authority (SBCA) and await approval 7 15 days no charge Agency: Sindh Building Control Authority (SBCA) Submit the second floor Certificate Form to the Sindh Building Control Authority (SBCA) 8 1 day no charge Agency: Sindh Building Control Authority (SBCA) Receive second floor slab casting inspection from the Sindh Building Control Authority (SBCA) and await approval 9 15 days no charge Agency: Sindh Building Control Authority (SBCA) Request a copy of property tax valuation and copy of the certificate from the Excise and Taxation Department BuildCo must obtain a copy of the property tax valuation and a copy of the certificate from the tax authorities confirming that it does not owe them any money. These documents are submitted along with the water connection application. The Excise and Taxation Department of the Government of Sindh 30 days no charge 10 provides the property tax valuation after the building is completed. The department inspects the building and issues a certificate to the owner of the building. The certificate provides an assessment of the value of the building. If BuildCo has any objections to this assessment, it is required to make them known within 14 days. Otherwise, the department issues a PT-1 Form, a certificate that provides the assessed value of the property and the resultant property tax to be charged. Doing Business 2017 Pakistan 42 Time to No. Procedure Cost to complete complete The documents needed are the following: • An application providing information relating to the building • Title documents/ documents evidencing title of the property • Approved building plan • National identity card of the applicant Agency: Excise and Taxation Department Receive inspection from the Excise and Taxation Department and obtain a copy of property tax valuation and copy of the certificate from the tax authorities 11 1 day no charge Agency: Excise and Taxation Department Request water and sewerage connection An application form must be submitted to the Karachi Water and Sewerage Board along with the following documents to apply for water and sewerage connection: • A copy of the approved building plan along with a copy of the letter under the cover of which the approved building plan was issued by the SBCA • Proof of ownership of the plot, or for a tenancy, a copy of the 12 lease agreement 60 days PKR 217,175 • A copy of the property tax valuation • A copy of the certificate from the tax authorities confirming that the company does not owe them any money • A copy of the applicant’s national identity card Agency: Karachi Water and Sewerage Board Apply for occupancy permit and request final inspection After the building is completed, a “notice of completion and permission for occupation” form must be submitted along with the architect’s certificate. After receipt of this notice, the SBCA 13 inspects the building to verify that it has been built according to 1 day no charge the approved plans. Agency: Sindh Building Control Authority Receive final inspection 14 1 day no charge Agency: Sindh Building Control Authority Doing Business 2017 Pakistan 43 Time to No. Procedure Cost to complete complete Receive completion certificate from the Sindh Building Control Authority (SBCA) 15 45 days PKR 224,000 Agency: Sindh Building Control Authority * 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 Pakistan - Lahore Time to No. Procedure Cost to complete complete Obtain Fard (letter from concerned authority confirming the land title) from the Land Revenue Management Information System BuildCo must obtain a letter from the concerned authority confirming the title or land use, the dimensions of the plot, and the possible 2 days PKR 150 1 existence of any road widening, cut line, or reservation. Agency: Land Revenue Management Information system (LRMIS) Obtain a No Objection Certificate on the Environmental Impact Assessment from the Environmental Protection Agency Per the Punjab Environmental Protection Act, 1997 (Amended in 2012) and the Environmental Impact Assessment Regulations of 2000, the building authority in Lahore requires a No Objection Certificate from the Environmental Protection Agency to issue the building permit. 2 BuildCo must then prepare and submit an Initial Environmental 105 days PKR 10,000 Examination (IEE) to the Environmental Protection Agency in order to obtain this certificate which costs PKR 10,000 per schedule II of the regulation. Agency: Environmental Protection Agency Obtain a building permit According to the Building and Zoning By Laws of 2007, in order to obtain approval to execute the works, the building company must apply in writing to the LDA and submit the following documents: a. Application form signed by the registered architect, the attorney-in- practice, and a registered structural engineer; 60 days PKR 70,000 *3 b. Five sets of building plans (site plan, architectural drawings with elevations and sections, structural drawings, and stability certificate), each signed by the relevant professional (either the architect or the structural engineer); c. Proof of ownership (copy of the sale deed, copy of the allotment letter, or fard); d. Copy of the company’s memorandum of incorporation; e. Power of attorney to act on behalf of the company and a copy of the Doing Business 2017 Pakistan 44 Time to No. Procedure Cost to complete complete national identification card of the attorney-in-practice. If the building company does not receive a response to its application within 45 days of submission, it can send a written communication by registered post to the relevant authority. If such communication is not answered within 15 days, the building company can assume that the building plan approval has been granted and can start construction (as per Art. 27.6, Section 192, Fourth Schedule, Chapter 14 of the Punjab Local Government Ordinance, 2001). Agency: Lahore Development Authority (LDA) Notify the local city government (LDA) in writing of the completion of foundations Upon completion of the foundation level, BuildCo is required to notify 4 the LDA so that they can conduct an inspection. 1 day no charge Agency: Lahore Development Authority (LDA) Receive foundations work inspection from the Lahore Development Authority (LDA) Inspectors from LDA must inspect the building site when the 5 foundations have been laid. Inspections are free of charge. 1 day no charge Agency: Lahore Development Authority (LDA) Submit the first floor Certificate Form to the Lahore Development Authority (LDA) Per Art. 8(ii) of the 2001 Law, a certificate of durability in accordance with building plan must be obtained from architect and engineers 1 day no charge 6 concerned after the completion of each floor. Agency: Lahore Development Authority (LDA) Receive first floor slab casting inspection from the Lahore Development Authority (LDA) 7 1 day no charge Agency: Lahore Development Authority (LDA) Submit the second floor Certificate Form to the Lahore Development Authority (LDA) 8 1 day no charge Agency: Lahore Development Authority (LDA) Doing Business 2017 Pakistan 45 Time to No. Procedure Cost to complete complete Receive second floor slab casting inspection from the Lahore Development Authority (LDA) 9 1 day no charge Agency: Lahore Development Authority (LDA) Request assessment copy of property unit from the Excise and Taxation Department BuildCo must obtain a copy of the property tax valuation and a copy of the certificate from the tax authorities confirming that the company does not owe them any money. These documents are submitted along with the water connection application. The Excise and Taxation Department of the Government of the Punjab provides the property tax valuation after the building is completed. The department inspects the building and issues a certificate to the owner of the building. The certificate provides an assessment of the value of 10 the building. If BuildCo has any objections to this assessment, it is 30 days no charge required to make them known within 14 days. Otherwise, the department issues a PT-1 Form, a certificate that provides the assessed value of the property and the resultant property tax to be charged. The following documents are needed: • An application providing information relating to the building • Title documents/ documents evidencing title of the property • Approved building plan • National identity card of the applicant Agency: Excise & Taxation Department, Government of The Punjab Receive inspection from the Excise and Taxation Department and obtain the assessment copy of property unit The department inspects the building and issues a certificate to the owner of the building. The certificate provides an assessment of the 1 day no charge 11 value of the building. Agency: Excise & Taxation Department, Government of The Punjab Request water and sewerage connection The following documents should be provided with the new connection 12 form: 60 days PKR 90,000 - Attested photocopy of CNIC - Attested photocopy of sale deed/proof of ownership - Copy of the assessment of property unit Doing Business 2017 Pakistan 46 Time to No. Procedure Cost to complete complete - Site plan to indicate location of property Agency: Water and Sewerage Authority (WASA) Apply for completion certificate and request final inspection After the building is completed, a “notice of completion and permission for occupation” form is to be submitted along with the architect’s certificate. After receipt of this notice, the Lahore Development 13 Authority (LDA) inspects the building to verify that it has been built 7 days PKR 70,000 according to the approved plans. Agency: Lahore Development Authority (LDA) Receive final inspection 14 1 day no charge Agency: Lahore Development Authority (LDA) Receive completion certificate from the Lahore Development Authority (LDA) After the final inspection has taken place, and provided that the works have been carried out according to the approved building plan, the 60 days no charge 15 Lahore Development Authority (LDA) issues a certificate of completion. Agency: Lahore Development Authority (LDA) * 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 Pakistan 47 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 Pakistan Answer Score Answer Score (Lahore) (Karachi) (Karachi) (Lahore) Building quality control index (0-15) 12.5 11.0 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) 2.0 2.0 Available 1.0 Available How accessible are building laws and regulations in your online; Free online; Free of 1.0 economy? (0-1) of charge. charge. List of 1.0 List of required required documents; Which requirements for obtaining a building permit are documents; Fees to be clearly specified in the building regulations or on any Fees to be 1.0 paid; accessible website, brochure or pamphlet? (0-1) paid; Required Required preapproval preapprovals. s. 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) 1.0 2.0 Inspections 1.0 Inspections by by in-house in-house engineer; engineer; What types of inspections (if any) are required by law to Inspections Inspections at at various various 1.0 be carried out during construction? (0-2) phases; No phases; No inspections inspections are legally are legally required required Doing Business 2017 Pakistan 48 Answer Score Answer Score (Lahore) (Karachi) (Karachi) (Lahore) during during constructio construction. n. Mandatory 0.0 inspections are not always done in practice Mandatory during inspections Do legally mandated inspections occur in practice during constructio are always 1.0 construction? (0-1) n; done in Mandatory practice. inspections are done most of the time during constructio n. Quality control after construction index (0-3) 3.0 2.0 Yes, final 2.0 Yes, final inspection inspection is is done by done by Is there a final inspection required by law to verify that government government the building was built in accordance with the approved 2.0 agency. agency; Final plans and regulations? (0-2) inspection is not required by law. Final 1.0 Final inspection inspection always does not occurs in always occur Do legally mandated final inspections occur in practice? practice. in practice; 0.0 (0-1) Final inspection occurs most of the time. Liability and insurance regimes index (0-2) 1.5 0.0 Which parties (if any) are held liable by law for structural Constructio 0.5 No party is flaws or problems in the building once it is in use (Latent n company. held liable 0.0 Defect Liability or Decennial Liability)? (0-1) under the law. Which parties (if any) are required by law to obtain an Constructio 1.0 No party is insurance policy to cover possible structural flaws or n company; required by Insurance is 0.0 problems in the building once it is in use (Latent Defect law to obtain Liability Insurance or Decennial Insurance)? (0-1) commonly insurance . taken in Doing Business 2017 Pakistan 49 Answer Score Answer Score (Lahore) (Karachi) (Karachi) (Lahore) practice. Professional certifications index (0-4) 4.0 4.0 Minimum 2.0 Minimum number of number of years of years of experience; experience; University University What are the qualification requirements for the degree in degree in professional responsible for verifying that the architecture architecture 2.0 architectural plans or drawings are in compliance with or or existing building regulations? (0-2) engineering engineering; ; Being a Being a registered registered architect or architect or engineer. engineer. Minimum 2.0 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 Pakistan 50 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 Pakistan 51  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 Pakistan 52 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 Pakistan? According to data collected by Doing which the data are a population-weighted average of the Business, getting electricity there requires 5.3 procedures, 2 largest business cities. See the chapter on distance to takes 180.7 days and costs 1771.9% 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 Pakistan - Karachi Doing Business 2017 Pakistan 53 What it takes to obtain an electricity connection in Pakistan - Lahore 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 Pakistan 54 GETTING ELECTRICITY Globally, Pakistan stands at 170 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 Pakistan to connect The rankings for comparator economies and the regional a warehouse to electricity. Figure 4.2 How Pakistan and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2017 Pakistan 55 GETTING ELECTRICITY What are the details? The indicators reported here for Pakistan are based on a OBTAINING AN ELECTRICITY CONNECTION* 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 - Karachi: K-Electric Ltd. professionals such as electrical engineers, electrical contractors and construction companies. The electricity distribution utility surveyed is the one serving the area Name of utility - Lahore Electricity Supply (or areas) in which warehouses are located. If there is a Lahore: Company Ltd (LESCO) choice of distribution utilities, the one serving the largest number of customers is selected. Price of electricity (US cents per kWh) - 19.0 The procedures are those that apply to a warehouse and Karachi: 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) - 19.0 indicators cover). The procedures, along with the Lahore: associated time and cost, are summarized below. City: Karachi, Lahore *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 Pakistan Time to No. Procedure Cost to complete complete Submit application to K-Electric Ltd. and await site inspection Application form should be verified by the Licensed Electrical Contractor. The application should be accompanied with a copy of the computerized national identity card (CNIC) of the owner, a copy of the approved building plan, a copy of the approved layout plan, a copy of the trade 1 license, the list of machinery & equipment (needs to be notarized), 30 calendar days PKR 200 details of the chiller units (in case of centrally air conditioned units), a passport size photo of the applicant, a company letter head mentioning the name of the authorizing person (needs to be notarized), the CNIC number, and the NTN certificate from the federal board of revenue. Agency: K-Electric Ltd. Doing Business 2017 Pakistan 56 Time to No. Procedure Cost to complete complete Obtain site inspection by K-Electric Ltd. and await estimate After site inspection/survey, connection point is assessed, load flow study is done and schematic diagram is prepared after which verification from network department is carried out and load approval process is 2 done. After load approval, cost estimation is prepared and delivered to 21 calendar days PKR 0 applicant within 3 days. Agency: K-Electric Ltd. Obtain wiring inspection To obtain the wiring test form from the Electric Inspectorate Karachi (EIK) - and once the internal works are completed - the contractor needs to give the address of the property so that EIK can proceed to test the internal wiring on-site. An inspector from EIK will then carry-out the 3 inspection and issue the fitness certificate. It takes two calendar weeks 14 calendar days PKR 10,000 on average from the time of the request to the time the fitness certificate is issued. Agency: Electric Inspectorate Karachi Pay estimate to K-Electric Ltd., and submit the internal wiring test report as well as the delivery orders of the material The customer submits the wiring test and makes the payment of the connection estimate. The payment has to be made by cheque at the bank counter of the utility. The customer then nominates one of the pre- qualified contractors (if it hasn’t already) who purchases the material, after which he submits the delivery and order confirmations. K-electric will issue the following documents: 4 • Bill of materials 30 calendar days PKR 2,713,087.73 • Approved drawings • List of approved manufacturers / suppliers for supply of materials • List of contact details of manufacturers / suppliers • List of approved pre-qualified contractors for scheme execution • Letter of agreement for conformance to current KE specifications • Letter of conformance to current KE specifications (for transformers) • Letter of conformance to current KE specifications (for other materials) Agency: K-Electric Ltd. Doing Business 2017 Pakistan 57 Time to No. Procedure Cost to complete complete Await external works, meter installation and electricity flow from K- Electric Ltd. The pre-approved contractor conducts the works under the direct supervision of K-Electric technicians. The external connection works includes the erection of poles, the laying of HT/LT cables, the completion 5 of PMT / Sub Station works, and the meter installation works. Once the 120 calendar days PKR 0 works are completed, K-electric carries out the installation of the meter and then the electricity turn-on. Agency: K-Electric Ltd. * Takes place simultaneously with previous procedure. Source: Doing Business database. Summary of time, cost and procedures for getting electricity in Pakistan - Lahore Time to No. Procedure Cost to complete complete Submit application to LESCO and await site inspection The application form should be verified by a Licensed Electrical Contractor. It should be accompanied with a copy of the computerized national identity card (CNIC) of the owner, a copy of the approved building plan, a copy of the approved layout plan, a copy of the trade license, the list of machinery, the equipment, details of chiller units (in case of centrally air conditioned units), a passport size photo of applicants, and a company letter head mentioning name of authorizing 30 calendar days PKR 0 1 person and his CNIC number. The client submits the application to the marketing department of LESCO, which forwards it to the concerned authority in charge of the relevant load. Agency: LESCO Obtain site inspection by LESCO and receive estimate 2 30 calendar days PKR 0 Agency: LESCO Doing Business 2017 Pakistan 58 Time to No. Procedure Cost to complete complete Obtain wiring inspection Contractor has to collect this test form from the Government (they issue one form per connection application). He only needs to give the address 3 of the property to obtain the form. 14 calendar days PKR 1,480 Agency: Electrical Inspector from Punjab Energy Department Pay estimate to LESCO, and submit the internal wiring test report The payment has to be made by cheque at the Bank counter of the utility. The internal wiring test report form is obtained by the licensed contractor testifying that the electrical wiring of the warehouse has been 1 calendar day PKR 2,713,087.73 4 tested and meets the required testing guidelines. Agency: LESCO Receive external works and await final inspection The contractor of the client carries out the external connection. First an order has to be placed for the material through an accredited store. For the transformer, the store will put in a request with Lesco for the inspection and approval of the materials. Once approved, the contractor is notified to pay and collect the transformer. The external works 5 themselves include the erection of poles, laying of HT/LT cables, and the 28 calendar days PKR 0 completion of the PMT/Sub Station. Upon completion of the works, the contractor informs LESCO so that they can perform an inspection of the works - as well as the installation of the meter. Agency: Electrical Contractor Receive inspection of external works, meter installation and electricity flow from LESCO After the electrical external works are approved by LESCO, they will come 6 and install the meter. Electricity can then be supplied. 14 calendar days PKR 0 Agency: LESCO * Takes place simultaneously with previous procedure. Source: Doing Business database. Doing Business 2017 Pakistan 59 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 Pakistan Answer Score Answer Score (Karachi) (Karachi) (Lahore) (Lahore) Reliability of supply and transparency of tariff index 0.0 0.0 (0-8) Total duration and frequency of outages per customer 0.0 0.0 a year (0-3) System average interruption duration index (SAIDI) 861.67 1327.67 System average interruption frequency index (SAIFI) 387.21 417.49 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 Pakistan 60 Answer Score Answer Score (Karachi) (Karachi) (Lahore) (Lahore) 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 http://www.k e.com.pk/cus tomer- http://www Link to the website, if available online services/tariff .lesco.gov.p - k/3000063 structure/ind ex.html Are customers notified of a change in tariff ahead of No No the billing cycle? Price of electricity (US cents per kWh) 19.0 19.0 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 Pakistan 61 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 Pakistan 62 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 Pakistan? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 7.7 procedures, takes which the data are a population-weighted average of the 154.8 days and costs 4.6% of the property value (figure 2 largest business cities. See the chapter on distance to 5.1). The score on the quality of land administration frontier and ease of doing business ranking at the end of index is 6.8 this profile for more details. Figure 5.1 What it takes to register property in Pakistan - Karachi What it takes to register property in Pakistan - Lahore Doing Business 2017 Pakistan 63 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 Pakistan 64 REGISTERING PROPERTY Globally, Pakistan stands at 169 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 Pakistan to transfer property. Figure 5.2 How Pakistan and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2017 Pakistan 65 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 Pakistan (table 5.1)? Table 5.1 How has Pakistan made registering property easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Pakistan made registering property more expensive by DB2011 doubling the capital value tax to 4%. Pakistan improved the quality of land administration by DB2017 digitizing ownership and land records. This reform applies to Lahore. 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 Pakistan 66 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: 7675940.1 notaries and property registries. These procedures are those that apply to a transaction matching the City: Karachi, Lahore 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 Pakistan Karachi Time to No. Procedure Cost to complete complete Obtaining a Non-Objection Certificate The Deputy District Officer Revenue and the District Officer Revenue, at Town and city level respectively, issue a “No Objection Certificate” in favour of the Seller permitting the sale of the property, provided that the 1 entire amount due and payable in respect of the property has been 2 weeks PKR 1000 satisfied. Agency: District Officer Revenue Advertisement of transaction in newspapers inviting objections A Public notice in two different newspapers having circulation of 100,000 copies, in English and in Urdu news paper, inviting objections/claims should be placed. After publication, there is a seven-day waiting time for arrival of objections, if any. Advertisement is published in local newspapers (dailies) having a large circulation. Simultaneously, the one week and *2 PKR 10,000 buyer will verify the authenticity of the documents presented by the one day seller as well his authority to act on behalf of the company to sell this property. At the same time, there is a checking for any encumbrances. Agency: Local Newspaper Conduct title search As a part of the due diligence procedure, it is a common practice to *3 search the books and verify whether the counterpart actually owns the one week no cost property. Lawyers also look into the previous owners. The process is completely manual and does not have cost. Doing Business 2017 Pakistan 67 Time to No. Procedure Cost to complete complete Agency: Sub-Registrar's office Hire deed writer or lawyer to draft sale purchase agreement It is common practice in Pakistan to hire a lawyer to draft the sale purchase agreement. 3-7 calendar days PKR 5,000-10,000 4 Agency: Deed writer or lawyer Payment of stamp duty, capital value tax, Town tax and registration fee The following payments must be made: (i) Conveyance stamp duty 3% of property value. (ii) The capital value tax (CVT) decreased from 4% to 2.5% of the property value (Sindh Finance Act, 2010 which came into force on July 1st, 2010 amending the Sindh Urban Immoveable Property Tax Act, 1958, section 4). After the 18th constitutional amendment (April, 3% of property 2010), the CVT on property was transferred to the provincial price (stamp duty) governments. CVT is applicable in urban areas for residential property exceeding an area of one kanal and in case of commercial properties + 1% of property without any threshold of land area or size of the property. However, price (registration where the value of such property is not recorded, the CVT is payable at fee)+ 1% Town 5 Rs. 100 per square yard of land area. (iii) 1% of property value for the 1 calendar day Tax + 2.5 % of the registration fee. (iv) 1% of the property value for the Town Tax Fees are property price paid at the Government Treasury or National Bank of Pakistan, an (Capital value tax) autonomous bank jointly owned by Government of Pakistan and public, Capital value tax is who issue receipt of money which is taken to the Stamp office of the not included into Government. The receipt of payment is taken to the Stamp Office of the cost estimates. Government. The Stamp office will, upon production of receipt, issue a stamp paper of the value (money deposited) on the Sale Deed. Such typed stamp paper will be presented later before the Registrar, who registers the change of ownership. Agency: Government Treasury or National Bank of Pakistan Receipt of payment is taken to Stamp Office The receipt of payment obtained in Procedure 4 is taken to the Stamp Office of the Government. The Stamp office will, upon production of receipt, issue a stamp paper of the value (money deposited) on the Sale 1 calendar day no cost 6 Deed. Such typed stamp paper will be presented later before the Registrar, who registers the change of ownership. Agency: Stamp Office of the Government Doing Business 2017 Pakistan 68 Time to No. Procedure Cost to complete complete Execution and registration of the deed before the registration authority The conveyance deed must be executed before the registering authority. Execution of the deed is done before the Sub-Registrar of Conveyance/Assurances of the area, official responsible under the Registration Act. Registration of the deed automatically follows the execution of sale deed. A receipt is issued immediately, but the deed is delivered a few weeks later. The name of the buyer is recorded in the new deed, showing the change in ownership. The documentation shall 6 months no cost 7 include: • Conveyance/Sale Deed (stamped after payment in Procedure 4) • ID of parties • Original title deed of seller • If the parties have authorized someone else through a power of attorney, the power of attorney in original with copies. The buyer will conduct post registration Procedures, such as changing the name at the utility companies, property taxation and municipal services. Agency: Sub-Registrar of Conveyance/Assurances Mutation Once the registration process is completed, and the sale deed has been collected from the registrar office, the mutation processes is carried out at the relevant land owning authority for transfer of ownership. The mutation is the process of obtaining the new title document. A property mutation is simply the change of title ownership under certain one week PKR 1000 8 conditions such as sale/purchase or death of an owner and even if the property is bought through a power of attorney (PoA). Through mutation, while the new owner gets the property in his name, the government is able to charge property tax from the right owner. Agency: Relevant land authority * 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 Pakistan Lahore Time to No. Procedure Cost to complete complete Doing Business 2017 Pakistan 69 Time to No. Procedure Cost to complete complete Obtain the Fard (ownership and non-encumbrance certificate) To confirm ownership and records for the property the seller obtains the Fard. 1 The Fard is an ownership certificate with the details of the property, the 2 calendar days PKR 150 owner, the boundaries and any liens on the property. Agency: LRMIS Advertisement of a transaction in newspapers and inviting objections The public notice in two different newspapers having circulation of 100,000 copies, in English and in Urdu news paper, inviting objections/claims should be placed. After publication, there is a seven- day waiting time for arrival of objections, if any. Advertisement is published in local newspapers (dailies) having a large circulation. 8 calendar days PKR 10,000 2 Simultaneously, the buyer will verify the authenticity of the documents presented by the seller as well his authority to act on behalf of the company to sell this property. At the same time, there is a checking for any encumbrances. Agency: Local Newspaper Hire the deed writer or the lawyer to draft the sale purchase agreement It is common practice in Pakistan to hire a lawyer to draft the sale purchase agreement. People who cannot afford lawyers hire a deed 3 calendar days PKR 8,000 3 writer costing around PKP 1,000. Agency: Lawyer Payment of the stamp duty, capital value tax, town tax and registration fee 2% of the property price (Capital value Following payments must be made: (i) Conveyance stamp duty 3% of property value. tax) (not included (ii) The capital value tax (CVT) is set at 2% of the property value (Punjab in calculations) Finance Act, 2010). (This tax is not included in cost calculations.) + 3% of property 4 1 calendar day (iii) 1% of property value for the registration fee. price (stamp duty) (iv) 1% of the property value for the Town Tax + 1% of property price (registration Fees are paid at the Government Treasury or National Bank of Pakistan, fee) an autonomous bank jointly owned by Government of Pakistan and + 1% Town Tax public, who issue receipt of money which is taken to the Stamp office of the Government. Doing Business 2017 Pakistan 70 Time to No. Procedure Cost to complete complete The receipt of payment is taken to the Stamp Office of the Government. The Stamp office will, upon production of receipt, issue a stamp paper of the value (money deposited) on the Sale Deed. Such typed stamp paper will be presented later before the Registrar, who registers the change of ownership. Agency: Government Treasury or National Bank of Pakistan Receipt of the payment is submitted to the Stamp Office The receipt of payment obtained in Procedure 4 is taken to the Stamp Office of the Government. The Stamp office will, upon production of receipt, issue a stamp paper of the value (money deposited) on the Sale 5 Deed. Such typed stamp paper will be presented later before the 1 calendar day no cost Registrar, who registers the change of ownership. Agency: Stamp Office of the Government Execution and registration of a deed before the registration authority The conveyance deed must be executed before the registering authority. Execution of the deed is done before the Sub-Registrar of Conveyance/Assurances of the area, official responsible under the Registration Act. Registration of the deed automatically follows the execution of sale deed. A receipt is issued immediately, but the deed is delivered a few weeks later. The name of the buyer is recorded in the 6 new deed, showing the change in ownership. The documentation shall 38 calendar days PKR 500 include: Conveyance/Sale Deed ID of parties Original title deed of seller If parties have authorized someone else through a power of attorney, the power of attorney in original with copies. The buyer will conduct post registration procedures, such as changing the name at the utility companies, property taxation and municipal services. Agency: Sub-Registrar of Conveyance/Assurances Mutation Once the registration process described above is completed, and the sale deed has been collected from the sub-registrar office, the mutation process is carried out by the buyer at the relevant land authority for 7 transfer of ownership. 3 calendar days PKR 500 A property mutation is the change of the title ownership under certain conditions such as sale/purchase or death of an owner and even if the property is bought through a power of attorney (PoA). Through mutation, while the new owner gets the property in his name, the Doing Business 2017 Pakistan 71 Time to No. Procedure Cost to complete complete government is able to charge property tax from the right owner. The new owner needs to pick up the application with the purchase agreement with the sub-registrar and scanning office’s stamp and take it to the Director’s office of the concerned land authority. The owner is only the official owner once the mutation is completed and the new title issued. Agency: Land authority ofthe district where the company is located * 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 Pakistan 72 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 Pakistan Answer Score Answer Score (Karachi) (Karachi) (Lahore) (Lahore) Quality of the land administration index (0-30) 5.0 10.0 Reliability of infrastructure index (0-8) 0.0 5.0 Land Records What is the institution in charge of immovable Office of Manageme property registration? Registrar nt Information System In what format are the majority of title or deed records Computer/ kept in the largest business city—in a paper format or in Paper 0.0 1.0 Scanned a computerized format (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, mortgages, restrictions and the No 0.0 Yes 1.0 like)? In what format are the majority of maps of land plots Computer/ kept in the largest business city—in a paper format or in Paper 0.0 1.0 Scanned a computerized format (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral No 0.0 Yes 1.0 information (geographic information system)? Is the information recorded by the immovable property Different registration agency and the cadastral or mapping Separate 0.0 databases 1.0 agency kept in a single database, in different but linked databases but linked databases or in separate databases? Do the immovable property registration agency and cadastral or mapping agency use the same No 0.0 No 0.0 identification number for properties? Doing Business 2017 Pakistan 73 Answer Score Answer Score (Karachi) (Karachi) (Lahore) (Lahore) Transparency of information index (0–6) 1.5 1.5 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 Yes, in any type of property transaction made publicly Yes, in person 0.0 0.0 person available–and if so, how? Link for online access: Is the applicable fee schedule for any property transaction at the agency in charge of immovable Yes, in Yes, in person 0.0 0.0 property registration in the largest business city made person publicly available–and if so, how? Link for online access: Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property ownership within a No 0.0 No 0.0 specific time frame–and if so, how does it communicate the service standard? Link for online access: Is there a specific and separate mechanism for filing complaints about a problem that occurred at the No 0.0 No 0.0 agency in charge of immovable property registration? Contact information: Are there publicly available official statistics tracking the number of transactions at the immovable property No 0.0 No 0.0 registration agency? Number of property transfers in the largest business city in 2015: Anyone Anyone who Who is able to consult maps of land plots in the largest who pays pays the 0.5 0.5 business city? the official official fee fee Is the applicable fee schedule for accessing maps of Yes, in Yes, in person 0.0 0.0 land plots made publicly available—and if so, how? person Link for online access: Does the cadastral or mapping agency commit to No 0.0 No 0.0 Doing Business 2017 Pakistan 74 Answer Score Answer Score (Karachi) (Karachi) (Lahore) (Lahore) delivering an updated map within a specific time frame—and if so, how does it communicate the service standard? Link for online access: 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) 3.5 3.5 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 No 0.0 No 0.0 subject to a state or private guarantee? Is there a specific compensation mechanism to cover for losses incurred by parties who engaged in good faith in a property transaction based on erroneous No 0.0 No 0.0 information certified by the immovable property registry? Does the legal system require a control of legality of the documents necessary for a property transaction Yes 0.5 Yes 0.5 (e.g., checking the compliance of contracts with requirements of the law)? Registrar; If yes, who is responsible for checking the legality of Interested Registrar. the documents? Parties. Does the legal system require verification of the Yes 0.5 Yes 0.5 identity of the parties to a property transaction? Doing Business 2017 Pakistan 75 Answer Score Answer Score (Karachi) (Karachi) (Lahore) (Lahore) Registrar; If yes, who is responsible for verifying the identity of Interested Registrar. the parties? Parties. 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 District times gross national income (GNI) per capita and Courts 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 More than 3 More than from the first-instance court for such a case (without 0.0 0.0 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 Pakistan 76 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 Pakistan 77 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Pakistan stands at 82 in the ranking of 190 and bankruptcy laws in Pakistan facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 7.0 on the depth of rankings for comparator economies provide useful credit information index and a score of 3.0 on the information for assessing how well regulations and strength of legal rights index (see the summary of institutions in Pakistan 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 Pakistan and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2017 Pakistan 78 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Pakistan 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 Pakistan 79 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 Pakistan (table 6.1)? Table 6.1 How has Pakistan made getting credit easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Pakistan improved access to credit information guaranteeing by law borrowers’ rights to inspect their own data. The credit DB2017 bureau also expanded its borrower coverage. This reform applies to both Lahore and Karachi. 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 Pakistan 80 GETTING CREDIT What are the details? The getting credit indicators reported here for Pakistan 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. Karachi Lahore Strength of legal rights index (0–12) Index score: 3.0 Index score: 3.0 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 1 1 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 0 0 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 0 0 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 0 0 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 Pakistan 81 Karachi Lahore Strength of legal rights index (0–12) Index score: 3.0 Index score: 3.0 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 0 0 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: 7.0 Are data on both firms and individuals distributed? No Yes 1 Are both positive and negative credit data distributed? Yes No 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 Yes No 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 Yes Yes 1 capita distributed? By law, do borrowers have the right to access their Yes No 1 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an Yes 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 Yes No 1 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 Pakistan 82 Coverage Credit bureau Credit registry Number of individuals 6,597,622 10,579,847 Number of firms 0 121,834 Total 6,597,622 10,701,681 Total percentage of adult population 5.8 9.4 Source: Doing Business database. Doing Business 2017 Pakistan 83 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 Pakistan 84  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 Pakistan 85 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 Pakistan? The economy has a score of 6.7 not measure all aspects related to the protection of 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, Pakistan stands at 27 in the ranking of 190 economies on the strength of minority investor Figure 7.1 How Pakistan and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2017 Pakistan 86 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 Pakistan. Figure 7.2 Summary of the various minority investor protection indices for Pakistan and comparator economies. Source: Doing Business database. Doing Business 2017 Pakistan 87 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Pakistan 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 Pakistan. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Pakistan Answer Answer Score Score (Karachi) (Karachi) (Lahore) (Lahore) Strength of minority investor protection index (0-10) 6.7 6.7 Extent of conflict of interest regulation index (0-10) 6.0 6.0 Extent of disclosure index (0-10) 6.0 6.0 Board of Board of directors directors Which corporate body is legally sufficient to approve the excluding 2.0 excluding 2.0 Buyer-Seller transaction? (0-3) interested interested members members 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 Must Buyer immediately disclose the transaction to the No disclosure No disclosure 0.0 0.0 public and/or shareholders? (0-2) obligation obligation Must an external body review the terms of the transaction No 0.0 No 0.0 before it takes place? (0-1) Extent of director liability index (0-10) 6.0 6.0 Can shareholders representing 10% of Buyer's share capital sue directly or derivatively for the damage the transaction No 0.0 No 0.0 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 Liable if Liable if negligent 1.0 1.0 damage the transaction caused to Buyer (0-2) negligent 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 Yes 1.0 Yes 1.0 upon a successful claim by shareholders? (0-1) Is Mr. James disqualifed or fined and imprisoned upon a Yes 1.0 Yes 1.0 successful claim by shareholders? (0-1) Can a court void the transaction upon a successful claim by Voidable if 1.0 Voidable if 1.0 Doing Business 2017 Pakistan 88 shareholders? (0-2) negligently negligently concluded concluded Ease of shareholder suits index (0-10) 6.0 6.0 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 Any relevant Any relevant 3.0 3.0 and witnesses at trial? (0-3) document document 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 Yes 1.0 Yes 1.0 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) 7.3 7.3 Extent of shareholder rights index (0-10) 8.0 8.0 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 No 0.0 No 0.0 issues new shares? Do shareholders automatically receive preemption rights Yes 1.0 Yes 1.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the Yes 1.0 Yes 1.0 external auditor? Are changes to the rights of a class of shares only possible if Yes 1.0 Yes 1.0 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) 9.0 9.0 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 Yes 1.0 Yes 1.0 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 Yes 1.0 Yes 1.0 committee exclusively comprising board members? Must a potential acquirer make a tender offer to all Yes 1.0 Yes 1.0 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by Yes 1.0 Yes 1.0 Doing Business 2017 Pakistan 89 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 Yes 1.0 Yes 1.0 the declaration date? Extent of corporate transparency index (0-10) 5.0 5.0 Must Buyer disclose direct and indirect beneficial ownership Yes 1.0 Yes 1.0 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 No 0.0 No 0.0 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 No 0.0 No 0.0 put items on the agenda for the general meeting? Must Buyer's annual financial statements be audited by an Yes 1.0 Yes 1.0 external auditor? Must Buyer disclose its audit reports to the public? Yes 1.0 Yes 1.0 Assuming that Buyer is a limited company, must 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 Yes 1.0 Yes 1.0 auditor? Source: Doing Business database. Doing Business 2017 Pakistan 90 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 Pakistan 91 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 Pakistan 92 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 Pakistan—and refer to a case scenario in the largest business city of an how much do firms pay in taxes? Globally, Pakistan 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 Pakistan and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2017 Pakistan 93 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 Pakistan (table 8.1)? Table 8.1 How has Pakistan made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform DB2012 Pakistan increased the profit tax rate for small firms. 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 Pakistan 94 PAYING TAXES What are the details? The indicators reported here for Pakistan 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: Karachi, Lahore 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 Karachi: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate 5% or PKR Employer paid -Pension 400 per gross 12 6.60 contributions employee salaries per month gross Social security contributions 12 40 6% 6.12 salaries taxable Corporate income tax 5 40 25% 18.48 profit PKR 100 Education cess 1 per worker 0.93 per month Doing Business 2017 Pakistan 95 Total tax Notes on Karachi: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate 18% annual (including rental Property tax 1 0.89 10% value of discount) property included in Tax on interest 0 10% interest 0.26 other taxes Professional tax 1 PKR 10,000 fixed fee 0.14 fixed fee depending Vehicle tax 1 varies 0.07 on type of vehicle included small Fuel tax 1 25% into fuel 0.00 amount price 1% or PKR Employee paid - Pension 80 per gross 0 jointly 0.00 withheld contributions employee salaries per month value not Goods and sales tax (VAT) 12 232 17% 0.00 added included rate based Stamp duty 1 on contract 0.00 value Totals 47.0 311.5 33.2 Total tax Notes on Lahore: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate 5% or PKR Employer paid - Pension 400 per gross 12 6.60 contributions employee salaries per month gross Social security contributions 12 40 6% 6.46 salaries taxable Corporate income tax 5 40 25% 18.40 profit PKR 100 Education cess 1 per worker 0.93 per month Doing Business 2017 Pakistan 96 Total tax Notes on Lahore: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate 18% annual (including rental Property tax 1 0.89 10% value of discount) property included in Tax on interest 0 10% interest 0.26 other taxes Professional tax 1 PKR 10,000 fixed fee 0.14 fixed fee depending Vehicle tax 1 varies 0.07 on type of vehicle included small Fuel tax 1 25% into fuel 0.00 amount price 1% or PKR Employee paid - Pension 80 per gross 0 jointly 0.00 withheld contributions employee salaries per month value not Goods and sales tax (VAT) 12 232 17% 0.00 added included rate based Stamp duty 1 on contract 0.00 value Totals 47.0 311.5 33.5 Source: Doing Business database. Doing Business 2017 Pakistan 97 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 Pakistan 98 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 Pakistan 99 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Borders indicator refers to a case Globally, Pakistan stands at 172 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 Pakistan and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2017 Pakistan 100 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 Pakistan (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Pakistan made trading across borders easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Pakistan reduced the time to export by improving electronic communication between the Karachi Port authorities and the DB2011 private terminals, which have also boosted efficiency by introducing new equipment. Pakistan made trading across borders easier by introducing a fully automated, computerized system (the Web-Based One DB2015 Customs system) for the submission and processing of export and import documents. This reform applies to both Lahore and Karachi. Pakistan made exporting and importing easier by enhancing DB2017 its electronic "Web Based One Customs Platform". 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 Pakistan 101 TRADING ACROSS BORDERS What are the details? The indicators reported here for Pakistan 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: Karachi, Lahore 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 Pakistan Karachi Lahore South Asia Time to export: Border compliance 75 75 59 (hours) Cost to export: Border compliance 426 426 376 (USD) Time to export: Documentary 59 59 78 compliance (hours) Cost to export: Documentary 307 307 183 compliance (USD) Time to import: Border compliance 129 129 116 (hours) Cost to import: Border compliance 957 957 645 (USD) Time to import: Documentary 147 147 106 compliance (hours) Cost to import: Documentary 786 786 348 compliance (USD) Source: Doing Business database. Table 9.3 Summary of trading details, transport time and documents for trading across borders in Pakistan Karachi Lahore Export Import Export Import HS 8708: Parts and HS 8708: Parts and Product HS 52 : Cotton accessories of HS 52 : Cotton accessories of motor vehicles motor vehicles Doing Business 2017 Pakistan 102 Karachi Lahore Export Import Export Import Trade partner China Thailand China Thailand Border Qasim port Qasim port Qasim port Qasim port Distance (km) 54 54 1296 1296 Domestic transport time (hours) 6 4 48 48 Domestic transport cost (USD) 200 200 500 500 Source: Doing Business database. Documents used to export Bill of lading Packing list Certificate of origin Inspection report Insurance certificate Export General Manifest (EGM) E Form (with Commercial Bank) Customs Export Declaration Price certificate Phytosanitary certificate Gate pass Documents used to import Bill of lading Packing list Certificate of origin Pre-shipment inspection certificate Technical standards certificate Form I Import general manifest Import declaration 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 Doing Business 2017 Pakistan 103 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 Pakistan 104 Figure 9.2 Summary of Pakistan on the ease of trading across borders Export (Karachi) Import (Karachi) Export (Lahore) Import (Lahore) Source: Doing Business database. Doing Business 2017 Pakistan 105 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 Pakistan 106 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 Pakistan? According to this profile for more details. data collected by Doing Business, contract enforcement Globally, Pakistan stands at 157 in the ranking of 190 takes 1071.2 days and costs 20.5% 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 Pakistan. Figure 10.1 How Pakistan and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2017 Pakistan 107 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for Pakistan ECONOMY DETAILS are built by following the step-by-step evolution of a commercial sale dispute within the court, under the Claim value - assumptions about the case described above (figure PKR 514,260 Karachi: 10.2). The time and cost of resolving the standardized dispute are identified through study of Claim value - Lahore: PKR 514,260 the codes of civil procedure and other court regulations, as well as through questionnaires Court name - completed by local litigation lawyers (and, in a Karachi District Court Karachi: quarter of the economies covered by Doing Business, by judges as well). Court name - Lahore: Lahore District Court City: Karachi, Lahore Doing Business 2017 Pakistan 108 Figure 10.2 Time and cost of contract enforcement in Pakistan and comparator economies Source: Doing Business database. Doing Business 2017 Pakistan 109 Table 10.2 Details on time and cost for enforcing contracts in Pakistan South Asia Indicator Karachi Lahore average Time (days) 1096.0 1025.0 1,099 Filing and service 96 60 Trial and judgment 700 600 Enforcement of judgment 300 365 Cost (% of claim) 18.1 25.0 30.6 Attorney fees 11.0 15.0 Court fees 5.9 7.0 Enforcement fees 1.2 3.0 Source: Doing Business database. Doing Business 2017 Pakistan 110 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 Pakistan (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 Pakistan and comparator economies Source: Doing Business database. Doing Business 2017 Pakistan 111 Table 10.3 Details of the quality of judicial processes index in Pakistan Answer Score Answer Score (Karachi) (Karachi) (Lahore) (Lahore) Quality of judicial processes index (0-18) 6.0 5.0 Court structure and proceedings (0-5) 2.0 2.0 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 No -1.0 No -1.0 evidentiary weight in court as a man's? Case management (0-6) 1.5 0.5 1. Time standards 0.5 0.5 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 No No 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 No 0.0 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 Pakistan 112 Answer Score Answer Score (Karachi) (Karachi) (Lahore) (Lahore) court? 5. Are there any electronic case management tools in Yes 1.0 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) 2.0 2.0 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 0.5 0.5 2.a. Is voluntary mediation or conciliation available? Yes Yes Doing Business 2017 Pakistan 113 Answer Score Answer Score (Karachi) (Karachi) (Lahore) (Lahore) 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or section No No 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 Pakistan 114 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 Pakistan 115 RESOLVING INSOLVENCY Where does the economy stand today? Globally, Pakistan stands at 85 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 Pakistan and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2017 Pakistan 116 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 2.6 years on average and costs 4.0% of the debtor’s estate. The average recovery rate is 43.0 cents on the dollar. Most indicator sets refer to a case Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in Pakistan 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 Pakistan 117 Table 11.1 Summary of data for the strength of insolvency framework index Pakistan Answer Explanation After Mirage's default on payment, the BizBank will bring a recovery action (foreclosure proceedings) under Section 9 of the Financial Karachi, Institutions (Recovery of Finances) Ordinance 2001, against the Proceeding foreclosure Lahore Mirage at the Banking Court. This is the most effective way for BizBank to recoup its investment with the security interest over Mirage's assets. After Court's decision on Mirage's case, BizBank would gain Karachi, possession of Mirage's assets and sell them piecemeal in a public Outcome piecemeal sale Lahore auction by the court appointed auctioneer. The hotel will stop operating. The foreclosure procedure until BizBank is repaid some or all of the money owed to it takes approximate 2.8 years. BizBank would initiate foreclosure 3 months after Mirage's default. The Court will then review the case, notify all relevant parties, hold a hearing and appoint an official receiver. This period usually takes about 4 Karachi, Time (in years) 2.8 months. Then it takes approximate half a year for the court Lahore appointed official receiver to finalize creditors' claims and an additional 4 months to have the court's final decision made. The court would then appoint an auctioneer to conduct the sale of Mirage's assets. Execution of the auction sale until BizBank is repaid takes around 1 year. The costs associated with the case would amount to approximately 4% of the value of the debtor's estate. Cost incurred during the Cost (% of Karachi, entire insolvency process mainly include court or government 4.0 estate) Lahore agency fees (0.1%), attorneys’ fees (2%), costs of notification and publication (<1%), fees of accountants, assessors, inspectors and other professionals (1%), and fees of auctioneers (1%). Recovery rate: 43.0 Source: Doing Business database. Doing Business 2017 Pakistan 118 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. Pakistan scores 7.0 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 Pakistan 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 Pakistan 119 Table 11.2 Summary of data for the strength of insolvency framework index Pakistan Answer Score Answer Score (Karachi) (Karachi) (Lahore) (Lahore) Strength of insolvency framework index (0-16) 7.0 7.0 Commencement of proceedings index (0-3) 2.0 2.0 (b) Debtor (b) Debtor What procedures are available to a DEBTOR when may file for may file for 0.5 0.5 commencing insolvency proceedings? liquidation liquidation only only (b) Yes, but a (b) Yes, but creditor may a creditor Does the insolvency framework allow a CREDITOR to file for 0.5 may file for 0.5 file for insolvency of the debtor? liquidation liquidation only only (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) 3.0 3.0 Does the insolvency framework allow the continuation of contracts supplying essential goods and services to No 0.0 No 0.0 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 No 0.0 No 0.0 commencement of insolvency proceedings? (c) No priority (c) No is assigned to priority is Does the insolvency framework assign priority to post- assigned to post- 0.0 0.0 commencement credit? post- commencem ent creditors commence ment Doing Business 2017 Pakistan 120 Answer Score Answer Score (Karachi) (Karachi) (Lahore) (Lahore) creditors Reorganization proceedings index (0-3) 0.0 0.0 Which creditors vote on the proposed reorganization N/A 0.0 N/A 0.0 plan? 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) 2.0 2.0 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 Yes 1.0 Yes 1.0 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 Pakistan 121 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 Pakistan 122 LABOR MARKET REGULATION What are the details? The data reported here for Pakistan 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 Karachi Lahore Hiring Data Data Fixed-term contracts prohibited for permanent tasks? Yes Yes Maximum length of a single fixed-term contract (months) 9 months 9 months Maximum length of fixed-term contracts, including renewals (months) 9.0 9.0 Minimum wage applicable to the worker assumed in the case study 121.9 121.9 (US$/month) Ratio of minimum wage to value added per worker 0.6 0.6 Source: Doing Business database. Doing Business 2017 Pakistan 123 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 Karachi Lahore 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) 100.0 100.0 Premium for overtime work (% of hourly pay) 100.0 100.0 Restrictions on night work? Yes Yes Whether nonpregnant and nonnursing women can work the same Yes Yes night hours as men Restrictions on weekly holiday? Yes Yes Restrictions on overtime work? No No Paid annual leave for a worker with 1 year of tenure (working days) 14.0 14.0 Paid annual leave for a worker with 5 years of tenure (working days) 14.0 14.0 Paid annual leave for a worker with 10 years of tenure (working days) 14.0 14.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, 14.0 14.0 in working days) Source: Doing Business database. Doing Business 2017 Pakistan 124 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. Karachi Lahore 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? No No Third-party approval if one worker is dismissed? No No Third-party notification if nine workers are dismissed? No No Third-party approval if nine workers are dismissed? No No Retraining or reassignment obligation before redundancy? Yes Yes Priority rules for redundancies? Yes Yes Priority rules for reemployment? Yes Yes Source: Doing Business database. Doing Business 2017 Pakistan 125 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. Karachi Lahore Redundancy cost indicator (in salary weeks) Data Data Notice period for redundancy dismissal for a worker with 1 year of 4.3 4.3 tenure Notice period for redundancy dismissal for a worker with 5 years of 4.3 4.3 tenure Notice period for redundancy dismissal for a worker with 10 years of 4.3 4.3 tenure Notice period for redundancy dismissal (average for workers with 1, 5 4.3 4.3 and 10 years of tenure) Severance pay for redundancy dismissal for a worker with 1 year of 4.3 4.3 tenure Severance pay for redundancy dismissal for a worker with 5 years of 21.4 21.4 tenure Severance pay for redundancy dismissal for a worker with 10 years of 42.9 42.9 tenure Severance pay for redundancy dismissal (average for workers with 1, 5 22.9 22.9 and 10 years of tenure) Source: Doing Business database. Doing Business 2017 Pakistan 126 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. Karachi Lahore 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)? 84.0 84.0 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 Pakistan 127 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 Pakistan 128 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 Pakistan 129 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 Pakistan 130 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 Pakistan 131