65471 Economy Profile: Solomon Islands © 2012 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org All rights reserved. 1 2 3 4 08 07 06 05 A copublication of The World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone 978-750-8400; fax 978-750-4470; Internet www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax 202-522-2422; e-mail pubrights@worldbank.org. Copies of Doing Business 2012: Doing Business in a More Transparent World, Doing Business 2011: Making a Difference for Entrepreneurs, Doing Business 2010: Reforming through Difficult Times, Doing Business 2009, Doing Business 2008, Doing Business 2007: How to Reform, Doing Business in 2006: Creating Jobs, Doing Business in 2005: Removing Obstacles to Growth and Doing Business in 2004: Understanding Regulations may be downloaded at www.doingbusiness.org. ISBN: 978-0-8213-8833-4 E-ISBN: 978-0-8213-8834-1 DOI: 10.1596/978-0-8213-8833-4 ISSN: 1729-2638 Printed in the United States Doing Business 2012 Solomon Islands 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 32 Registering property .................................................................................................................. 38 Getting credit .............................................................................................................................. 48 Protecting investors ................................................................................................................... 55 Paying taxes ................................................................................................................................ 65 Trading across borders .............................................................................................................. 73 Enforcing contracts .................................................................................................................... 82 Resolving insolvency .................................................................................................................. 89 Data notes ................................................................................................................................... 95 Resources on the Doing Business website ............................................................................ 100 Doing Business 2012 Solomon Islands 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is (except for the paying taxes indicators, which cover the for a local entrepreneur to open and run a small to period January–December 2010). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 10 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts and transparency of government procurement, resolving insolvency. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 183 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 32 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 18 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2012 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and indicators for Solomon Islands. To allow useful recommends regulatory reforms. The data, along with comparison, it also provides data for other selected information on ordering Doing Business 2012, are economies (comparator economies) for each indicator. available on the Doing Business website at The data in this report are current as of June 1, 2011 http://www.doingbusiness.org. Doing Business 2012 Solomon Islands 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: East Asia & Pacific business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Lower middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 183 by the ease of Population: 535,699 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 1,030.00 percentile rankings on each of the 10 topics included in the index in Doing Business 2012: starting a business, DB2012 rank: 74 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2011 rank: 81 investors, paying taxes, trading across borders, Change in rank: 7 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see Note: See the data notes for sources and the data notes for more details). 1 definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 Solomon Islands 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2012 Solomon Islands 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy the regional average (figure 1.2). The economy’s stands in the aggregate ranking on the ease of doing rankings on the topics included in the ease of doing business is useful. Also useful is to know how it ranks business index provide another perspective (figure compared with other economies and compared with 1.3). Figure 1.2 How Solomon Islands and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2012 Solomon Islands 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Solomon Islands ranks on Doing Business topics Source: Doing Business database. Doing Business 2012 Solomon Islands 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing This measure shows the distance of each economy to business tells only part of the story, so do changes in the ―frontier,‖ a synthetic measure based on the most that ranking. Yearly movements in rankings can efficient practice or highest score observed for each provide some indication of changes in an economy’s Doing Business indicator across all economies and regulatory environment for firms, but they are always years included in the Doing Business sample since relative. An economy’s ranking might change because 2005. Nine areas of business regulation are covered. of developments in other economies. An economy that Comparing the measure for an economy at 2 points in implemented business regulation reforms may fail to time allows users to assess how much the economy’s rise in the rankings (or may even drop) if it is passed regulatory environment as measured by Doing by others whose business regulation reforms had a Business has changed over time—how far it has moved more significant impact as measured by Doing toward (or away from) the most efficient practices and Business. strongest regulations in areas covered by Doing Moreover, year-to-year changes in the overall rankings Business (figure 1.4). The results may show that the do not reflect how the business regulatory pace of change varies widely across the areas environment in an economy has changed over time— measured. They also may show that an economy is or how it has changed in different areas. To aid in relatively close to the frontier in some areas and assessing such changes, Doing Business 2012 relatively far from it in others. introduces the distance to frontier measure. Figure 1.4 How far has Solomon Islands come in the areas measured by Doing Business? Distance to frontier, 2005 and 2011 Note: For economies added to the Doing Business sample after 2005, the starting point is the year in which they were added: 2006 for Montenegro; 2007 for Brunei Darussalam, Liberia and Luxembourg; 2008 for The Bahamas, Bahrain and Qatar; and 2009 for Cyprus and Kosovo. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2012 Solomon Islands 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Solomon Islands Solomon Islands DB2012 Solomon Islands DB2011 Marshall Islands DB2012 Best performer globally Micronesia, Fed. Sts. Kiribati DB2012 Indicator Samoa DB2012 Tonga DB2012 Palau DB2012 DB2012 DB2012 Starting a Business 110 110 141 52 102 124 22 33 New Zealand (1) (rank) Procedures (number) 7 7 7 5 7 8 4 4 Canada (1)* Time (days) 43 57 31 17 16 28 9 16 New Zealand (1) Cost (% of income per 34.1 68.1 22.2 17.7 142.8 5.8 9.7 10.3 Denmark (0.0)* capita) Paid-in Min. Capital (% 0.0 0.0 21.1 0.0 0.0 15.5 0.0 0.0 82 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 36 40 106 8 19 39 68 32 China (1) (rank) Procedures (number) 9 9 16 8 11 22 21 9 Denmark (5) Time (days) 58 58 170 87 114 71 87 69 Singapore (26)* Cost (% of income per 347.8 394.1 163.7 29.1 33.2 5.2 59.2 251.5 Qatar (1.1) capita) Doing Business 2012 Solomon Islands 11 Solomon Islands DB2012 Solomon Islands DB2011 Marshall Islands DB2012 Best performer globally Micronesia, Fed. Sts. Kiribati DB2012 Indicator Samoa DB2012 Tonga DB2012 Palau DB2012 DB2012 DB2012 Getting Electricity (rank) 42 44 159 76 40 80 32 29 Iceland (1) Procedures (number) 4 4 6 5 3 5 4 5 Germany (3)* Time (days) 39 39 97 67 75 125 34 42 Germany (17) Cost (% of income per 1982.1 2244.4 5162.7 1010.0 456.9 145.9 857.1 111.3 Japan (0.0) capita) Registering Property 168 173 69 183 183 20 26 141 New Zealand (3) (rank) no no Procedures (number) 10 10 5 5 5 4 Portugal (1)* practice practice no no Time (days) 87 297 513 14 15 108 Portugal (1) practice practice Cost (% of property no no 4.9 4.9 0.0 0.4 1.6 15.2 Slovak Republic (0.0) value) practice practice Getting Credit (rank) 78 75 159 78 126 182 126 78 United Kingdom (1)* Strength of legal rights 9 9 5 9 7 1 7 9 New Zealand (10)* index (0-10) Depth of credit 0 0 0 0 0 0 0 0 Japan (6)* information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Portugal (86.2) (% of adults) Private bureau coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 New Zealand (100.0)* (% of adults) Protecting Investors 46 60 46 155 174 174 29 111 New Zealand (1) (rank) Doing Business 2012 Solomon Islands 12 Solomon Islands DB2012 Solomon Islands DB2011 Marshall Islands DB2012 Best performer globally Micronesia, Fed. Sts. Kiribati DB2012 Indicator Samoa DB2012 Tonga DB2012 Palau DB2012 DB2012 DB2012 Extent of disclosure 3 3 6 2 0 0 5 3 France (10)* index (0-10) Extent of director 7 7 5 0 0 0 6 3 Singapore (9)* liability index (0-10) Ease of shareholder suits 8 7 7 8 8 8 8 8 New Zealand (10)* index (0-10) Strength of investor 6.0 5.7 6.0 3.3 2.7 2.7 6.3 4.7 New Zealand (9.7) protection index (0-10) Paying Taxes (rank) 25 25 6 96 92 97 66 29 Canada (8) Payments (number per 33 33 7 21 21 19 37 20 Norway (4) year) Time (hours per year) 80 80 120 128 128 128 224 164 Luxembourg (59) Trading Across Borders 86 88 85 66 106 124 96 77 Singapore (1) (rank) Documents to export 7 7 6 5 5 6 7 7 France (2) (number) Hong Kong SAR, Time to export (days) 24 24 21 21 30 29 27 20 China (5)* Cost to export (US$ per 1030 1023 1120 945 1295 1070 820 775 Malaysia (450) container) Documents to import 5 5 7 5 6 10 7 6 France (2) (number) Time to import (days) 21 21 21 25 30 33 31 24 Singapore (4) Cost to import (US$ per 1237 1237 1120 970 1295 1030 848 775 Malaysia (435) container) Doing Business 2012 Solomon Islands 13 Solomon Islands DB2012 Solomon Islands DB2011 Marshall Islands DB2012 Best performer globally Micronesia, Fed. Sts. Kiribati DB2012 Indicator Samoa DB2012 Tonga DB2012 Palau DB2012 DB2012 DB2012 Enforcing Contracts 108 107 75 63 146 144 80 53 Luxembourg (1) (rank) Time (days) 455 455 660 476 885 810 455 350 Singapore (150) Cost (% of claim) 78.9 78.9 25.8 27.4 66.0 35.3 19.7 30.5 Bhutan (0.1) Procedures (number) 37 37 32 36 34 38 44 37 Ireland (21)* Resolving Insolvency 115 116 183 135 164 61 145 108 Japan (1) (rank) no Time (years) 1.0 1.0 2.0 5.3 1.0 2.5 2.7 Ireland (0.4) practice no Cost (% of estate) 38 38 38 38 23 38 22 Singapore (1)* practice Recovery rate (cents on 23.8 23.4 0.0 17.9 3.4 40.5 15.1 25.6 Japan (92.7) the dollar) Note: The methodology for the paying taxes indicators changed in Doing Business 2012; see the data notes for details. For these indicators, the best performer globally is the economy that has implemented the most efficient practices in its tax system and is not necessarily the one with the highest ranking. For more information on “no practiceâ€? marks, see the data notes for details. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2012 Solomon Islands 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures that are officially required or commonly received done in practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur ï‚· Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that all government and nongovernment entities involved in the process ï‚· Has a turnover of at least 100 times income per capita. function without corruption. And it assumes that the business: ï‚· Does not qualify for any special benefits. ï‚· Is a limited liability company, located in the ï‚· Does not own real estate. largest business city. ï‚· Is 100% domestically owned. ï‚· Conducts general commercial or industrial activities. Doing Business 2012 Solomon Islands 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Solomon 43 days, costs 34.1% of income per capita and requires Islands? According to data collected by Doing Business, paid-in minimum capital of 0.0% of income per capita starting a business there requires 7 procedures, takes (figure 2.1). Figure 2.1 What it takes to start a business in Solomon Islands Paid-in minimum capital (% of income per capita): 0.0 Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Solomon Islands 16 STARTING A BUSINESS Globally, Solomon Islands stands at 110 in the ranking and the regional average ranking provide other useful of 183 economies on the ease of starting a business information for assessing how easy it is for an (figure 2.2). The rankings for comparator economies entrepreneur in Solomon Islands to start a business. Figure 2.2 How Solomon Islands and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2012 Solomon Islands 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how the process have changed—and which have not (table easy (or difficult) it is to start a business in Solomon 2.1). That can help identify where the potential for Islands today, data over time show which aspects of improvement is greatest. Table 2.1 The ease of starting a business in Solomon Islands over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 110 110 Procedures (number) 7 7 7 7 7 7 7 7 7 Time (days) 57 57 57 57 57 57 57 57 43 Cost (% of income per 86.5 89.8 90.6 78.9 68.9 63.6 52.7 68.1 34.1 capita) Paid-in Min. Capital (% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 of income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Solomon Islands 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by Solomon Islands on ways to improve the ease of the economies that today have the best performance starting a business. And changes in regional averages regionally or globally on the procedures, time, cost or can show where Solomon Islands is keeping up—and paid-in minimum capital required to start a business where it is falling behind. (figure 2.3). These economies may provide a model for Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2012 Solomon Islands 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In the case of paid-in minimum capital, 82 economies globally and 14 economies in East Asia & Pacific have no paid-in minimum capital. Source: Doing Business database. Doing Business 2012 Solomon Islands 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Solomon Islands (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has Solomon Islands made starting a business easier—or not? By Doing Business report year DB Year Reform The Solomon Islands made starting a business easier by DB2012 implementing an online registration process. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Solomon Islands 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Solomon Islands is a set of specific procedures— the bureaucratic and legal steps that an entrepreneur must complete to incorporate and City: Honiara register a new firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Limited Liability Company professionals and the study of laws, regulations and Start-up capital: 10 times GNI per capita publicly available information on business entry in that economy. Following is a detailed summary of Paid-in minimum capital (% of income per those procedures, along with the associated time capita): 0.0 and cost. These procedures are those that apply to a company matching the standard assumptions (the ―standardized company‖) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Solomon Islands—and the time and cost Time to No. Procedure Cost to complete complete Obtain approval of the company name from the Ministry of Commerce Prior to registration of the company, the entrepreneur check the name 17 days SBD 100 1 of the company. Prior to the end of the Re-registration period, online search results do not contain a complete record. New entrepreneurs can do a search of the paper records of a company either at Company Haus, or at the company's registered office. Pay stamp duty at the Ministry of Finance Entrepreneurs have to complete the payment fee form. Then they take 2 it to the Central Revenue Collection counter with your cash or cheque, 1 day SBD 1250 either in Honiara next to the Ministry of Finance and Treasury, or at your provincial revenue collection agency in Gizo or Auki. Register the company with the Registrar of Companies Registration is at the Company Haus (http://www.companyhaus.gov.sb). included in procedure 3 If entrepreneurs do not feel comfortable with the internet or the 2 - 3 weeks 2 Company Haus website, they can visit the Company Haus on Mendana Avenue. There is a computer terminal with internet access - and Company Haus staff assists entrepreneurs get their company registered. Register for income tax, goods tax, and sales tax 4 1 day no charge Register as an employer with the National Provident Fund 1 day no charge 5 Doing Business 2012 Solomon Islands 22 Time to No. Procedure Cost to complete complete Forms must be filled out on paper. Make a company seal 6 4 days SBD 500 Pay a business licence fee at the Honiara Council 7 1 day SBD 1000 * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Solomon Islands 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes ï‚· Is a limited liability company operating in ï‚· Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The ï‚· Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long. ï‚· Has 60 builders and other employees. ï‚· Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring ï‚· Is a new construction (there was no special conditions). previous construction on the land). ï‚· Will take 30 weeks to construct (excluding all ï‚· Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2012 Solomon Islands 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to construction permits there requires 9 procedures, build a warehouse in Solomon Islands? According to takes 58 days and costs 347.8% of income per capita data collected by Doing Business, dealing with (figure 3.1). Figure 3.1 What it takes to comply with formalities to build a warehouse in Solomon Islands Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Solomon Islands 25 DEALING WITH CONSTRUCTION PERMITS Globally, Solomon Islands stands at 36 in the ranking ranking provide other useful information for assessing of 183 economies on the ease of dealing with how easy it is for an entrepreneur in Solomon Islands construction permits (figure 3.2). The rankings for to legally build a warehouse. comparator economies and the regional average Figure 3.2 How Solomon Islands and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2012 Solomon Islands 26 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how aspects of the process have changed—and which have easy (or difficult) it is to deal with construction permits not (table 3.1). That can help identify where the in Solomon Islands today, data over time show which potential for improvement is greatest. Table 3.1 The ease of dealing with construction permits in Solomon Islands over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 40 36 Procedures (number) 9 9 9 9 9 9 9 Time (days) 58 58 58 58 58 58 58 Cost (% of income per 100.4 85.8 131.4 119.5 298.6 394.1 347.8 capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practiceâ€? marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Solomon Islands 27 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by Islands on ways to improve the ease of dealing with the economies that today have the best performance construction permits. And changes in regional regionally or globally on the procedures, time or cost averages can show where Solomon Islands is keeping required to deal with construction permits (figure 3.3). up—and where it is falling behind. These economies may provide a model for Solomon Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2012 Solomon Islands 28 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practiceâ€? mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Solomon Islands 29 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Solomon Islands (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has Solomon Islands made dealing with construction permits easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 Fee increases significantly raised the cost of obtaining a construction permit. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Solomon Islands 30 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Solomon Islands BUILDING A WAREHOUSE are based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business City : Honiara through information collected from experts in construction licensing, including architects, Estimated construction lawyers, construction firms, utility SBD 5,200,000 Warehouse Value : service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and that apply to a company and structure matching cost, are summarized below. the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Solomon Islands —and the time and cost Time to No. Procedure Cost to complete complete Request and obtain approval from Town and Country Planning Board BuildCo files an application for approval, with plans included, with the Town and Country Planning Board of the Planning and Building 31 days SBD 27,100 1 Department, which will review it for structure, environment, health, sewer, and fire regulations. The formula for the cost was updated in 2009 (0.5% of construction cost + SBD 250 (Planning Fee) + SBD 150 (Site Inspection)+ SBD 500( Excavation permit ) + SBD 200 ( Issue of permit )). Request and receive Excavation Inspection 2 1 day no charge Receive and receive Foundation Inspection 3 1 day no charge Request water connection 4 1 day no charge * Receive water inspection 5 1 day no charge Two days after the application is submitted, the Solomon Island Water Authority sends out an inspector. * Connect to water 6 23 days SBD 1,600 * Request telephone connection 7 1 day no charge Doing Business 2012 Solomon Islands 31 Time to No. Procedure Cost to complete complete * Receive telephone inspection 8 1 day no charge Two days after the application is submitted, the Solomon Island Water Authority sends out an inspector. * Connect to fixed telephone line 9 9 days SBD 345 * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Solomon Islands 32 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information ï‚· Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials ï‚· Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes ï‚· Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land. ï‚· Is 150 meters long. ï‚· Is a new construction being connected to ï‚· Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead ï‚· Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer’s private domain is feet). negligible. The electricity connection: ï‚· Involves installing one electricity meter. The monthly electricity consumption will be 0.07 ï‚· Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2012 Solomon Islands 33 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity requires 4 procedures, takes 39 days and costs connection in Solomon Islands? According to data 1982.1% of income per capita (figure 4.1). collected by Doing Business, getting electricity there Figure 4.1 What it takes to obtain an electricity connection in Solomon Islands Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Solomon Islands 34 GETTING ELECTRICITY Globally, Solomon Islands stands at 42 in the ranking perspective in assessing how easy it is for an of 183 economies on the ease of getting electricity entrepreneur in Solomon Islands to connect a (figure 4.2). The rankings for comparator economies warehouse to electricity. and the regional average ranking provide another Figure 4.2 How Solomon Islands and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2012 Solomon Islands 35 GETTING ELECTRICITY Even more helpful than rankings for other economies economies, the practices of their utilities may provide a may be the indicators underlying those rankings (table model for Solomon Islands on ways to improve the ease 4.1). If obtaining a new electricity connection requires of getting electricity. Regional and global averages on fewer procedures, less time or less cost in other these indicators may provide useful benchmarks. Table 4.1 The ease of getting electricity in Solomon Islands and comparator economies Solomon Islands Micronesia, Fed. Marshall Islands Pacific average Global average East Asia & Kiribati Samoa Tonga Palau Sts. Indicator Rank 42 159 76 40 80 32 29 75 .. Procedures (number) 4 6 5 3 5 4 5 5 5 Time (days) 39 97 67 75 125 34 42 88 111 Cost (% of income per capita) 1982.1 5162.7 1010.0 456.9 145.9 857.1 111.3 1,079.4 1,942.3 Source: Doing Business database. Doing Business 2012 Solomon Islands 36 GETTING ELECTRICITY What are the details? The indicators reported here for Solomon Islands are OBTAINING AN ELECTRICITY CONNECTION based on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Honiara utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: Solomon Islands verified by electricity regulatory agencies and Electricity Authority independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Solomon Islands—and the time and cost Time to No. Procedure Cost to complete complete Submit an application for an electricity connection to Solomon Islands Electricity Authority and await an estimate. The application is submitted by the electrical contractor. Documents attached to the application: Employer letter (Employer’s letter is a form of identification of the person applying for the power supply in the case of an individual or in this case, a company with the seal. This is to ensure that a genuine developer is applying for the connection). SIEA does the design and plans for the project at this point and issues an estimate for the connection. 1 The estimate is paid at the utility. The proof of the payment has to be 8 calendar days USD 193.4 shown with the receipt attached to the quotation. There is a fixed connection fee of USD 100. It is a fixed rate for all commercial installation. It is for permission to use power and billing purposes. There is a security deposit of 200 USD. The utility does not pay an interest and it is refunded at the end of the contract. Once the payment is made the customer signs a contract with SIEA which includes an agreement for consumption of power. Await completion of the external inspection by the SIEA for the preparation of the estimate 2 2 calendar days no charge SIEA inspects the site of the building to be connected for preparation of the estimate. Await completion of the external connection works by SIEA 29 calendar days USD 20,000.0 3 Doing Business 2012 Solomon Islands 37 Time to No. Procedure Cost to complete complete The external connection works can start immediately after all payments are done and appropriate materials are received. Only SIEA is in charge of the external connection works. There would be a wait of 3 to 4 weeks for the materials (transformer) to be ordered and arrive. While the material is being ordered the utility does the initial works. Only underground connections are possible as only underground cabling is in stock at the utility and no material for overhead lines is available. Await inspection of the internal wiring by SIEA, meter installation and electricity starts flowing After an internal wiring "completion notice" is submitted to SIEA by an electrician they conduct inspection of the internal wiring. The electrician in charge of the wiring has to be present during the inspection. The customer is issued a permit to use power after SIEA wiring inspectors have certified the installation is ready for use. The internal wiring 4 inspection is carried out after the external connection works are 2 calendar days USD 222.0 completed and the building is ready for energization. The meter installation is the last job to be done once all payments, paper works and the technical works and internal wiring met the utility’s requirements. It can be done at the end of the internal wiring inspection. Installation of a meter is part of SIEA service to the customers and is free. The meter itself costs 200 USD. There is also a fixed fee of 180 LCU paid upfront to cover service charges. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Solomon Islands 38 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes ï‚· Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned. ï‚· Are located in the periurban area of the economy’s largest business city. ï‚· Has no mortgages attached and has been under the same ownership for the past 10 ï‚· Have 50 employees each, all of whom are years. nationals. ï‚· Consists of 557.4 square meters (6,000 square ï‚· Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000 ï‚· Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal ï‚· Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes. ï‚· Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2012 Solomon Islands 39 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 87 days and costs 4.9% of the Solomon Islands? According to data collected by property value (figure 5.1). Doing Business, registering property there requires 10 Figure 5.1 What it takes to register property in Solomon Islands Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Solomon Islands 40 REGISTERING PROPERTY Globally, Solomon Islands stands at 168 in the ranking and the regional average ranking provide other useful of 183 economies on the ease of registering property information for assessing how easy it is for an (figure 5.2). The rankings for comparator economies entrepreneur in Solomon Islands to transfer property. Figure 5.2 How Solomon Islands and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2012 Solomon Islands 41 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how the process have changed—and which have not (table easy (or difficult) it is to register property in Solomon 5.1). That can help identify where the potential for Islands today, data over time show which aspects of improvement is greatest. Table 5.1 The ease of registering property in Solomon Islands over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 173 168 Procedures (number) 10 10 10 10 10 10 10 10 Time (days) 297 297 297 297 297 297 297 87 Cost (% of property value) 4.8 4.8 5.2 5.1 5.1 4.8 4.9 4.9 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practiceâ€? marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Solomon Islands 42 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by Islands on ways to improve the ease of registering the economies that today have the best performance property. And changes in regional averages can show regionally or globally on the procedures, time or cost where Solomon Islands is keeping up—and where it is required to complete a property transfer (figure 5.3). falling behind. These economies may provide a model for Solomon Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2012 Solomon Islands 43 REGISTERING PROPERTY Cost (% of property value) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practiceâ€? mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Solomon Islands 44 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Solomon Islands (table 5.2)? Table 5.2 How has Solomon Islands made registering property easier—or not? By Doing Business report year DB Year Reform The Solomon Islands made registering property faster by DB2012 separating the land registry from the business and movable property registries. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Solomon Islands 45 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business City: Honiara through information collected from local property Property Value: 417,567.2 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in Solomon Islands—and the time and cost Time to No. Procedure Cost to complete complete Obtain ownership certificate 1 1 - 2 days SBD 30 Parties obtain these copies at the Ministry of Lands/Registrar of Titles. Obtain non-encumbrance certificate 2 1 day SBD 10 Parties obtain tax clearance and assurance of no encumbrances or liens on the land from the Commissioner of Lands. Measure property/ obtain or produce map This is not mandatory but it is standard practice to confirm the boundary 4 days no cost 3 maps. Limits to the property are marked with cement "pegs", and It is necessary to verify them. Most properties in Honiara have property pegs. Measure property/ obtain or produce map 4 One may be able to hire staff from the Survey Department at the 20 days SBD 1000 Ministry of Land, but there is a shortage of staff there so it is usually necessary to hire a private surveyor. Obtain transfer authorization 5 25 days SBD 300 The Commissioner of Lands checks the files and authorizes the transfer. He cannot delegate his signature for transfers. * Sign sale deed Exchange of contracts is in accordance with the law. Lawyers must act for the Company. They will need to have checked consent boundaries and 1 day (simultaneous 0.5% of the value of 6 investigate the title. The parties choose the law firm and the lawyers act the transaction (legal with procedure 7) for the companies. The vendor company agents must either have the fees) company seal or be authorized to sign on behalf of the company with a power of attorney. In Honiara, the transfer will refer to a leases or a fixed term estate (both last 25-50 years generally). Doing Business 2012 Solomon Islands 46 Time to No. Procedure Cost to complete complete * Obtain seller certificate Lawyers are instructed to ensure completion in accordance with the law and ensure the transfer of title. With the introduction of the online registration for companies, it is now possible to search for a company online at no cost, saved the proof as a pdf. http://www.companyhaus.gov.sb/app/search/entity?advanced=false&sea 1 day (simultaneous No cost - online 7 rch=search&pageNum=1&ascending=&name=mermaid+fashion&type with procedure 6) search =&status=&businessSector=®isteredDateFrom=®isteredDateTo= &address4=&annualFilingMonth= The evidence of incorporation must be presented in accordance to Evidence of incorporation LN 85/1968 An application for registration of a dealing whereby a corporation acquires an interest shall be accompanied by such evidence of incorporation as the Registrar may require. Notarization of sale deed 8 This contract must be witnessed or notarized by either a public notary, a 1 day SBD 10 – 50 solicitor or civil servant (surveyor above level 5 or land officers). Fees are not regulated and vary between SBD 10 and 50. Stamp duty on transfer of properties according to the following scale: Pay taxes [amount between] Every document executed which is chargeable to duty under the Stamp a. $10,000.00 and 9 Duty Act must be stamped within two months of execution. 1 - 3 days $20,000.00 2% b. $25,000.00 and $50,000.00 3% c. $50,000.00 and above 4% Registration of new title The time includes the delay in obtaining the final confirmation of registration. The registrar of titles covers all the country. It uses a Torrens system and records on paper the information related to a title (ownership, encumbrances …) Titles are scanned as a backup. A computer system 1 month SBD 100 10 records all the transactions requested about a parcel (encumbrances checking, title transfer request …). However, this computer system does not record ownership or encumbrances; it just records that someone registered a transfer. The owner is informed that the transaction is registered by the ―Advice of registration of a dealing‖ sent by post. Doing Business 2012 Solomon Islands 47 Time to No. Procedure Cost to complete complete * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Solomon Islands 48 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine ï‚· Has 100 employees. the scope of the secured transactions system, ï‚· Is 100% domestically owned, as is the lender. involving a secured borrower and a secured lender and examining legal restrictions on the use of The ranking on the ease of getting credit is based on movable collateral. These scenarios assume that the the percentile rankings on its component indicators: borrower: the depth of credit information index (weighted at 37.5%) and the strength of legal rights index ï‚· Is a private, limited liability company. (weighted at 62.5%). ï‚· Has its headquarters and only base of operations in the largest business city. Doing Business 2012 Solomon Islands 49 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Solomon Islands stands at 78 in the ranking collateral and bankruptcy laws in Solomon Islands of 183 economies on the ease of getting credit (figure facilitate access to credit? The economy has a score of 6.1). The rankings for comparator economies and the 0 on the depth of credit information index and a score regional average ranking provide other useful of 9 on the strength of legal rights index (see the information for assessing how well regulations and summary of scoring at the end of this chapter for institutions in Solomon Islands support lending and details). Higher scores indicate more credit information borrowing. and stronger legal rights for borrowers and lenders. Figure 6.1 How Solomon Islands and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 Solomon Islands 50 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how where institutions and regulations have been well the credit information system and collateral and strengthened—and where they have not (table 6.1). bankruptcy laws in Solomon Islands support lending That can help identify where the potential for and borrowing today, data over time can help show improvement is greatest. Table 6.1 The ease of getting credit in Solomon Islands over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 75 78 Strength of legal rights 4 4 4 4 4 4 9 9 index (0-10) Depth of credit 0 0 0 0 0 0 0 0 information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (% of adults) Private bureau 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Solomon Islands 51 GETTING CREDIT One way to put an economy’s getting credit indicators index for Solomon Islands in 2011 and shows the into context is to see where the economy stands in the number of other economies having the same score in distribution of scores across other economies. Figure 2011. Figure 6.3 shows the same thing for the depth of 6.2 highlights the score on the strength of legal rights credit information index. Figure 6.2 Have legal rights for borrowers and lenders Figure 6.3 Have the coverage and accessibility of credit become stronger? information grown? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2011 information index (0–6), 2011 Source: Doing Business database. Source: Doing Business database. Doing Business 2012 Solomon Islands 52 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Solomon Islands (table 6.2)? Table 6.2 How has Solomon Islands made getting credit easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. The Solomon Islands strengthened access to credit by passing a new secured transactions law that broadens the range of assets that can be used as collateral, allows a DB2011 general description of debts and obligations secured by collateral, permits out-of-court enforcement and creates a collateral registry. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Solomon Islands 53 GETTING CREDIT What are the details? The getting credit indicators reported here for The data on the legal rights of borrowers and lenders Solomon Islands are based on detailed information are gathered through a survey of financial lawyers and collected in that economy. The data on credit verified through analysis of laws and regulations as information sharing are collected through a survey of a well as public sources of information on collateral and public credit registry or private credit bureau (if one bankruptcy laws. For the strength of legal rights index, exists). To construct the depth of credit information a score of 1 is assigned for each of 8 aspects related to index, a score of 1 is assigned for each of 6 features of legal rights in collateral law and 2 aspects in the public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in Solomon Islands East Asia & Indicator Solomon Islands OECD high income Pacific Strength of legal rights index (0-10) 9 7 7 Depth of credit information index (0-6) 0 2 5 Public registry coverage (% of adults) 0.0 10.3 9.5 Private bureau coverage (% of adults) 0.0 18.1 63.9 Strength of legal rights index (0–10) Index score: 9 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend Yes automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes debtor defaults outside an insolvency procedure? Doing Business 2012 Solomon Islands 54 Strength of legal rights index (0–10) Index score: 9 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 0 bureau registry Are data on both firms and individuals distributed? No No 0 Are both positive and negative data distributed? No No 0 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as No No 0 financial institutions? Are more than 2 years of historical credit information No No 0 distributed? Is data on all loans below 1% of income per capita No No 0 distributed? Is it guaranteed by law that borrowers can inspect No No 0 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms 0 0 Number of individuals 0 0 Source: Doing Business database. Doing Business 2012 Solomon Islands 55 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors’ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders’ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices ï‚· Is a publicly traded corporation listed on the economy’s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns. ï‚· Has a board of directors and a chief executive ï‚· The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law. ï‚· All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer. ï‚· Mr. James, a director and the majority ï‚· Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2012 Solomon Islands 56 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Solomon protection index (figure 7.1). While the indicator does Islands? The economy has a score of 6.0 on the not measure all aspects related to the protection of strength of investor protection index, with a higher minority investors, a higher ranking does indicate that score indicating stronger protections (see the an economy’s regulations offer stronger investor summary of scoring at the end of this chapter for protections against self-dealing in the areas measured. details). Globally, Solomon Islands stands at 46 in the ranking of 183 economies on the strength of investor Figure 7.1 How Solomon Islands and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 Solomon Islands 57 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how the global ranking on the strength of investor well regulations in Solomon Islands protect minority protection index over time shows whether the investors today, data over time show whether the economy is slipping behind other economies in protections have been strengthened (table 7.1). And investor protections—or surpassing them. Table 7.1 The strength of investor protections in Solomon Islands over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 60 46 Extent of disclosure 3 3 3 3 3 3 3 index (0-10) Extent of director 7 7 7 7 7 7 7 liability index (0-10) Ease of shareholder 7 7 7 7 7 7 8 suits index (0-10) Strength of investor 5.7 5.7 5.7 5.7 5.7 5.7 6.0 protection index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Solomon Islands 58 PROTECTING INVESTORS But the overall ranking on the strength of investor liability and ease of shareholder suits indices may also protection index tells only part of the story. Economies be revealing (figure 7.2). Equally interesting may be the may offer strong protections in some areas but not changes over time in the regional average scores for others. So the scores recorded over time for Solomon those indices. Islands on the extent of disclosure, extent of director Figure 7.2 Have investor protections become stronger? Strength of investor protection index (0-10) Extent of disclosure index (0-10) Doing Business 2012 Solomon Islands 59 PROTECTING INVESTORS Extent of director liability index (0-10) Ease of shareholder suits index (0-10) Note: The higher the score, the stronger the investor protections. The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Solomon Islands 60 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in Solomon Islands (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has Solomon Islands strengthened investor protections—or not? By Doing Business report year DB Year Reform The Solomon Islands strengthened investor DB2012 protections by increasing shareholder access to corporate information. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Solomon Islands 61 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for liability and ease of shareholder suits indices, a score is Solomon Islands are based on detailed information assigned for each of a range of conditions relating to collected through a survey of corporate and securities disclosure, director liability and shareholder suits in a lawyers and are based on securities regulations, standard case study transaction (see the notes at the company laws and court rules of evidence. To end of this chapter). The summary below shows the construct the extent of disclosure, extent of director details underlying the scores for Solomon Islands. Summary of scoring for the protecting investors indicators in Solomon Islands East Asia & Indicator Solomon Islands OECD high income Pacific Extent of disclosure index (0-10) 3 5 6 Extent of director liability index (0-10) 7 5 5 Ease of shareholder suits index (0-10) 8 6 7 Strength of investor protection index (0-10) 6.0 5.4 6.0 Score Extent of disclosure index (0-10) 3 What corporate body provides legally sufficient approval for the transaction? 1 Whether disclosure of the conflict of interest by Mr. James to the board of directors is 2 required? Whether immediate disclosure of the transaction to the public and/or shareholders is 0 required? Whether disclosure of the transaction in published periodic filings (annual reports) is 0 required? Whether an external body must review the terms of the transaction before it takes place? 0 Extent of director liability index (0-10) 7 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller 2 transaction causes to the company? Whether shareholders can hold members of the approving body liable for the damage that 1 the Buyer-Seller transaction causes to the company? Whether a court can void the transaction upon a successful claim by a shareholder plaintiff? 1 Doing Business 2012 Solomon Islands 62 Score Whether Mr. James pays damages for the harm caused to the company upon a successful 1 claim by the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 1 shareholder plaintiff? Whether fines and imprisonment can be applied against Mr. James? 0 Ease of shareholder suits index (0-10) 8 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction 0 documents before filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to 1 investigate the transaction? Whether the plaintiff can obtain any documents from the defendant and witnesses during 3 trial? Whether the plaintiff can request categories of documents from the defendant without 1 identifying specific ones? Whether the plaintiff can directly question the defendant and witnesses during trial? 2 Whether the level of proof required for civil suits is lower than that of criminal cases? 1 Strength of investor protection index (0-10) 6.0 Source: Doing Business database. Notes: Extent of disclosure index (0–10) Scoring for the extent of disclosure index is based on 5 components: Which corporate body can provide legally sufficient approval for the transaction 0 = CEO or managing director alone; 1 = shareholders or board of directors vote and Mr. James can vote; 2 = board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote. Whether disclosure of the conflict of interest by Mr. James to the board of directors is required 0 = no disclosure; 1 = disclosure of the existence of a conflict without any specifics; 2 = full disclosure of all material facts. Whether immediate disclosure of the transaction to the public, the regulator or the shareholders is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Whether disclosure of the transaction in the annual report is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Doing Business 2012 Solomon Islands 63 Whether it is required that an external body (for example, an external auditor) review the transaction before it takes place 0 = no; 1 = yes. Extent of director liability index (0–10) Scoring for the extent of director liability index is based on 7 components: Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction causes to the company 0 = suits are unavailable or available only for shareholders holding more than 10% of the company’s share capital; 1 = direct or derivative suits available for shareholders holding 10% of share capital or less. Whether shareholders can hold Mr. James liable for the damage that the transaction causes to the company 0 = Mr. James is not liable or is liable only if he acted fraudulently or in bad faith; 1 = Mr. James is liable if he influenced the approval or was negligent; 2 = Mr. James is liable if the transaction is unfair or prejudicial to the other shareholders. Whether shareholders can hold the approving body (the CEO or members of the board of directors) liable for the damage that the transaction causes to the company 0 = members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1 = liable for negligence in the approval of the transaction; 2 = liable if the transaction is unfair or prejudicial to the other shareholders. Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0 = rescission is unavailable or available only in case of Seller’s fraud or bad faith; 1 = rescission is available when the transaction is oppressive or prejudicial to the other shareholders; 2 = rescission is available when the transaction is unfair or entails a conflict of interest. Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether both fines and imprisonment can be applied against Mr. James 0 = no; 1 = yes. Ease of shareholder suits index (0–10) Scoring for the ease of shareholder suits index is based on 6 components: What range of documents is available to the plaintiff from the defendant and witnesses during trial Score of 1 for each of the following: information that the defendant has indicated he intends to rely on for his defense; information that directly proves specific facts in the plaintiff’s claim; any information relevant to the subject matter of the claim; and any information that may lead to the discovery of relevant information. Doing Business 2012 Solomon Islands 64 Whether the plaintiff can directly examine the defendant and witnesses during trial 0 = no; 1 = yes, with prior approval by the court of the questions posed; 2 = yes, without prior approval. Whether the plaintiff can obtain categories of relevant documents from the defendant without identifying each document specifically 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital can request that a government inspector investigate the transaction without filing suit in court 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital have the right to inspect the transaction documents before filing suit 0 = no; 1 = yes. Whether the standard of proof for civil suits is lower than that for a criminal case 0 = no; 1 = yes. Strength of investor protection index (0–10) Simple average of the extent of disclosure, extent of director liability and ease of shareholder suits indices. Doing Business 2012 Solomon Islands 65 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 2 being applied to the total tax rate. To make the Profit or corporate income tax data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes ï‚· TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2009. transactions taxes ï‚· The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded. ï‚· Taxes and mandatory contributions include ï‚· Taxes and mandatory contributions are corporate income tax, turnover tax and all measured at all levels of government. labor taxes and contributions paid by the company. ï‚· A range of standard deductions and exemptions are also recorded. 2 The threshold is defined as the highest total tax rate among the top 30% of economies in the ranking on the total tax rate. It will be calculated and adjusted on a yearly basis. The threshold is not based on any underlying theory. Instead, it is intended to mitigate the effect of very low tax rates on the ranking on the ease of paying taxes. Doing Business 2012 Solomon Islands 66 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Solomon Islands stands at 25 in the ranking taxes in Solomon Islands—and how much do firms pay of 183 economies on the ease of paying taxes (figure in taxes? On average, firms make 33 tax payments a 8.1). The rankings for comparator economies and the year, spend 80 hours a year filing, preparing and regional average ranking provide other useful paying taxes and pay total taxes amounting to 14.6% information for assessing the tax compliance burden of profit (see the summary at the end of this chapter for businesses in Solomon Islands. for details). Figure 8.1 How Solomon Islands and comparator economies rank on the ease of paying taxes Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Solomon Islands 67 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how aspects of the process have changed — and which easy (or difficult) it is to comply with tax rules in have not (table 8.1). That can help identify where the Solomon Islands today, data over time show which potential for easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Solomon Islands over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 25 25 Payments (number per 33 33 33 33 33 33 33 year) Time (hours per year) 80 80 80 80 80 80 80 Total tax rate (% profit) 26.1 26.1 26.1 26.1 26.1 26.2 26.2 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the rank on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Solomon Islands 68 PAYING TAXES Equally helpful may be the benchmarks provided by Islands on ways to ease the administrative burden of the economies that today have the best performance tax compliance. And changes in regional averages can regionally or globally on the number of payments or show where Solomon Islands is keeping up—and the time required to prepare and file taxes (figure 8.2). where it is falling behind. These economies may provide a model for Solomon Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2012 Solomon Islands 69 PAYING TAXES Total tax rate (% of profit) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. The best performer globally on an indicator has implemented the most efficient practices in its tax system but is not necessarily the one with the highest ranking on the indicator. In some cases 2 or more economies share the top regional ranking on an indicator. DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Solomon Islands 70 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Solomon Islands (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Solomon Islands made paying taxes easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Solomon Islands 71 PAYING TAXES What are the details? The indicators reported here for Solomon Islands are that the company completed during the year. based on a standard set of taxes and contributions Respondents are asked how much in taxes and that would be paid by the case study company used by mandatory contributions the business must pay and Doing Business in collecting the data (see the section in what the process is for doing so. The taxes and this chapter on what the indicators cover). Tax contributions paid are listed in the summary below, practitioners are asked to review standard financial along with the associated number of payments, time statements as well as a standard list of transactions and tax rate. Summary of tax rates and administrative burden in Solomon Islands East Asia & Indicator Solomon Islands OECD high income Pacific Payments (number per year) 33 25 13 Time (hours per year) 80 215 186 Profit tax (%) 14.6 16.8 15.4 Labor tax and contributions (%) 8.5 10.7 24.0 Other taxes (%) 3.1 6.9 3.2 Total tax rate (% profit) 26.2 34.5 42.7 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 5 8 30.00% 14.6 income Employer paid - Social gross 12 30 7.50% 8.5 security contributions salaries assessed Property tax 1 0 5.0% property 1.9 value various rates Business license fee 1 0 1 depending on activity Transaction fee on bank 0 paid jointly 0 SBD 480 fixed fee 0.2 transactions Doing Business 2012 Solomon Islands 72 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate SBD 1 per number of Tax on check transactions 1 0 0.1 check checks Sales tax 12 42 10.00% sales 0 withheld various transaction Stamp duty 1 0 0 small amount rates value Totals 33 80 26.2 Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Solomon Islands 73 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining all the documents (excluding tariffs) associated with exporting and Inland transport and handling importing a standard shipment of goods by ocean transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business: ï‚· Is of medium size and employs 60 people. ï‚· Do not require refrigeration or any other ï‚· Is located in the periurban area of the special environment. economy’s largest business city. ï‚· Do not require any special phytosanitary or ï‚· Is a private, limited liability company, environmental safety standards other than domestically owned, formally registered accepted international standards. and operating under commercial laws and regulations of the economy. ï‚· Are one of the economy’s leading export or import products. The traded goods: ï‚· Are transported in a dry-cargo, 20-foot full ï‚· Are not hazardous nor do they include container load. military items. Doing Business 2012 Solomon Islands 74 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Solomon Globally, Solomon Islands stands at 86 in the ranking Islands? According to data collected by Doing Business, of 183 economies on the ease of trading across exporting a standard container of goods requires 7 borders (figure 9.1). The rankings for comparator documents, takes 24 days and costs $1030. Importing economies and the regional average ranking provide the same container of goods requires 5 documents, other useful information for assessing how easy it is for takes 21 days and costs $1237 (see the summary of a business in Solomon Islands to export and import procedures and documents at the end of this chapter goods. for details). Figure 9.1 How Solomon Islands and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2012 Solomon Islands 75 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how the process have changed—and which have not (table easy (or difficult) it is to export or import in Solomon 9.1). That can help identify where the potential for Islands today, data over time show which aspects of improvement is greatest. Table 9.1 The ease of trading across borders in Solomon Islands over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 88 86 Documents to export 7 7 7 7 7 7 7 (number) Time to export (days) 24 24 24 24 24 24 24 Cost to export (US$ per 1,056 1,056 1,056 1,011 1,023 1,023 1,030 container) Documents to import 5 5 5 5 5 5 5 (number) Time to import (days) 21 21 21 21 21 21 21 Cost to import (US$ per 1,238 1,238 1,238 1,194 1,237 1,237 1,237 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Equally helpful may be the benchmarks provided by on ways to improve the ease of trading across borders. the economies that today have the best performance And changes in regional averages can show where regionally or globally on the documents, time or cost Solomon Islands is keeping up—and where it is falling required to export or import (figure 9.2). These behind. economies may provide a model for Solomon Islands Doing Business 2012 Solomon Islands 76 TRADING ACROSS BORDERS Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2012 Solomon Islands 77 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2012 Solomon Islands 78 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Solomon Islands 79 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Solomon Islands (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has Solomon Islands made trading across borders easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Solomon Islands 80 TRADING ACROSS BORDERS What are the details? The indicators reported here for Solomon Islands are freight forwarders, shipping lines, customs brokers, based on a set of specific procedural requirements for port officials and banks. The procedural requirements, trading a standard shipment of goods by ocean and the associated time and cost, for exporting and transport (see the section in this chapter on what the importing a standard shipment of goods are listed in indicators cover). Information on the procedures as the summary below, along with the required well as the required documents and the time and cost documents. to complete each procedure is collected from local Summary of procedures and documents for trading across borders in Solomon Islands East Asia & Indicator Solomon Islands OECD high income Pacific Documents to export (number) 7 6 4 Time to export (days) 24 22 10 Cost to export (US$ per container) 1030 906 1,032 Documents to import (number) 5 7 5 Time to import (days) 21 23 11 Cost to import (US$ per container) 1237 954 1,085 Procedures to export Time (days) Cost (US$) Documents preparation 6 275 Customs clearance and technical control 4 135 Ports and terminal handling 11 110 Inland transportation and handling 3 510 Totals 24 1030 Procedures to import Time (days) Cost (US$) Documents preparation 5 220 Customs clearance and technical control 3 135 Ports and terminal handling 10 350 Inland transportation and handling 3 532 Totals 21 1237 Doing Business 2012 Solomon Islands 81 TRADING ACROSS BORDERS Documents to export Documents to import Bill of lading Bill of Lading Certificate of Origin Commercial invoice Commercial invoice Customs duty receipt Customs export declaration Customs entry form Packing List Terminal handling receipts Technical standard/health certificate Terminal handling receipts Doing Business 2012 Solomon Islands 82 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs, including expert fees assumptions about the case: Enforcement costs ï‚· The seller and buyer are located in the economy’s largest business city. ï‚· The buyer orders custom-made goods, ï‚· The dispute on the quality of the goods then fails to pay. requires an expert opinion. ï‚· The seller sues the buyer before a ï‚· The judge decides in favor of the seller; there competent court. is no appeal. ï‚· The value of the claim is 200% of income ï‚· The seller enforces the judgment through a per capita. public sale of the buyer’s movable assets. ï‚· The seller requests a pretrial attachment to secure the claim. Doing Business 2012 Solomon Islands 83 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Solomon Islands stands at 108 in the ranking dispute through the courts in Solomon Islands? of 183 economies on the ease of enforcing contracts According to data collected by Doing Business, (figure 10.1). The rankings for comparator economies enforcing a contract requires 37 procedures, takes 455 and the regional average ranking provide other useful days and costs 78.9% of the value of the claim (see the benchmarks for assessing the efficiency of contract summary at the end of this chapter for details). enforcement in Solomon Islands. Figure 10.1 How Solomon Islands and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2012 Solomon Islands 84 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how time help identify which areas have changed and easy (or difficult) it is to enforce a contract in Solomon where the potential for improvement is greatest (table Islands today, data on the underlying indicators over 10.1). Table 10.1 The ease of enforcing contracts in Solomon Islands over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 107 108 Time (days) 455 455 455 455 455 455 455 455 455 Cost (% of claim) 78.9 78.9 78.9 78.9 78.9 78.9 78.9 78.9 78.9 Procedures (number) 37 37 37 37 37 37 37 37 37 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Solomon Islands 85 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by for Solomon Islands on ways to improve the efficiency the economies that today have the best performance of contract enforcement. And changes in regional regionally or globally on the number of steps, time or averages can show where Solomon Islands is keeping cost required to enforce a contract through the courts up—and where it is falling behind. (figure 10.2). These economies may provide a model Figure 10.2 Has enforcing contracts become easier over time? Procedures (number) Time (days) Doing Business 2012 Solomon Islands 86 ENFORCING CONTRACTS Cost (% of claim) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Solomon Islands 87 ENFORCING CONTRACTS Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in Solomon Islands (table introducing new technology. Lower-income economies 10.2)? often work on reducing backlogs by introducing Table 10.2 How has Solomon Islands made enforcing contracts easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Solomon Islands 88 ENFORCING CONTRACTS What are the details? The indicators reported here for Solomon Islands are regulations, as well as through surveys completed by based on a set of specific procedural steps required to local litigation lawyers (and, in a quarter of the resolve a standardized commercial dispute through economies covered by Doing Business, by judges as the courts (see the section in this chapter on what the well). The procedures for resolving a commercial indicators cover). These procedures, and the time and lawsuit, and the associated time and cost, are listed in cost of completing them, are identified through study the summary below. of the codes of civil procedure and other court Summary of procedures for enforcing a contract in Solomon Islands—and the time and cost East Asia & Indicator Solomon Islands OECD high income Pacific Time (days) 455 518.71 518.03 Filing and service 3 Trial and judgment 182 Enforcement of judgment 270 Cost (% of claim) 78.9 47.79 19.71 Attorney cost (% of claim) 55.5 Court cost (% of claim) 5.1 Enforcement Cost (% of claim) 18.3 Procedures (number) 37 36.75 31.42 Source: Doing Business database. Doing Business 2012 Solomon Islands 89 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be business and the case. It assumes that the recovered company: ï‚· Is a domestically owned, limited liability company operating a hotel. ï‚· Has 201 employees, 1 main secured creditor ï‚· Operates in the economy’s largest business and 50 unsecured creditors. city. ï‚· Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2012 Solomon Islands 90 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses Globally, Solomon Islands stands at 115 in the ranking characterize the top-performing economies. How of 183 economies on the ease of resolving insolvency efficient are insolvency proceedings in Solomon (figure 11.1). The rankings for comparator economies Islands? According to data collected by Doing Business, and the regional average ranking provide other useful resolving insolvency takes 1.0 years on average and benchmarks for assessing the efficiency of insolvency costs 38% of the debtor’s estate. The average recovery proceedings in Solomon Islands. rate is 23.8 cents on the dollar. Figure 11.1 How Solomon Islands and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2012 Solomon Islands 91 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the efficiency has changed—and where it has not (table efficiency of insolvency proceedings in Solomon 11.1). That can help identify where the potential for Islands today, data over time show where the improvement is greatest. Table 11.1 The ease of resolving insolvency in Solomon Islands over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 116 115 Time (years) 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Cost (% of estate) 38 38 38 38 38 38 38 38 38 Recovery rate (cents on 23.2 23.2 23.3 23.3 23.3 23.6 23.6 23.4 23.8 the dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2012 Solomon Islands 92 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by Islands on ways to improve the efficiency of insolvency the economies that today have the best performance proceedings. And changes in regional averages can regionally or globally on the time or cost of insolvency show where Solomon Islands is keeping up—and proceedings or on the recovery rate (figure 11.2). where it is falling behind. These economies may provide a model for Solomon Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2012 Solomon Islands 93 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practiceâ€? mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Solomon Islands 94 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Solomon Islands (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Solomon Islands made resolving insolvency easier—or not? By Doing Business report year DB Year Reform The Solomon Islands adopted a new law that simplified DB2012 insolvency proceedings. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Solomon Islands 95 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income (GNI) per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2012 reports 2010 income per capita property. Second, they gauge the time and cost of as published in the World Bank’s World Development achieving a regulatory goal or complying with Indicators 2011. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2010 GNI in contract, go through bankruptcy or trade across U.S. dollars is used as the denominator. Data were borders. Third, they measure the extent of legal not available from the World Bank for Afghanistan; protections of property, for example, the protections Australia; The Bahamas; Bahrain; Brunei Darussalam; of investors against looting by company directors or Canada; Cyprus; Djibouti; the Islamic Republic of the range of assets that can be used as collateral Iran; Kuwait; New Zealand; Oman; Puerto Rico according to secured transactions laws. Fourth, a set of (territory of the United States); Qatar; Saudi Arabia; indicators documents the tax burden on businesses. Suriname; Taiwan, China; the United Arab Emirates; Finally, a set of data covers different aspects of West Bank and Gaza; and the Republic of Yemen. In employment regulation. these cases GDP or GNP per capita data and growth rates from the International Monetary Fund’s World The data for all sets of indicators in Doing Business Economic Outlook database and the Economist 3 2012 are for June 2011. Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and income group classifications, available at The Doing Business data are collected in a http://www.worldbank.org/data/countryclass. The standardized way. To start, the Doing Business team, World Bank does not assign regional classifications with academic advisers, designs a questionnaire. The to high-income economies. For the purpose of the questionnaire uses a simple business case to ensure Doing Business report, high-income OECD comparability across economies and over time—with economies are assigned the ―regional‖ classification assumptions about the legal form of the business, its OECD high income. Figures and tables presenting size, its location and the nature of its operations. regional averages include economies from all Questionnaires are administered through more than income groups (low, lower middle, upper middle 9,028 local experts, including lawyers, business and high income). consultants, accountants, freight forwarders, Population government officials and other professionals routinely administering or advising on legal and regulatory Doing Business 2012 reports midyear 2010 population statistics as published in World requirements. These experts have several rounds of Development Indicators 2011. interaction with the Doing Business team, involving conference calls, written correspondence and visits by the team. For Doing Business 2012 team members The Doing Business methodology offers several visited 40 economies to verify data and recruit advantages. It is transparent, using factual information respondents. The data from questionnaires are about what laws and regulations say and allowing subjected to numerous rounds of verification, leading multiple interactions with local respondents to clarify to revisions or expansions of the information collected. potential misinterpretations of questions. Having representative samples of respondents is not an issue; 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 Solomon Islands 96 Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business published a subnational study comparisons and benchmarks are valid across for the Philippines and a regional report for Southeast economies. Finally, the data not only highlight the Europe covering 7 economies (Albania, Bosnia and extent of specific regulatory obstacles to business but Herzegovina, Kosovo, the former Yugoslav Republic of also identify their source and point to what might be Macedonia, Moldova, Montenegro and Serbia) and 22 reformed. cities. It also published a city profile for Juba, in the Information on the methodology for each Doing Republic of South Sudan. Business topic can be found on the Doing Business The subnational studies point to differences in website at http://www.doingbusiness.org/methodology/. business regulation and its implementation—as well as in the pace of regulatory reform—across cities in the same economy. For several economies subnational Limits to what is measured studies are now periodically updated to measure The Doing Business methodology has 5 limitations that change over time or to expand geographic coverage should be considered when interpreting the data. First, to additional cities. This year that is the case for the the collected data refer to businesses in the economy’s subnational studies in the Philippines; the regional largest business city and may not be representative of report in Southeast Europe; the ongoing studies in regulation in other parts of the economy. To address Italy, Kenya and the United Arab Emirates; and the this limitation, subnational Doing Business indicators projects implemented jointly with local think tanks in were created (see the section on subnational Doing Indonesia, Mexico and the Russian Federation. Business indicators). Second, the data often focus on a Besides the subnational Doing Business indicators, specific business form—generally a limited liability Doing Business conducted a pilot study this year on company (or its legal equivalent) of a specified size— the second largest city in 3 large economies to assess and may not be representative of the regulation on within-country variations. The study collected data for other businesses, for example, sole proprietorships. Rio de Janeiro in addition to São Paulo in Brazil, for Third, transactions described in a standardized case Beijing in addition to Shanghai in China and for St. scenario refer to a specific set of issues and may not Petersburg in addition to Moscow in Russia. represent the full set of issues a business encounters. Fourth, the measures of time involve an element of judgment by the expert respondents. When sources Changes in what is measured indicate different estimates, the time indicators reported in Doing Business represent the median The methodology for 3 of the Doing Business topics values of several responses given under the was updated this year—getting credit, dealing with assumptions of the standardized case. construction permits and paying taxes. Finally, the methodology assumes that a business has First, for getting credit, the scoring of one of the 10 full information on what is required and does not components of the strength of legal rights index was waste time when completing procedures. In practice, amended to recognize additional protections of completing a procedure may take longer if the secured creditors and borrowers. Previously the business lacks information or is unable to follow up highest score of 1 was assigned if secured creditors promptly. Alternatively, the business may choose to were not subject to an automatic stay or moratorium disregard some burdensome procedures. For both on enforcement procedures when a debtor entered a reasons the time delays reported in Doing Business court-supervised reorganization procedure. Now the 2012 would differ from the recollection of highest score of 1 is also assigned if the law provides secured creditors with grounds for relief from an Doing Business 2012 Solomon Islands 97 automatic stay or moratorium (for example, if the regulatory environment for local entrepreneurs in each movable property is in danger) or sets a time limit for economy has changed over time. the automatic stay. Ease of doing business Second, because the ease of doing business index now The ease of doing business index ranks economies includes the getting electricity indicators, procedures, from 1 to 183. For each economy the ranking is time and cost related to obtaining an electricity calculated as the simple average of the percentile connection were removed from the dealing with rankings on each of the 10 topics included in the index construction permits indicators. in Doing Business 2012: starting a business, dealing Third, a threshold has been introduced for the total tax with construction permits, registering property, getting rate for the purpose of calculating the ranking on the credit, protecting investors, paying taxes, trading ease of paying taxes. All economies with a total tax across borders, enforcing contracts, resolving rate below the threshold (which will be calculated and insolvency and, new this year, getting electricity. The adjusted on a yearly basis) will now receive the same employing workers indicators are not included in this ranking on the total tax rate indicator. The threshold is year’s aggregate ease of doing business ranking. In not based on any underlying theory. Instead, it is addition to this year’s ranking, Doing Business presents meant to emphasize the purpose of the indicator: to a comparable ranking for the previous year, adjusted highlight economies where the tax burden on business for any changes in methodology as well as additions of 4 is high relative to the tax burden in other economies. economies or topics. Giving the same ranking to all economies whose total Construction of the ease of doing business index tax rate is below the threshold avoids awarding economies in the scoring for having an unusually low Here is one example of how the ease of doing business total tax rate, often for reasons unrelated to index is constructed. In the Republic of Korea it takes 5 government policies toward enterprises. For example, procedures, 7 days and 14.6% of annual income per economies that are very small or that are rich in capita in fees to open a business. There is no minimum natural resources do not need to levy broad-based capital required. On these 4 indicators Korea ranks in th th rd taxes. the 18 , 14 , 53 and 0 percentiles. So on average st Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on Data challenges and revisions th getting credit, 25 percentile on paying taxes, 8 th th percentile on enforcing contracts, 7 percentile on Most laws and regulations underlying the Doing resolving insolvency and so on. Higher rankings Business data are available on the Doing Business indicate simpler regulation and stronger protection of website at http://www.doingbusiness.org. All the property rights. The simple average of Korea’s sample questionnaires and the details underlying the st percentile rankings on all topics is 21 . When all indicators are also published on the website. Questions economies are ordered by their average percentile on the methodology and challenges to data can be rankings, Korea stands at 8 in the aggregate ranking submitted through the website’s ―Ask a Question‖ on the ease of doing business. function at http://www.doingbusiness.org. More complex aggregation methods—such as principal components and unobserved components— Ease of doing business and distance to frontier 4 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a This year’s report presents results for 2 aggregate comparable time series since the year the relevant economy or topic measures: the aggregate ranking on the ease of doing was first included in the data set. The time series is available on the business and a new measure, the ―distance to frontier.‖ Doing Business website (http://www.doingbusiness.org). The Doing While the ease of doing business ranking compares Business report publishes yearly rankings for the year of publication as well as the previous year to shed light on year-to-year economies with one another at a point in time, the developments. Six topics and more than 50 economies have been distance to frontier measure shows how much the added since the inception of the project. Earlier rankings on the ease of doing business are therefore not comparable. Doing Business 2012 Solomon Islands 98 yield a ranking nearly identical to the simple average Consider the example of Canada. It stands at 12 in the 5 used by Doing Business. Thus, Doing Business uses aggregate ranking on the ease of doing business. Its the simplest method: weighting all topics equally and, ranking is 3 on both starting a business and resolving within each topic, giving equal weight to each of the insolvency, and 5 on protecting investors. But its 6 topic components. ranking is only 59 on enforcing contracts, 42 on trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a Variation in performance across the indicator sets is ―no practice‖ mark. Similarly, an economy receives a not at all unusual. It reflects differences in the degree ―no practice‖ or ―not possible‖ mark if regulation exists of priority that government authorities give to but is never used in practice or if a competing particular areas of business regulation reform and the regulation prohibits such practice. Either way, a ―no ability of different government agencies to deliver practice‖ mark puts the economy at the bottom of the tangible results in their area of responsibility. ranking on the relevant indicator. Economies that improved the most across 3 or more The ease of doing business index is limited in scope. It Doing Business topics in 2010/11 does not account for an economy’s proximity to large Doing Business 2012 uses a simple method to calculate markets, the quality of its infrastructure services (other which economies improved the most in the ease of than services related to trading across borders and doing business. First, it selects the economies that in getting electricity), the strength of its financial system, 2010/11 implemented regulatory reforms making it the security of property from theft and looting, its easier to do business in 3 or more of the 10 topics macroeconomic conditions or the strength of 7 included in this year’s ease of doing business ranking. underlying institutions. Thirty economies meet this criterion: Armenia, Burkina Variability of economies’ rankings across topics Faso, Burundi, Cape Verde, the Central African Republic, Chile, Colombia, the Democratic Republic of Each indicator set measures a different aspect of the Congo, Côte d'Ivoire, The Gambia, Georgia, Korea, business regulatory environment. The rankings of an Latvia, Liberia, FYR Macedonia, Mexico, Moldova, economy can vary, sometimes significantly, across Montenegro, Morocco, Nicaragua, Oman, Peru, Russia, indicator sets. The average correlation coefficient São Tomé and Príncipe, Senegal, Sierra Leone, between the 10 indicator sets included in the Slovenia, the Solomon Islands, South Africa and aggregate ranking is 0.36, and the coefficients Ukraine. Second, Doing Business ranks these between any 2 sets of indicators range from 0.17 economies on the increase in their ranking on the ease (between protecting investors and getting electricity) of doing business from the previous year using to 0.57 (between starting a business and protecting comparable rankings. investors). These correlations suggest that economies rarely score universally well or universally badly on the Selecting the economies that implemented regulatory indicators. reforms in at least 3 topics and improved the most in the aggregate ranking is intended to highlight economies with ongoing, broad-based reform programs. 5 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to Distance to frontier measure Do It‖ (World Bank, Washington, DC, 2005). Principal components This year’s report introduces a new measure to and unobserved components methods yield a ranking nearly identical to that from the simple average method because both illustrate how the regulatory environment for local these methods assign roughly equal weights to the topics, since the businesses in each economy has changed over time. pairwise correlations among indicators do not differ much. An The distance to frontier measure illustrates the alternative to the simple average method is to give different weights distance of an economy to the ―frontier‖ and shows to the topics, depending on which are considered of more or less importance in the context of a specific economy. 6 7 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2012 Solomon Islands 99 the extent to which the economy has closed this gap The difference between an economy’s distance to over time. The frontier is a score derived from the most frontier score in 2005 and its score in 2011 illustrates efficient practice or highest score achieved on each of the extent to which the economy has closed the gap to the component indicators in 9 Doing Business indicator the frontier over time. sets (excluding the employing workers and getting The maximum (max) and minimum (min) observed electricity indicators) by any economy since 2005. In values are computed for the 174 economies included starting a business, for example, New Zealand has in the Doing Business sample since 2005 and for all achieved the highest performance on the time (1 day), years (from 2005 to 2011). The year 2005 was chosen Canada and New Zealand on the number of as the baseline for the economy sample because it was procedures required (1), Denmark and Slovenia on the the first year in which data were available for the cost (0% of income per capita) and Australia on the majority of economies (a total of 174) and for all 9 paid-in minimum capital requirement (0% of income indicator sets included in the measure. To mitigate the per capita). effects of extreme outliers in the distributions of the Calculating the distance to frontier for each economy rescaled data (very few economies need 694 days to involves 2 main steps. First, individual indicator scores complete the procedures to start a business, but many th are normalized to a common unit. To do so, each of need 9 days), the maximum (max) is defined as the 95 the 32 component indicators y is rescaled to (y − percentile of the pooled data for all economies and all min)/(max − min), with the minimum value (min) years for each indicator. representing the frontier—the highest performance on Take Colombia, which has a score of 0.21 on the that indicator across all economies since 2005. Second, distance to frontier measure for 2011. This score for each economy the scores obtained for individual indicates that the economy is 21 percentage points indicators are aggregated through simple averaging away from the frontier constructed from the best into one distance to frontier score. An economy’s performances across all economies and all years. distance to the frontier is indicated on a scale from 0 Colombia was further from the frontier in 2005, with a to 100, where 0 represents the frontier and 100 the score of 0.43. The difference between the scores shows lowest performance. an improvement over time. Doing Business 2012 Solomon Islands 100 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2012 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 183 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Reports http://www.doingbusiness.org/custom-query/ Access to Doing Business reports as well as subnational and regional reports, reform case Law library studies and customized economy and regional Online collection of business laws and profiles regulations relating to business and gender http://www.doingbusiness.org/reports/ issues http://www.doingbusiness.org/law-library/ Methodology http://wbl.worldbank.org/ The methodologies and research papers underlying Doing Business Contributors http://www.doingbusiness.org/methodology/ More than 9,000 specialists in 183 economies who participate in Doing Business Research http://www.doingbusiness.org/contributors/doing- Abstracts of papers on Doing Business topics business/ and related policy issues http://www.doingbusiness.org/research/ Doing Business 2012 Solomon Islands 101