65619 Regional Profile: East Asia and the Pacific (EAP) © 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. 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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 EAST ASIA AND THE PACIFIC (EAP) 3 CONTENTS Introduction ......................................................................................................................................................................4 The business environment..............................................................................................................................................5 Starting a business........................................................................................................................................................ 11 Dealing with construction permits ............................................................................................................................ 20 Getting electricity ......................................................................................................................................................... 27 Registering property .................................................................................................................................................... 32 Getting credit ................................................................................................................................................................ 39 Protecting investors ..................................................................................................................................................... 45 Paying taxes ................................................................................................................................................................... 52 Trading across borders ................................................................................................................................................ 61 Enforcing contracts....................................................................................................................................................... 71 Resolving insolvency .................................................................................................................................................... 78 Data notes ...................................................................................................................................................................... 84 Resources on the Doing Business website ................................................................................................................ 88 Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is current as of June 1, 2011 (except for the paying taxes for a local entrepreneur to open and run a small to indicators, which cover the period January–December medium-size business when complying with relevant 2010). regulations. It measures and tracks changes in The Doing Business methodology has limitations. Other regulations affecting 10 areas in the life cycle of a areas important to business—such as an economy’s business: starting a business, dealing with construction proximity to large markets, the quality of its permits, getting electricity, registering property, infrastructure services (other than those related to getting credit, protecting investors, paying taxes, trading across borders and getting electricity), the trading across borders, enforcing contracts and security of property from theft and looting, the resolving insolvency. transparency of government procurement, In a series of annual reports Doing Business presents macroeconomic conditions or the underlying strength quantitative indicators on business regulations and the of institutions—are not directly studied by Doing protection of property rights that can be compared Business. The indicators refer to a specific type of across 183 economies, from Afghanistan to Zimbabwe, business, generally a local limited liability company over time. The data set covers 46 economies in Sub- operating in the largest business city. Because Saharan Africa, 32 in Latin America and the Caribbean, standard assumptions are used in the data collection, 24 in East Asia and the Pacific, 24 in Eastern Europe comparisons and benchmarks are valid across and Central Asia, 18 in the Middle East and North economies. The data not only highlight the extent of Africa and 8 in South Asia, as well as 31 OECD high- obstacles to doing business; they also help identify the income economies. The indicators are used to analyze source of those obstacles, supporting policy makers in economic outcomes and identify what reforms have designing regulatory reform. worked, where and why. More information is available in the full report. Doing This regional profile presents the Doing Business Business 2012 presents the indicators, analyzes their indicators for East Asia and the Pacific (EAP). It also relationship with economic outcomes and shows the regional average, the best performance recommends regulatory reforms. The data, along with globally for each indicator and data for the following information on ordering the Doing Business 2012 comparator regions: Eastern Europe and Central Asia report, are available on the Doing Business website at (ECA), European Union (EU), Latin America, South Asia http://www.doingbusiness.org. (SA) and OECD high income. The data in this report are Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s The ranking on each topic is the simple average of regulatory environment for business, a good place to the percentile rankings on its component 1 start is to find out how it compares with the indicators (see the data notes for more details). regulatory environment in other economies. Doing The aggregate ranking on the ease of doing Business provides an aggregate ranking on the ease business benchmarks each economy’s of doing business based on indicator sets that performance on the indicators against that of all measure and benchmark regulations applying to other economies in the Doing Business sample domestic small to medium-size businesses through (figure 1.1). While this ranking tells much about their life cycle. Economies are ranked from 1 to 183 the business environment in an economy, it does by the ease of doing business index. For each not tell the whole story. The ranking on the ease of economy the index is calculated as the ranking on the doing business, and the underlying indicators, do simple average of its percentile rankings on each of not measure all aspects of the business the 10 topics included in the index in Doing Business environment that matter to firms and investors or 2012: starting a business, dealing with construction that affect the competitiveness of the economy. permits, getting electricity, registering property, Still, a high ranking does mean that the getting credit, protecting investors, paying taxes, government has created a regulatory environment trading across borders, enforcing contracts and conducive to operating a business. resolving insolvency. Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. 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 EAST ASIA AND THE PACIFIC (EAP) 6 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy stands regional average (figure 1.2). Another perspective is in the aggregate ranking on the ease of doing business is provided by the regional average rankings on the topics useful. Also useful is to know how it ranks compared with included in the ease of doing business index (figure 1.3). other economies in the region and compared with the Figure 1.2 How economies in East Asia and the Pacific (EAP) rank on the ease of doing business *The economy with the best performance globally is included as a benchmark. In some cases 2 or more economies share the top ranking on an indicator. Source: Doing Business database. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 7 THE BUSINESS ENVIRONMENT Figure 1.3 How East Asia and the Pacific (EAP) ranks on Doing Business topics Regional average ranking Source: Doing Business database. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 8 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing The absolute values of the indicators tell another part business tells only part of the story, so do changes in of the story (table 1.1). Policy makers can learn much that ranking. Yearly movements in rankings can by comparing the indicators for their economy with provide some indication of changes in an economy’s those for the lowest- and highest-scoring economies regulatory environment for firms, but they are always in the region as well as those for the best performers relative. An economy’s ranking might change because globally. These comparisons may reveal unexpected of developments in other economies. An economy that strengths in an area of business regulation—such as a implemented business regulation reforms may fail to regulatory process that can be completed with a small rise in the rankings (or may even drop) if it is passed number of procedures in a few days and at a low cost. by others whose business regulation reforms had a more significant impact as measured by Doing Business. Table 1.1 Summary of Doing Business indicators for East Asia and the Pacific (EAP) Lowest regional Best regional Best global Indicator Regional average performance performance performance Starting a Business 171 (Cambodia) 4 (Singapore) 95 1 (New Zealand) (rank) Procedures (number) 15 (Philippines)* 3 (Singapore)* 7 1 (Canada)* Time (days) 103 (Timor-Leste) 3 (Singapore)* 37 1 (New Zealand) Cost (% of income per 142.8 (Micronesia, Fed. 0.7 (Singapore) 22.7 0 (Denmark)* capita) Sts.) Paid-in Min. Capital (% 227.3 (Timor-Leste) (14 Economies*) 20.1 (82 Economies*) of income per capita) Dealing with 1 (Hong Kong SAR, 1 (Hong Kong SAR, Construction Permits 179 (China) 73 China) China) (rank) 6 (Hong Kong SAR, Procedures (number) 33 (China) 17 5 (Denmark) China) Time (days) 652 (Cambodia) 26 (Singapore) 159 26 (Singapore)* Cost (% of income per 444.1 (China) 4.2 (Brunei Darussalam) 99.1 1.1 (Qatar) capita) Getting Electricity 161 (Indonesia) 3 (Taiwan, China) 75 1 (Iceland) (rank) Procedures (number) 8 (Mongolia) 3 (Micronesia, Fed. Sts.)* 5 3 (Germany)* Time (days) 257 (Vanuatu) 23 (Taiwan, China) 88 17 (Germany) Cost (% of income per 1.7 (Hong Kong SAR, 5,162.7 (Kiribati) 1079.4 0 (Japan) capita) China) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 9 Lowest regional Best regional Best global Indicator Regional average performance performance performance Registering Property 168 (Solomon Islands) 14 (Singapore) 85 3 (New Zealand) (rank) Procedures (number) 10 (Solomon Islands) 2 (Thailand) 5 1 (Portugal)* Time (days) 513 (Kiribati) 2 (Thailand) 81 1 (Portugal) Cost (% of property 15.2 (Tonga) 0.0 (Kiribati) 4.1 0 (Slovak Republic) value) Getting Credit (rank) 182 (Palau) 1 (Malaysia) 91 1 (United Kingdom)* Strength of legal rights 1 (Palau) 10 (Malaysia)* 7 10 (New Zealand)* index (0-10) Depth of credit 3 (Fiji)* 6 (Malaysia) 2 6 (Japan)* information index (0-6) Public registry coverage 1.8 (Timor-Leste) 82.5 (China) 10.3 86.2 (Portugal) (% of adults) Private bureau coverage 1.8 (Papua New Guinea) 90.9 (Taiwan, China) 18.1 100 (New Zealand)* (% of adults) Protecting Investors 182 (Lao PDR) 2 (Singapore) 83 1 (New Zealand) (rank) Extent of disclosure 0 (Palau)* 10 (Singapore)* 5 10 (France)* index (0-10) Extent of director 0 (Micronesia, Fed. Sts.)* 9 (Singapore)* 5 9 (Singapore)* liability index (0-10) Ease of shareholder 2 (Cambodia)* 9 (Singapore)* 6 10 (New Zealand)* suits index (0-10) Strength of investor 1.7 (Lao PDR) 9.3 (Singapore) 5.4 9.7 (New Zealand) protection index (0-10) 3 (Hong Kong SAR, Paying Taxes (rank) 151 (Vietnam) 70 8 (Canada) China) Payments (number per 3 (Hong Kong SAR, 51 (Indonesia) 25 4 (Norway) year) China) Time (hours per year) 941 (Vietnam) 80 (Solomon Islands)* 215 59 (Luxembourg) Trading Across 168 (Lao PDR) 1 (Singapore) 77 1 (Singapore) Borders (rank) Documents to export 10 (Fiji) 4 (Singapore)* 6 2 (France) (number) 5 (Hong Kong SAR, Time to export (days) 46 (Mongolia) 5 (Singapore)* 22 China)* Cost to export (US$ per 2265 (Mongolia) 450 (Malaysia) 906 450 (Malaysia) container) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 10 Lowest regional Best regional Best global Indicator Regional average performance performance performance Documents to import 10 (Lao PDR)* 4 (Singapore)* 7 2 (France) (number) Time to import (days) 47 (Mongolia) 4 (Singapore) 23 4 (Singapore) Cost to import (US$ per 2400 (Mongolia) 435 (Malaysia) 954 435 (Malaysia) container) Enforcing Contracts 5 (Hong Kong SAR, 183 (Timor-Leste) 86 1 (Luxembourg) (rank) China) Time (days) 1285 (Timor-Leste) 150 (Singapore) 519 150 (Singapore) Cost (% of claim) 163.2 (Timor-Leste) 11.1 (China) 47.8 0.1 (Bhutan) Procedures (number) 51 (Timor-Leste) 21 (Singapore) 37 21 (Ireland)* Resolving Insolvency 164 (Micronesia, Fed. 2 (Singapore) 106 1 (Japan) (rank) Sts.) Time (years) 6.0 (Cambodia) 0.8 (Singapore) 2.9 0.4 (Ireland) 38 (Micronesia, Fed. Cost (% of estate) 1 (Singapore) 23 1 (Singapore)* Sts.)* Recovery rate (cents on 3.4 (Micronesia, Fed. 91.3 (Singapore) 29.5 92.7 (Japan) the dollar) Sts.) 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. * 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 EAST ASIA AND THE PACIFIC (EAP) 11 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for INDICATORS MEASURE business owners and employees. Legal entities can 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 No prior contact with officials formally operate an industrial or commercial 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 Official costs only, no bribes deposit before registration (or within 3 months). 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 Paid-in minimum capital (% of income and paid-in minimum capital requirement. per capita) To make the data comparable across economies, Deposited in a bank or with a notary before Doing Business uses several assumptions about the registration (or within 3 months) business and the procedures. It assumes that all information is readily available to the entrepreneur • Conducts general commercial or industrial and that there has been no prior contact with activities. officials. It also assumes that all government and • Has a start-up capital of 10 times income per nongovernment entities involved in the process capita. function without corruption. And it assumes that the business: • Has a turnover of at least 100 times income per capita. • Is a limited liability company, located in the largest business city. • Does not qualify for any special benefits. • Has between 10 and 50 employees. • Does not own real estate. • Is 100% domestically owned. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 12 STARTING A BUSINESS Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in East starting a business suggest an answer (figure 2.1). The Asia and the Pacific (EAP) to start a business? The average ranking of the region and comparator regions global rankings of these economies on the ease of provide a useful benchmark. Figure 2.1 How economies in East Asia and the Pacific (EAP) rank on the ease of starting a business Source: Doing Business database. The indicators underlying the rankings may be more and the paid-in minimum capital requirement (figure revealing. Data collected by Doing Business show what 2.2). Comparing these indicators across the region and it takes to start a business in each economy in the with averages both for the region and for comparator region: the number of procedures, the time, the cost regions can provide useful insights. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 13 STARTING A BUSINESS Figure 2.2 What it takes to start a business in economies in East Asia and the Pacific (EAP) Procedures (number) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 14 STARTING A BUSINESS Time (days) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 15 STARTING A BUSINESS Cost (% of income per capita) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 16 STARTING A BUSINESS Paid-in minimum capital (% of income per capita) Source: Doing Business database. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 17 STARTING A BUSINESS What are the changes over time? Economies around the world have taken steps making stages—and often as part of a larger regulatory reform it easier to start a business—streamlining procedures program. Among the benefits have been greater firm by setting up a one-stop shop, making procedures satisfaction and savings and more registered simpler or faster by introducing technology, and businesses, financial resources and job opportunities. reducing or eliminating minimum capital requirements. What business registration reforms has Doing Business Many have undertaken business registration reforms in recorded in East Asia and the Pacific (EAP) (table 2.1)? Table 2.1 How have economies in East Asia and the Pacific (EAP) made starting a business easier—or not? By Doing Business report year DB Year Economy Reform Hong Kong SAR (China) made starting a business easier by DB2012 Hong Kong SAR, China introducing online electronic services for company and business registration. Taiwan (China) made starting a business easier by DB2012 Taiwan, China implementing an online one-stop shop for business registration. Fiji made starting a business more difficult by adding a DB2012 Fiji requirement to obtain a tax identification number when registering a new company. Indonesia made starting a business easier by introducing a simplified application process allowing an applicant to DB2012 Indonesia simultaneously obtain both a general trading license and a business registration certificate. Malaysia made starting a business easier by merging company, tax, social security and employment fund DB2012 Malaysia registrations at the one-stop shop and providing same-day registration. The Solomon Islands made starting a business easier by DB2012 Solomon Islands implementing an online registration process. Thailand made starting a business easier by introducing a DB2012 Thailand one-stop shop. Tonga made starting a business easier by implementing an electronic system at the registry, which reduced the time required for verification of the uniqueness of the company DB2012 Tonga name and for registration of the company. The costs for the name search, company registration and business license increased, however. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 18 DB Year Economy Reform Vanuatu made starting a business easier by reducing the time required for company registration at the Vanuatu Financial DB2012 Vanuatu Services Commission and issuing provisional licenses at the Department of Customs. Timor-Leste made starting a business faster by improving the DB2012 Timor-Leste registration process. Brunei Darussalam made starting a business easier by DB2011 Brunei Darussalam improving efficiency at the company registrar and implementing an electronic system for name searches. Taiwan (China) eased business start-up by reducing the time DB2011 Taiwan, China required to check company names, register retirement plans and apply for health, pension and labor insurance. Indonesia eased business start-up by reducing the cost for company name clearance and reservation and the time DB2011 Indonesia required to reserve the name and approve the deed of incorporation. Malaysia eased business start-up by introducing more online DB2011 Malaysia services. The Philippines eased business startup by setting up a one- DB2011 Philippines stop shop at the municipal level. Vietnam eased company start-up by creating a one-stop shop that combines the processes for obtaining a business DB2011 Vietnam license and tax license and by eliminating the need for a seal for company licensing. Business start-up was eased by simplifying registration and DB2010 Hong Kong SAR, China merging procedures. Business start-up by reducing minimum paid-in capital from TWD 1 million to 500,000 in 2008 and abolishing it altogether DB2010 Taiwan, China in April 2009; it also introduced time limits on various operating procedures. The incorporation and post-incorporation processes was eased for new business registration by introducing online services, eliminating certain licenses, making the registry more efficient, and cutting company deed legalization fees, DB2010 Indonesia publication fees, registration fees, and business license fees. As a result, 2 procedures and 16 days were cut and the average company start-up cost was reduced by almost 52 percent of gross national income per capita. Business start-up was eased with a new one-stop shop to streamline registration. In addition, the Malaysian Institute of Chartered Secretaries and Administrators (MAICSA) reduced DB2010 Malaysia company incorporation charges and corporate fees. The service is still new, and the government is planning a public awareness campaign about the new system. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 19 DB Year Economy Reform Business start-up was eased by passing a new company act that removed the minimum capital requirement and DB2010 Samoa simplified various other procedures. The act cut 26 days, 4 procedures, and three-quarters of the cost of starting a company. Business start-up was simplified by making it possible to DB2010 Singapore incorporate a company and register for taxes using the same online form. Business start-up was eased by merging the registration of memorandum and the application for company registration. DB2010 Thailand As a result, it cut 1 procedure and 1 day from company start- up. Business start-up was made faster, but the minimum capital DB2009 Indonesia requirement almost doubled. Amendments to the Companies Act simplified business DB2009 Malaysia registration and reduced the time required by introducing online filing of registration documents. The online process for business start-up was simplified, DB2009 Singapore cutting a procedure and reducing the time required by a day. New regulations on business licensing reduced the time to DB2009 Tonga start a business by one week. Lao eased the process of starting a business by making obtaining an operating license faster and removing the DB2008 Lao PDR requirement of obtaining an approval from the ministry for registering a new company. Name checking and registration were sped up, reducing DB2008 Malaysia delays by a week. Approvals by the Ministry of Land were eliminated, removing DB2008 Timor-Leste one procedure and reducing the number of days required to start a company. 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 EAST ASIA AND THE PACIFIC (EAP) 20 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 is better off. Completing all required notifications and 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 can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking on the ease of dealing with Does not include time spent gathering construction permits is the simple average of the information percentile rankings on its component indicators: Each procedure starts on a separate day procedures, time and cost. Procedure completed once final document is To make the data comparable across economies, received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of income per capita) • Is a limited liability company operating in Official costs only, no bribes the construction business and located in • Will be connected to water, sewerage the largest business city. (sewage system, septic tank or their • Is domestically owned and operated. equivalent) and a fixed telephone line. The connection to each utility network will be 10 • Has 60 builders and other employees. meters (32 feet, 10 inches) long. The warehouse: • Will be used for general storage, such as of • Is a new construction (there was no books or stationery (not for goods requiring previous construction on the land). special conditions). • Has complete architectural and technical • Will take 30 weeks to construct (excluding all plans prepared by a licensed architect. delays due to administrative and regulatory requirements). Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 21 DEALING WITH CONSTRUCTION PERMITS Where do the region’s economies stand today? How easy it is for entrepreneurs in economies in East dealing with construction permits suggest an answer Asia and the Pacific (EAP) to legally build a warehouse? (figure 3.1). The average ranking of the region and The global rankings of these economies on the ease of comparator regions provide a useful benchmark. Figure 3.1 How economies in East Asia and the Pacific (EAP) rank on the ease of dealing with construction permits Source: Doing Business database. The indicators underlying the rankings may be more of procedures, the time and the cost (figure 3.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to comply with formalities to build a averages both for the region and for comparator warehouse in each economy in the region: the number regions can provide useful insights. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 22 DEALING WITH CONSTRUCTION PERMITS Figure 3.2 What it takes to comply with formalities to build a warehouse in economies in East Asia and the Pacific (EAP) Procedures (number) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 23 DEALING WITH CONSTRUCTION PERMITS Time (days) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 24 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) * Indicates a “no practice� mark. See the data notes for details. Source: Doing Business database. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 25 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? Smart regulation ensures that standards are met while worked on consolidating permitting requirements. making compliance easy and accessible to all. What construction permitting reforms has Doing Coherent and transparent rules, efficient processes and Business recorded in East Asia and the Pacific (EAP) adequate allocation of resources are especially (table 3.1)? important in sectors where safety is at stake. Construction is one of them. In an effort to ensure building safety while keeping compliance costs reasonable, governments around the world have Table 3.1 How have economies in East Asia and the Pacific (EAP) made dealing with construction permits easier—or not? By Doing Business report year DB Year Economy Reform Taiwan (China) made dealing with construction permits DB2012 Taiwan, China easier by creating a one-stop center. Vanuatu made dealing with construction permits more DB2012 Vanuatu difficult by increasing the number of procedures and the cost to obtain a building permit. The Philippines made construction permitting more DB2011 Philippines cumbersome through updated electricity connection costs. Vietnam made dealing with construction permits easier by reducing the cost to register newly completed buildings by DB2011 Vietnam 50% and transferring the authority to register buildings from local authorities to the Department of National Resources and Environment. Dealing with construction permits was made easier with new DB2010 Singapore workplace safety and health regulations that allow low-risk industries to submit documents online. Fee increases significantly raised the cost of obtaining a DB2010 Solomon Islands construction permit. Under the “Be the Smart Regulator� program, a broad initiative to improve business licensing, the government DB2009 Hong Kong SAR, China reduced the time to deal with construction permits and eliminated several procedures related to inspections and preapprovals. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 26 DB Year Economy Reform New regulations were adopted for construction permitting DB2009 Fiji that added three new preapproval procedures relating to health, fire safety, and water and sewerage connections. The process for dealing with construction permits was sped up, reducing the time to build a warehouse. Almost 99 DB2009 Singapore percent of applications are now submitted electronically through the Construction and Real Estate Network (CORENET). More of the regulations of its 2005 building code were implemented, decreasing the number of procedures for DB2009 Tonga dealing with construction permits and, with administrative improvements, reducing the time to build a warehouse. Beijing and Shanghai now process applications for construction permits electronically and allow construction DB2008 China companies to apply for safety certificates online, reducing delays. 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 EAST ASIA AND THE PACIFIC (EAP) 27 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 Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information • Is located in the economy’s largest Reflects the time spent in practice, with little business city, in an area where other follow-up and no prior contact with officials warehouses are located. Cost required to complete each procedure (% • Is not in a special economic zone where of income per capita) the connection would be eligible for subsidization or faster service. Official costs only, no bribes • 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. • Is 150 meters long. • Is a new construction being connected to • Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either • Has 2 stories, both above ground, with a overhead or underground, whichever is more total surface of about 1,300.6 square common in the economy and in the area meters (14,000 square feet), and is built on where the warehouse is located. The length a plot of 929 square meters (10,000 square of any connection in the customer’s private feet). domain is negligible. The electricity connection: • Involves installing one electricity meter. The monthly electricity consumption will be 0.07 • 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 EAST ASIA AND THE PACIFIC (EAP) 28 GETTING ELECTRICITY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in East the ease of getting electricity suggest an answer Asia and the Pacific (EAP) to connect a warehouse to (figure 4.1). The average ranking of the region and electricity? The global rankings of these economies on comparator regions provide a useful benchmark. Figure 4.1 How economies in East Asia and the Pacific (EAP) rank on the ease of getting electricity Source: Doing Business database. The indicators underlying the rankings may be more time and the cost (figure 4.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to get a new electricity connection in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 29 GETTING ELECTRICITY Figure 4.2 What it takes to get an electricity connection in economies in East Asia and the Pacific (EAP) Procedures (number) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 30 GETTING ELECTRICITY Time (days) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 31 GETTING ELECTRICITY Cost (% of income per capita) Source: Doing Business database. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 32 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 property title to the buyer’s name. The transaction the municipality) 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 resell it. The ranking on the ease of registering Does not include time spent gathering property is the simple average of the percentile information rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is To make the data comparable across economies, received several assumptions about the parties to the transaction, the property and the procedures are No prior contact with officials used. Cost required to complete each procedure The parties (buyer and seller): (% of property value) • Are limited liability companies, 100% Official costs only, no bribes domestically and privately owned. No value added or capital gains taxes included • Are located in the periurban area of the economy’s largest business city. • Have 50 employees each, all of whom are nationals. • Has no mortgages attached and has been under the same ownership for the past 10 • Perform general commercial activities. years. The property (fully owned by the seller): • Consists of 557.4 square meters (6,000 square • Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000 square feet). The warehouse is in good • Is registered in the land registry or condition and complies with all safety cadastre, or both, and is free of title standards, building codes and legal disputes. requirements. The property will be transferred • Is located in a periurban commercial zone, in its entirety. and no rezoning is required. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 33 REGISTERING PROPERTY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in East registering property suggest an answer (figure 5.1). Asia and the Pacific (EAP) to transfer property? The The average ranking of the region and comparator global rankings of these economies on the ease of regions provide a useful benchmark. Figure 5.1 How economies in East Asia and the Pacific (EAP) rank on the ease of registering property Source: Doing Business database. The indicators underlying the rankings may be more time and the cost (figure 5.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to complete a property transfer in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 34 REGISTERING PROPERTY Figure 5.2 What it takes to register property in economies in East Asia and the Pacific (EAP) Procedures (number) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 35 REGISTERING PROPERTY Time (days) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 36 REGISTERING PROPERTY Cost (% of property value) * Indicates a “no practice� mark. See the data notes for details. Source: Doing Business database. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 37 REGISTERING PROPERTY What are the changes over time? Economies worldwide have been making it easier for buyers to use or mortgage their property earlier. What entrepreneurs to register and transfer property—such property registration reforms has Doing Business as by computerizing land registries, introducing time recorded in East Asia and the Pacific (EAP) (table 5.1)? limits for procedures and setting low fixed fees. Many have cut the time required substantially—enabling Table 5.1 How have economies in East Asia and the Pacific (EAP) made registering property easier—or not? By Doing Business report year DB Year Economy Reform The Solomon Islands made registering property faster by DB2012 Solomon Islands separating the land registry from the business and movable property registries. Thailand made registering property more expensive by DB2012 Thailand increasing the registration fee. DB2012 Tonga Tonga made transferring property more costly. Vanuatu made registering property easier by computerizing DB2012 Vanuatu the land registry. Malaysia’s introduction of online stamping reduced the time DB2011 Malaysia and cost to transfer property. Samoa shifted from a deed system to a title system and fully DB2011 Samoa computerized its land registry, which reduced the time required to register property by 4 months. Thailand made registering property more costly by repealing DB2011 Thailand a 2-year temporary tax reduction for property transfers. Property registration has also become easier, because the DB2010 Hong Kong SAR, China stamp duty for the sale act can now be submitted online. Property registration also became easier because time limits DB2010 Indonesia were introduced for standard procedures at the land registry. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 38 DB Year Economy Reform Property registration was eased by improving its DB2010 Singapore computerized system. Provisional reductions of the property transfer fee and DB2009 Thailand specific business tax have lowered the cost to transfer property. It was made more costly to register property. The cost to apply for registration of the Deed of Transfer at the Department of Lands Records increased from 2% to 6% DB2008 Vanuatu property value. The change is a result of a new amendment that has been made to the land law by the Acting Director General of Ministry of Land, Geology and Water Supply on December 27, 2006. 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 EAST ASIA AND THE PACIFIC (EAP) 39 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 information index measures rules and practices Private credit bureau coverage (% of adults) affecting the coverage, scope and accessibility of Number of individuals and firms listed in credit information available through a public credit largest private credit bureau as percentage of registry or a private credit bureau. The strength of adult population 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 • Has 100 employees. the scope of the secured transactions system, • 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 • Is a private, limited liability company. (weighted at 62.5%). • Has its headquarters and only base of operations in the largest business city. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 40 GETTING CREDIT Where do the region’s economies stand today? How well do the credit information systems and getting credit suggest an answer (figure 6.1). The collateral and bankruptcy laws in economies in East average ranking of the region and comparator regions Asia and the Pacific (EAP) facilitate access to credit? provide a useful benchmark. The global rankings of these economies on the ease of Figure 6.1 How economies in East Asia and the Pacific (EAP) rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 41 GETTING CREDIT Another way to assess how well regulations and particular score on the strength of legal rights index. institutions support lending and borrowing in the Figure 6.3 shows the same thing for the depth of credit region is to look at the distribution of its economies by information index. Higher scores indicate stronger their scores on the getting credit indicators. Figure 6.2 legal rights for borrowers and lenders and more credit shows how many economies in the region received a information. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How extensive—and how accessible—is and lenders in economies in East Asia and the Pacific credit information in economies in East Asia and the (EAP)? Pacific (EAP)? Number of economies in region with each score on strength Number of economies in region with each score on depth of of legal rights index (0–10) credit information index (0–6) Source: Doing Business database. Source: Doing Business database. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 42 GETTING CREDIT What are the changes over time? When economies strengthen the legal rights of lenders access to credit. What credit reforms has Doing and borrowers under collateral and bankruptcy laws, Business recorded in East Asia and the Pacific (EAP) and increase the scope, coverage and accessibility of (table 6.1)? credit information, they can increase entrepreneurs’ Table 6.1 How have economies in East Asia and the Pacific (EAP) made getting credit easier—or not? By Doing Business report year DB Year Economy Reform Cambodia strengthened its credit information system DB2012 Cambodia through a new regulation allowing credit bureaus to collect and distribute positive as well as negative credit information. Mongolia improved its credit information system by DB2012 Mongolia eliminating the minimum threshold for loans included in the database. Tonga strengthened its secured transactions system by passing a new law that allows a general description of the DB2012 Tonga obligation in the security agreement and gives secured creditors priority outside bankruptcy. Timor-Leste improved its credit information system by DB2012 Timor-Leste establishing a public credit registry. The Marshall Islands improved access to credit through a new law on secured transactions that establishes a central collateral registry, broadens the range of assets that can be DB2011 Marshall Islands used as collateral, allows a general description of debts and obligations and assets granted as collateral and establishes clear priority rules outside bankruptcy for secured creditors. Operation of a new private credit bureau improved the credit DB2011 Papua New Guinea information system in Papua New Guinea. 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 general DB2011 Solomon Islands description of debts and obligations secured by collateral, permits out-of-court enforcement and creates a collateral registry. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 43 DB Year Economy Reform Vietnam improved its credit information system by allowing DB2011 Vietnam borrowers to examine their own credit report and correct errors. Access to credit was enhanced with a new credit information DB2010 Philippines act that regulates the operations and services of a credit information system. The government created a geographically centralized, unified DB2010 Vanuatu registry for collateral, strengthening access to credit and secured transactions. The registry is accessible online. A new secured transactions law made Cambodia the world’s top reformer in getting credit in 2007/08. The new law allows DB2009 Cambodia movable property to be used as collateral. And an online unified collateral registry is now in operation. Getting credit was made easier by expanding the range of assets that can be used as collateral through a new property DB2009 China law in October 2007. Accounts receivable and a combination of assets can now be used to secure a loan. The civil code was amended to make secured lending more flexible. Since September 2007 parties to a mortgage or DB2009 Taiwan, China pledge agreement have been allowed to set the loan amount as a maximum line of credit. Getting credit was made easier by guaranteeing the right of borrowers to inspect their credit data at the Bank of DB2009 Indonesia Indonesia, helping to improve the quality and accuracy of the information financial institutions use in assessing the risk profiles of borrowers. Creditor protections were strengthened by ensuring that secured creditors have priority outside bankruptcy procedures over unsecured creditors and subsequently registered secured creditors. The improvement comes as a DB2009 Vanuatu result of the Personal Property Securities Act passed in 2008. The act also broadens the range of assets that can be used as collateral and allows out-of-court enforcement of security rights. The public credit registry now keeps information on record DB2009 Vietnam longer, providing financial institutions with more data on the repayment history and debt capacity of potential borrowers. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 44 DB Year Economy Reform A new bankruptcy law gives secured creditors priority in receiving proceeds from their collateral if the borrower becomes insolvent. The bankruptcy law also allows bankruptcy administrators to operate the insolvent company in place of the original management. And a new property law DB2008 China expands the range of assets that can be used as collateral to include inventory and accounts receivable. Before the reform, Chinese businesses held more than $2 trillion in "dead capital" - assets that could not be used as collateral because of restrictions in laws. With the new property law, some of these assets can be used for loans to expand businesses. The first secured transactions law was implemented and a unified online registry was launched for all security rights in DB2008 Micronesia, Fed. Sts. movable property. The registry covers all types of creditors and debtors. Now businesses are allowed to use a general description of DB2008 Vietnam assets and obligations in collateral agreements, as well as to use future assets to secure a debt or obligation. 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 EAST ASIA AND THE PACIFIC (EAP) 45 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 shareholder protections against directors’ use of Available legal remedies (damages, repayment corporate assets for personal gain—or self-dealing. of profits, fines, imprisonment and rescission The indicators distinguish 3 dimensions of investor of the transaction) 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 shareholders’ ability to sue officers and directors for Ease of shareholder suits index (0–10) misconduct (ease of shareholder suits index). The Documents and information available during ranking on the strength of investor protection index is trial the simple average of the percentile rankings on these 3 indices. To make the data comparable across Access to internal corporate documents economies, a case study uses several assumptions (directly or through a government inspector) about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, • Is a publicly traded corporation listed on the extent of director liability and ease of economy’s most important stock exchange shareholder suits indices (or at least a large private company with multiple shareholders). • The price is higher than the going price for used • Has a board of directors and a chief executive trucks, but the transaction goes forward. officer (CEO) who may legally act on behalf of • All required approvals are obtained, and all Buyer where permitted, even if this is not required disclosures made, though the specifically required by law. transaction is prejudicial to Buyer. The transaction involves the following details: • Shareholders sue the interested parties and the • Mr. James, a director and the majority members of the board of directors. shareholder of the company, proposes that the company purchase used trucks from another company he owns. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 46 PROTECTING INVESTORS Where do the region’s economies stand today? How strong are investor protections in economies in the protection of minority investors, a higher ranking East Asia and the Pacific (EAP)? The global rankings of does indicate that an economy’s regulations offer these economies on the strength of investor stronger investor protections against self-dealing in protection index suggest an answer (figure 7.1). While the areas measured. the indicator does not measure all aspects related to Figure 7.1 How economies in East Asia and the Pacific (EAP) rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 47 PROTECTING INVESTORS But the overall ranking on the strength of investor indices may also be revealing (figure 7.2). Higher protection index tells only part of the story. Economies scores indicate stronger investor protections. may offer strong protections in some areas but not Comparing the scores across the region and with others. So the scores recorded for economies in East averages both for the region and for comparator Asia and the Pacific (EAP) on the extent of disclosure, regions can provide useful insights. extent of director liability and ease of shareholder suits Figure 7.2 How strong are investor protections in economies in East Asia and the Pacific (EAP)? Strength of investor protection index (0–10) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 48 PROTECTING INVESTORS Extent of disclosure index (0–10) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 49 PROTECTING INVESTORS Extent of director liability index (0–10) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 50 PROTECTING INVESTORS Ease of shareholder suits index (0–10) Source: Doing Business database. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 51 PROTECTING INVESTORS What are the changes over time? 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 revisions to court well-functioning courts and up-to-date procedural procedures. What investor protection reforms has rules that give minority investors the means to prove Doing Business recorded in East Asia and the Pacific their case and obtain a judgment within a reasonable (EAP) (table 7.1)? Table 7.1 How have economies in East Asia and the Pacific (EAP) strengthened investor protections—or not? By Doing Business report year DB Year Economy Reform The Solomon Islands strengthened investor protections by DB2012 Solomon Islands increasing shareholder access to corporate information. Vietnam strengthened investor protections by requiring DB2012 Vietnam higher standards of accountability for company directors. Investor protections were increased by expanding disclosure DB2010 Indonesia requirements for related-party transactions. Amendments to the Securities and Exchange Act strengthened minority shareholder rights. Directors now have greater duties with respect to transactions between interested DB2009 Thailand parties. If held liable for using the company’s assets for their own benefit, they will have to pay damages, disgorge profits, and pay fines—and may even go to jail. New securities and enterprise laws were adopted. The securities law sets up a new securities ex­change and trading center. The enterprise law mandates investor involvement in DB2008 Vietnam major company actions and increases disclosure for related- party transactions. In addition, it introduces fiduciary duties for directors. 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 EAST ASIA AND THE PACIFIC (EAP) 52 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 transactions made over the year. Information is Completing tax return forms, filing with also compiled on the frequency of filing and proper agencies payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is the simple average of the percentile rankings on Preparing separate tax accounting books, if its component indicators: number of annual required payments, time and total tax rate, with a threshold Total tax rate (% of profit before all taxes) 2 being applied to the total tax rate. To make the data comparable across economies, several Profit or corporate income tax assumptions about the business and the taxes and Social contributions and labor taxes paid by contributions are used. the employer • TaxpayerCo is a medium-size business that Property and property transfer taxes started operations on January 1, 2009. Dividend, capital gains and financial • The business starts from the same financial transactions taxes position in each economy. All the taxes and mandatory contributions paid during Waste collection, vehicle, road and other taxes the second year of operation are recorded. • Taxes and mandatory contributions include • 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. • 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 EAST ASIA AND THE PACIFIC (EAP) 53 PAYING TAXES Where do the region’s economies stand today? What is the administrative burden of complying with taxes offer useful information for assessing the tax taxes in economies in East Asia and the Pacific (EAP)— compliance burden for businesses (figure 8.1). The and how much do firms pay in taxes? The global average ranking of the region and comparator regions rankings of these economies on the ease of paying provide a useful benchmark. Figure 8.1 How economies in East Asia and the Pacific (EAP) 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 EAST ASIA AND THE PACIFIC (EAP) 54 PAYING TAXES The indicators underlying the rankings may be more as well as the total tax rate (figure 8.2). Comparing revealing. Data collected by Doing Business show what these indicators across the region and with averages it takes to comply with tax regulations in each both for the region and for comparator regions can economy in the region—the number of payments per provide useful insights. year and the time required to prepare and file taxes— Figure 8.2 How easy is it to pay taxes in economies in East Asia and the Pacific (EAP)—and what are the total tax rates? Payments (number per year) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 55 PAYING TAXES Time (hours per year) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 56 PAYING TAXES Total tax rate (% of profit) 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 EAST ASIA AND THE PACIFIC (EAP) 57 PAYING TAXES What are the changes over time? 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. East Asia and the Pacific (EAP) (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How have economies in East Asia and the Pacific (EAP) made paying taxes easier—or not? By Doing Business report year DB Year Economy Reform Malaysia made paying taxes costlier for firms by reintroducing the real estate capital gains tax—but also made DB2012 Malaysia tax compliance easier by improving electronic systems and the availability of software. Brunei Darussalam reduced the corporate income tax rate DB2011 Brunei Darussalam from 23.5% to 22% while also introducing a lower tax rate for small businesses, ranging from 5.5% to 11%. China’s new corporate income tax law unified the tax regimes for domestic and foreign enterprises and clarified the DB2011 China calculation of taxable income for corporate income tax purposes. DB2011 Hong Kong SAR, China Hong Kong SAR (China) abolished the fuel tax on diesel. Taiwan (China) reduced the corporate income tax rate and DB2011 Taiwan, China simplified tax return forms, rules for assessing corporate income tax and the calculation of interim tax payments. DB2011 Indonesia Indonesia reduced its corporate income tax rate. Lao PDR replaced the business turnover tax with a new value DB2011 Lao PDR added tax. Thailand temporarily lowered taxes on business by reducing DB2011 Thailand its specific business tax for 12 months. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 58 DB Year Economy Reform Tonga simplified the payment of taxes by replacing a 2-tier system with a 25% corporate income tax rate for both DB2011 Tonga domestic and foreign companies and introducing tax incentives with a broad-based capital allowance system to replace tax holidays and other tax concessions. Corporate income tax was reduced from 30 percent to 25.5 percent in 2008, with an exemption on the first BND 100,000 of chargeable income for the first three consecutive years of DB2010 Brunei Darussalam assessment for newly incorporated companies. The corporate tax rate was then further reduced to 23.5 percent in 2009, while a 12 percent tax was introduced on commercial buildings. A social security contribution of 0.8 percent of the monthly DB2010 Cambodia average wage was introduced, with a cap of KHR 1 million (about $250). The government made it easier to pay taxes by making both DB2010 Taiwan, China e-filing and e-payment applicable to value added tax (VAT). The corporate income tax rate was cut from 31 percent to 29 percent. But the compliance time for taxes increased because there was a requirement to prepare two pay as you earn DB2010 Fiji (PAYE) employee certificates and PAYE annual summaries instead of the usual one. In addition, a road use levy will be imposed on all vehicles. Paying taxes was made easier by consolidating three taxes— business turnover tax, excise tax, and personal income tax DB2010 Lao PDR withholding—into one simpler form. The lodgment process was improved and as well as tax office staffing. The corporate income tax rate was cut from 35 percent to 30 DB2010 Philippines percent of profit. A new income tax act was adopted that allows for accelerated DB2010 Tonga depreciation and amortization of intangibles and preliminary expenditures, and introduced self-assessment. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 59 DB Year Economy Reform The government cut the corporate income tax from 28 percent to 25 percent and eliminated the surtax on income DB2010 Vietnam from the transfer of land use. It also adopted a new enterprise income tax law and value added tax law A new tax law was adopted in July 2008. The law cut the profit tax rate from 30 percent to 10 percent and abolished the DB2010 Timor-Leste alternative minimum tax and the withholding tax on interest. Meanwhile, corporate income tax is now paid in quarterly installments when turnover is less than $1 million. The tax burden was reduced on businesses by reducing the corporate income tax rate from 33.3 percent to 25 percent DB2009 China and unifying the criteria and accounting methods for tax deductions. The real property gains tax was abolished and the corporate income tax rate was reduced to 26 percent (the rate had previously been tiered). A further reduction to 25 percent is DB2009 Malaysia planned for next year. The reform also introduced a single- tier tax system, in which profits are taxed only after dividend payments are exempted. The tax burden on employers was eased by reducing their DB2009 Mongolia social insurance contribution from 19 percent to 11 percent of gross salaries. The corporate income tax was lowered from 29 percent to 27 DB2009 Samoa percent and the capital gains tax from 30 percent to 27 percent. Paying taxes was made easier by reducing some fees and facilitating online filing and payments. In addition, the country now exempts companies with taxable income not DB2009 Thailand exceeding 1.2 million baht from corporate income tax and applies concessionary 25 percent rates for newly listed companies. The profit tax was reduced by 1 percentage point (with DB2008 Malaysia another 1 per­centage point reduction planned by 2008) and tax filing was simplified online to reduce the time burden. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 60 DB Year Economy Reform New laws were put in place for the corporate income, value added and personal income taxes, including a new flat tax for DB2008 Mongolia individual income. The top marginal rate for corporate income tax decreased from 30% to 25% as of January 2007. 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 EAST ASIA AND THE PACIFIC (EAP) 61 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 importing a standard shipment of goods by ocean Inland transport and handling transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover procedural requirements such as documentation Port and terminal handling requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also cover trade logistics, including the time and cost of Cost required to export and import (US$ per inland transport to the largest business city. The container) ranking on the ease of trading across borders is All documentation the simple average of the percentile rankings on its component indicators: documents, time and cost Inland transport and handling to export and import. Customs clearance and inspections To make the data comparable across economies, Port and terminal handling Doing Business uses several assumptions about the Official costs only, no bribes business and the traded goods. The business: • Do not require refrigeration or any other • Is of medium size and employs 60 people. special environment. • Is located in the periurban area of the • Do not require any special phytosanitary or economy’s largest business city. environmental safety standards other than • Is a private, limited liability company, accepted international standards. domestically owned, formally registered • Are one of the economy’s leading export or and operating under commercial laws and import products. regulations of the economy. • Are transported in a dry-cargo, 20-foot full The traded goods: container load. • Are not hazardous nor do they include military items. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 62 TRADING ACROSS BORDERS Where do the region’s economies stand today? How easy it is for businesses in economies in East Asia trading across borders suggest an answer (figure 9.1). and the Pacific (EAP) to export and import goods? The The average ranking of the region and comparator global rankings of these economies on the ease of regions provide a useful benchmark. Figure 9.1 How economies in East Asia and the Pacific (EAP) rank on the ease of trading across borders Source: Doing Business database. The indicators underlying the rankings may be more documents, the time and the cost (figure 9.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to export or import a standard container of averages both for the region and for comparator goods in each economy in the region: the number of regions can provide useful insights. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 63 TRADING ACROSS BORDERS Figure 9.2 What it takes to trade across borders in economies in East Asia and the Pacific (EAP) Documents to export (number) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 64 TRADING ACROSS BORDERS Time to export (days) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 65 TRADING ACROSS BORDERS Cost to export (US$ per container) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 66 TRADING ACROSS BORDERS Documents to import (number) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 67 TRADING ACROSS BORDERS Time to import (days) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 68 TRADING ACROSS BORDERS Cost to import (US$ per container) Source: Doing Business database. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 69 TRADING ACROSS BORDERS What are the changes over time? 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 East Asia and the Pacific (EAP) risk-based inspections and electronic data interchange (table 9.1)? Table 9.1 How have economies in East Asia and the Pacific (EAP) made trading across borders easier—or not? By Doing Business report year DB Year Economy Reform Vanuatu made trading across borders faster by upgrading DB2012 Vanuatu Port-Vila’s wharf infrastructure, which increased the efficiency of port and terminal handling activities. The introduction of an electronic customs system in Brunei DB2011 Brunei Darussalam Darussalam made trading easier. Cambodia eliminated preshipment inspections, reducing the DB2011 Cambodia time and number of documents required for importing and exporting. Fiji made trading easier by opening customer care service DB2011 Fiji centers and improving customs operations. Indonesia reduced the time to export by launching a single- DB2011 Indonesia window service. The Philippines reduced the time and cost to trade by improving its electronic customs systems, adding such DB2011 Philippines functions as electronic payments and online submission of declarations. Trade credit restrictions were relaxed in response to the DB2010 China economic and financial crisis. Foreign exchange authorization is no longer required. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 70 DB Year Economy Reform Increasing competition in the logistics industry and the application of new customs administration procedures as part DB2010 Vietnam of the World Trade Organization (WTO) membership reform program have reduced trade delays. Trade was facilitated by creating a single window for customs clearance, introducing a partial system of risk management, DB2009 Mongolia and implementing post clearance audits. These changes have reduced both the time and the documents required for exporting and importing. Trade was facilitated by automating customs declarations. Traders can now submit documents by email or on a flash DB2009 Palau drive. The time required for import documentation has been reduced. The risk management and electronic data interchange system DB2009 Philippines for customs were upgraded, reducing the time to import. A new internet-based customs clearance system reduced the DB2009 Thailand number of documents that must be submitted in hard copy for imports and exports. Some border cooperation agreements have been DB2008 Lao PDR implemented which will help to reduce overall time to trade. A one-stop electronic automation stop has allowed Thailand DB2008 Thailand to drop 5 days from its import-export time. 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 EAST ASIA AND THE PACIFIC (EAP) 71 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 What do the indicators cover? the judge or court officer Doing Business measures the efficiency of the Steps to file and serve the case 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 component indicators: procedures, time and cost. Time for trial and obtaining judgment The dispute in the case study involves the breach Time to enforce the judgment 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 distinguishes the case from simple debt No bribes enforcement. To make the data comparable across Average attorney fees economies, Doing Business uses several assumptions about the case: Court costs, including expert fees • The seller and buyer are located in the Enforcement costs economy’s largest business city. • The buyer orders custom-made goods, then fails to pay. • The dispute on the quality of the goods • The seller sues the buyer before a requires an expert opinion. competent court. • The judge decides in favor of the seller; there • The value of the claim is 200% of income is no appeal. per capita. • The seller enforces the judgment through a • The seller requests a pretrial attachment to public sale of the buyer’s movable assets. secure the claim. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 72 ENFORCING CONTRACTS Where do the region’s economies stand today? How efficient is the process of resolving a commercial an answer (figure 10.1). The average ranking of the dispute through the courts in economies in East Asia region and comparator regions provide a useful and the Pacific (EAP)? The global rankings of these benchmark. economies on the ease of enforcing contracts suggest Figure 10.1 How economies in East Asia and the Pacific (EAP) rank on the ease of enforcing contracts Source: Doing Business database. The indicators underlying the rankings may also be procedures, the time and the cost (figure 10.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to enforce a contract through the courts in averages both for the region and for comparator each economy in the region: the number of regions can provide useful insights. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 73 ENFORCING CONTRACTS Figure 10.2 What it takes to enforce a contract through the courts in economies in East Asia and the Pacific (EAP) Procedures (number) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 74 ENFORCING CONTRACTS Time (days) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 75 ENFORCING CONTRACTS Cost (% of claim) Source: Doing Business database. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 76 ENFORCING CONTRACTS What are the changes over time? 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 East Asia and the introducing new technology. Lower-income economies Pacific (EAP) (table 10.1)? often work on reducing backlogs by introducing Table 10.1 How have economies in East Asia and the Pacific (EAP) made enforcing contracts easier—or not? By Doing Business report year DB Year Economy Reform Malaysia continued to improve the computerization of its DB2012 Malaysia courts by introducing a system making it possible to file complaints electronically. Reforms implemented in the civil justice system of Hong DB2011 Hong Kong SAR, China Kong SAR (China) will help increase the efficiency and cost- effectiveness of commercial dispute resolution. Timor-Leste increased court efficiency by training and DB2011 Timor-Leste appointing new judges and passing a new civil procedure code. Enforcing contracts through the courts was made easier by DB2010 Malaysia increased staff and stricter deadlines that have shortened case filing times from 45 days to 30. The specialized commercial track at the National Court of DB2010 Papua New Guinea Papua New Guinea—introduced in 2007—has become fully operational, improving contract enforcement. The rules on enforcement of judgments were tightened, DB2009 China making it harder for debtors to prevent enforcement. New reform results in judges focusing exclusively on deciding legal disputes. A magistrate called "Master" was appointed to deal with all other matters, such as assessing damages after DB2008 Fiji liability has been established. In June 2006, the High Court Rules were amended to reflect the new role and responsibilities of the Master. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 77 DB Year Economy Reform The time to enforce contracts was cut from 510 days to 350. A newly appointed chief justice introduced case management, transferring 90% of all cases - criminal, commercial and land - from paper to computer. Cases are now monitored daily DB2008 Tonga through a computerized spreadsheet system. Tonga also adopted new procedural rules for the Supreme Court and the Magistrates Court and it increased the threshold for the Magistrates Courts. 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 EAST ASIA AND THE PACIFIC (EAP) 78 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 of insolvency proceedings involving domestic Fees of insolvency administrators entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial institutions. The data are derived from survey Assessors’ and auctioneers’ fees responses by local insolvency practitioners and Other related fees verified through a study of laws and regulations as well as public information on bankruptcy systems. Recovery rate for creditors (cents on the dollar) The ranking on the ease of resolving insolvency is based on the recovery rate, which is recorded as Measures the cents on the dollar recovered cents on the dollar recouped by creditors through by creditors reorganization, liquidation or debt enforcement Present value of debt recovered (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings function of time, cost and other factors, such as are deducted lending rate and the likelihood of the company continuing to operate. Depreciation of furniture is taken into account To make the data comparable across economies, Doing Business uses several assumptions about the Outcome for the business (survival or not) business and the case. It assumes that the affects the maximum value that can be company: recovered • Is a domestically owned, limited liability company operating a hotel. • Has 201 employees, 1 main secured creditor • Operates in the economy’s largest business and 50 unsecured creditors. city. • 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 EAST ASIA AND THE PACIFIC (EAP) 79 RESOLVING INSOLVENCY Where do the region’s economies stand today? How efficient are insolvency proceedings in economies benchmark for assessing the efficiency of insolvency in East Asia and the Pacific (EAP)? The global rankings proceedings. Speed, low costs and continuation of of these economies on the ease of resolving insolvency viable businesses characterize the top-performing suggest an answer (figure 11.1). The average ranking economies. of the region and comparator regions provide a useful Figure 11.1 How economies in East Asia and the Pacific (EAP) rank on the ease of resolving insolvency Source: Doing Business database. The indicators underlying the rankings may be more Comparing these indicators across the region and with revealing. Data collected by Doing Business show the averages both for the region and for comparator average time and cost required to resolve insolvency regions can provide useful insights. as well as the average recovery rate (figure 11.2). Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 80 RESOLVING INSOLVENCY Figure 11.2 How efficient is the insolvency process in economies in East Asia and the Pacific (EAP) Time (years) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 81 RESOLVING INSOLVENCY Cost (% of estate) Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 82 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) * Indicates a “no practice� mark. See the data notes for details. Source: Doing Business database. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 83 RESOLVING INSOLVENCY What are the changes over time? A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in East Asia and the Pacific (EAP) (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How have economies in East Asia and the Pacific (EAP) made resolving insolvency easier—or not? By Doing Business report year DB Year Economy Reform Malaysia established dedicated commercial courts to handle DB2012 Malaysia foreclosure proceedings. The Philippines adopted a new insolvency law that provides a DB2012 Philippines legal framework for liquidation and reorganization of financially distressed companies. The Solomon Islands adopted a new law that simplified DB2012 Solomon Islands insolvency proceedings. Reorganization procedures were promoted by introducing DB2010 Philippines prepackaged reorganizations and regulating the receiver profession. A new corporate law and a law introducing receivership were DB2010 Samoa enacted, easing the process of closing a business. The 2007 Bankruptcy Law was adopted, its Cambodia's first ever regulating the bankruptcy of private enterprises. The law DB2009 Cambodia introduces a reorganization procedure to restructure insolvent companies. Trustees were granted more power in bankruptcy DB2009 Hong Kong SAR, China proceedings, a change expected to make the liquidation procedure more efficient. The first law regulating the bankruptcy of private enterprises since 1949 came into effect. Secured creditors with claims created after the law was passed now rank first in payment priority, even over tax and new wage claims. A DB2008 China reorganiza­tion procedure for restructuring insolvent companies was also introduced. Finally, the law introduced provisions for bankruptcy administrators, creditors' committees. 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 EAST ASIA AND THE PACIFIC (EAP) 84 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the protection of property rights—and their effect on ECONOMY CHARACTERISTICS businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of regulation, such as the number of procedures to start a Gross national income (GNI) per capita business or to register and transfer commercial property. Second, they gauge the time and cost of Doing Business 2012 reports 2010 income per capita achieving a regulatory goal or complying with as published in the World Bank’s World regulation, such as the time and cost to enforce a Development Indicators 2011. Income is calculated contract, go through bankruptcy or trade across using the Atlas method (current US$). For cost borders. Third, they measure the extent of legal indicators expressed as a percentage of income per protections of property, for example, the protections capita, 2010 GNI in U.S. dollars is used as the of investors against looting by company directors or denominator. Data were not available from the the range of assets that can be used as collateral World Bank for Afghanistan; Australia; The Bahamas; according to secured transactions laws. Fourth, a set of Bahrain; Brunei Darussalam; Canada; Cyprus; indicators documents the tax burden on businesses. Djibouti; the Islamic Republic of Iran; Kuwait; New Finally, a set of data covers different aspects of Zealand; Oman; Puerto Rico (territory of the United employment regulation. States); Qatar; Saudi Arabia; Suriname; Taiwan, China; the United Arab Emirates; West Bank and The data for all sets of indicators in Doing Business Gaza; and the Republic of Yemen. In these cases 3 2012 are for June 2011. GDP or GNP per capita data and growth rates from the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Methodology Unit were used. The Doing Business data are collected in a standardized way. To start, the Doing Business team, Region and income group with academic advisers, designs a questionnaire. The Doing Business uses the World Bank regional and questionnaire uses a simple business case to ensure income group classifications, available at comparability across economies and over time—with http://www.worldbank.org/data/countryclass. The assumptions about the legal form of the business, its World Bank does not assign regional classifications size, its location and the nature of its operations. to high-income economies. For the purpose of the Questionnaires are administered through more than Doing Business report, high-income OECD 9,028 local experts, including lawyers, business economies are assigned the “regional� classification consultants, accountants, freight forwarders, OECD high income. Figures and tables presenting government officials and other professionals routinely regional averages include economies from all administering or advising on legal and regulatory income groups (low, lower middle, upper middle requirements. These experts have several rounds of and high income). interaction with the Doing Business team, involving conference calls, written correspondence and visits by Population the team. For Doing Business 2012 team members Doing Business 2012 reports midyear 2010 visited 40 economies to verify data and recruit population statistics as published in World respondents. The data from questionnaires are Development Indicators 2011. subjected to numerous rounds of verification, leading to revisions or expansions of the information collected. 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 85 The Doing Business methodology offers several business lacks information or is unable to follow up advantages. It is transparent, using factual information promptly. Alternatively, the business may choose to about what laws and regulations say and allowing disregard some burdensome procedures. For both multiple interactions with local respondents to clarify reasons the time delays reported in Doing Business potential misinterpretations of questions. Having 2012 would differ from the recollection of representative samples of respondents is not an issue; entrepreneurs reported in the World Bank Enterprise Doing Business is not a statistical survey, and the texts Surveys or other perception surveys. of the relevant laws and regulations are collected and answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be Subnational Doing Business indicators collected in a large sample of economies. Because This year Doing Business published a subnational study standard assumptions are used in the data collection, for the Philippines and a regional report for Southeast comparisons and benchmarks are valid across Europe covering 7 economies (Albania, Bosnia and economies. Finally, the data not only highlight the Herzegovina, Kosovo, the former Yugoslav Republic of extent of specific regulatory obstacles to business but Macedonia, Moldova, Montenegro and Serbia) and 22 also identify their source and point to what might be cities. It also published a city profile for Juba, in the reformed. Republic of South Sudan. Information on the methodology for each Doing The subnational studies point to differences in Business topic can be found on the Doing Business business regulation and its implementation—as well as website at http://www.doingbusiness.org/methodology/. in the pace of regulatory reform—across cities in the same economy. For several economies subnational studies are now periodically updated to measure Limits to what is measured change over time or to expand geographic coverage The Doing Business methodology has 5 limitations that to additional cities. This year that is the case for the should be considered when interpreting the data. First, subnational studies in the Philippines; the regional the collected data refer to businesses in the economy’s report in Southeast Europe; the ongoing studies in largest business city and may not be representative of Italy, Kenya and the United Arab Emirates; and the regulation in other parts of the economy. To address projects implemented jointly with local think tanks in this limitation, subnational Doing Business indicators Indonesia, Mexico and the Russian Federation. were created (see the section on subnational Doing Besides the subnational Doing Business indicators, Business indicators). Second, the data often focus on a Doing Business conducted a pilot study this year on specific business form—generally a limited liability the second largest city in 3 large economies to assess company (or its legal equivalent) of a specified size— within-country variations. The study collected data for and may not be representative of the regulation on Rio de Janeiro in addition to São Paulo in Brazil, for other businesses, for example, sole proprietorships. Beijing in addition to Shanghai in China and for St. Third, transactions described in a standardized case Petersburg in addition to Moscow in Russia. scenario refer to a specific set of issues and may not represent the full set of issues a business encounters. Fourth, the measures of time involve an element of Changes in what is measured judgment by the expert respondents. When sources indicate different estimates, the time indicators The methodology for 3 of the Doing Business topics reported in Doing Business represent the median was updated this year—getting credit, dealing with values of several responses given under the construction permits and paying taxes. assumptions of the standardized case. First, for getting credit, the scoring of one of the 10 Finally, the methodology assumes that a business has components of the strength of legal rights index was full information on what is required and does not amended to recognize additional protections of waste time when completing procedures. In practice, secured creditors and borrowers. Previously the completing a procedure may take longer if the highest score of 1 was assigned if secured creditors Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 86 were not subject to an automatic stay or moratorium business and a new measure, the “distance to frontier.� on enforcement procedures when a debtor entered a While the ease of doing business ranking compares court-supervised reorganization procedure. Now the economies with one another at a point in time, the highest score of 1 is also assigned if the law provides distance to frontier measure shows how much the secured creditors with grounds for relief from an regulatory environment for local entrepreneurs in each automatic stay or moratorium (for example, if the economy has changed over time. movable property is in danger) or sets a time limit for Ease of doing business the automatic stay. The ease of doing business index ranks economies Second, because the ease of doing business index now from 1 to 183. For each economy the ranking is includes the getting electricity indicators, procedures, calculated as the simple average of the percentile time and cost related to obtaining an electricity rankings on each of the 10 topics included in the index connection were removed from the dealing with in Doing Business 2012: starting a business, dealing construction permits indicators. with construction permits, registering property, getting Third, a threshold has been introduced for the total tax credit, protecting investors, paying taxes, trading rate for the purpose of calculating the ranking on the across borders, enforcing contracts, resolving ease of paying taxes. All economies with a total tax insolvency and, new this year, getting electricity. The rate below the threshold (which will be calculated and employing workers indicators are not included in this adjusted on a yearly basis) will now receive the same year’s aggregate ease of doing business ranking. In ranking on the total tax rate indicator. The threshold is addition to this year’s ranking, Doing Business presents not based on any underlying theory. Instead, it is a comparable ranking for the previous year, adjusted meant to emphasize the purpose of the indicator: to for any changes in methodology as well as additions of 4 highlight economies where the tax burden on business economies or topics. is high relative to the tax burden in other economies. Construction of the ease of doing business index Giving the same ranking to all economies whose total tax rate is below the threshold avoids awarding Here is one example of how the ease of doing business economies in the scoring for having an unusually low index is constructed. In the Republic of Korea it takes 5 total tax rate, often for reasons unrelated to procedures, 7 days and 14.6% of annual income per government policies toward enterprises. For example, capita in fees to open a business. There is no minimum economies that are very small or that are rich in capital required. On these 4 indicators Korea ranks in th th rd natural resources do not need to levy broad-based the 18 , 14 , 53 and 0 percentiles. So on average st taxes. Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on th th getting credit, 25 percentile on paying taxes, 8 Data challenges and revisions th percentile on enforcing contracts, 7 percentile on resolving insolvency and so on. Higher rankings Most laws and regulations underlying the Doing indicate simpler regulation and stronger protection of Business data are available on the Doing Business property rights. The simple average of Korea’s website at http://www.doingbusiness.org. All the st percentile rankings on all topics is 21 . When all sample questionnaires and the details underlying the economies are ordered by their average percentile indicators are also published on the website. Questions on the methodology and challenges to data can be submitted through the website’s “Ask a Question� 4 In case of revisions to the methodology or corrections to the function at http://www.doingbusiness.org. underlying data, the data are back-calculated to provide a comparable time series since the year the relevant economy or topic was first included in the data set. The time series is available on the Ease of doing business and distance to Doing Business website (http://www.doingbusiness.org). The Doing Business report publishes yearly rankings for the year of publication frontier as well as the previous year to shed light on year-to-year developments. Six topics and more than 50 economies have been This year’s report presents results for 2 aggregate added since the inception of the project. Earlier rankings on the measures: the aggregate ranking on the ease of doing ease of doing business are therefore not comparable. Doing Business 2012 EAST ASIA AND THE PACIFIC (EAP) 87 rankings, Korea stands at 8 in the aggregate ranking investors). These correlations suggest that economies on the ease of doing business. rarely score universally well or universally badly on the indicators. More complex aggregation methods—such as principal components and unobserved components— Consider the example of Canada. It stands at 12 in the yield a ranking nearly identical to the simple average aggregate ranking on the ease of doing business. Its 5 used by Doing Business. Thus, Doing Business uses ranking is 3 on both starting a business and resolving the simplest method: weighting all topics equally and, insolvency, and 5 on protecting investors. But its within each topic, giving equal weight to each of the ranking is only 59 on enforcing contracts, 42 on 6 topic components. trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a Variation in performance across the indicator sets is specific area—for example, insolvency—it receives a not at all unusual. It reflects differences in the degree “no practice� mark. Similarly, an economy receives a of priority that government authorities give to “no practice� or “not possible� mark if regulation exists particular areas of business regulation reform and the but is never used in practice or if a competing ability of different government agencies to deliver regulation prohibits such practice. Either way, a “no tangible results in their area of responsibility. practice� mark puts the economy at the bottom of the Economies that improved the most across 3 or more ranking on the relevant indicator. Doing Business topics in 2010/11 The ease of doing business index is limited in scope. It Doing Business 2012 uses a simple method to calculate does not account for an economy’s proximity to large which economies improved the most in the ease of markets, the quality of its infrastructure services (other doing business. First, it selects the economies that in than services related to trading across borders and 2010/11 implemented regulatory reforms making it getting electricity), the strength of its financial system, easier to do business in 3 or more of the 10 topics the security of property from theft and looting, its 7 included in this year’s ease of doing business ranking. macroeconomic conditions or the strength of Thirty economies meet this criterion: Armenia, Burkina underlying institutions. Faso, Burundi, Cape Verde, the Central African Variability of economies’ rankings across topics Republic, Chile, Colombia, the Democratic Republic of Congo, Côte d’Ivoire, The Gambia, Georgia, Korea, Each indicator set measures a different aspect of the Latvia, Liberia, FYR Macedonia, Mexico, Moldova, business regulatory environment. The rankings of an Montenegro, Morocco, Nicaragua, Oman, Peru, economy can vary, sometimes significantly, across Russian Federation, São Tomé and Príncipe, Senegal, indicator sets. The average correlation coefficient Sierra Leone, Slovenia, the Solomon Islands, South between the 10 indicator sets included in the Africa and Ukraine. Second, Doing Business ranks these aggregate ranking is 0.36, and the coefficients economies on the increase in their ranking on the ease between any 2 sets of indicators range from 0.17 of doing business from the previous year using (between protecting investors and getting electricity) comparable rankings. to 0.57 (between starting a business and protecting Selecting the economies that implemented regulatory 5 reforms in at least 3 topics and improved the most in See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to the aggregate ranking is intended to highlight Do It� (World Bank, Washington, DC, 2005). Principal components economies with ongoing, broad-based reform and unobserved components methods yield a ranking nearly programs. identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less importance in the context of a specific economy. 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 EAST ASIA AND THE PACIFIC (EAP) 88 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/