65474 Economy Profile: Sri Lanka © 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 Sri Lanka 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 34 Registering property .................................................................................................................. 40 Getting credit .............................................................................................................................. 50 Protecting investors ................................................................................................................... 57 Paying taxes ................................................................................................................................ 67 Trading across borders .............................................................................................................. 75 Enforcing contracts .................................................................................................................... 84 Resolving insolvency .................................................................................................................. 91 Data notes ................................................................................................................................... 97 Resources on the Doing Business website ............................................................................ 102 Doing Business 2012 Sri Lanka 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2010). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 10 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts and transparency of government procurement, resolving insolvency. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 183 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 32 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 18 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2012 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and indicators for Sri Lanka. To allow useful comparison, it recommends regulatory reforms. The data, along with also provides data for other selected economies information on ordering Doing Business 2012, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2011 (except for http://www.doingbusiness.org. Doing Business 2012 Sri Lanka 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: South Asia business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Lower middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 183 by the ease of Population: 20,451,826 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 2,290.00 percentile rankings on each of the 10 topics included in the index in Doing Business 2012: starting a business, DB2012 rank: 89 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2011 rank: 98 investors, paying taxes, trading across borders, Change in rank: 9 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see Note: See the data notes for sources and the data notes for more details). 1 definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 Sri Lanka 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2012 Sri Lanka 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy the regional average (figure 1.2). The economy’s stands in the aggregate ranking on the ease of doing rankings on the topics included in the ease of doing business is useful. Also useful is to know how it ranks business index provide another perspective (figure compared with other economies and compared with 1.3). Figure 1.2 How Sri Lanka and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2012 Sri Lanka 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Sri Lanka ranks on Doing Business topics Source: Doing Business database. Doing Business 2012 Sri Lanka 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing This measure shows the distance of each economy to business tells only part of the story, so do changes in the ―frontier,‖ a synthetic measure based on the most that ranking. Yearly movements in rankings can efficient practice or highest score observed for each provide some indication of changes in an economy’s Doing Business indicator across all economies and regulatory environment for firms, but they are always years included in the Doing Business sample since relative. An economy’s ranking might change because 2005. Nine areas of business regulation are covered. of developments in other economies. An economy that Comparing the measure for an economy at 2 points in implemented business regulation reforms may fail to time allows users to assess how much the economy’s rise in the rankings (or may even drop) if it is passed regulatory environment as measured by Doing by others whose business regulation reforms had a Business has changed over time—how far it has moved more significant impact as measured by Doing toward (or away from) the most efficient practices and Business. strongest regulations in areas covered by Doing Moreover, year-to-year changes in the overall rankings Business (figure 1.4). The results may show that the do not reflect how the business regulatory pace of change varies widely across the areas environment in an economy has changed over time— measured. They also may show that an economy is or how it has changed in different areas. To aid in relatively close to the frontier in some areas and assessing such changes, Doing Business 2012 relatively far from it in others. introduces the distance to frontier measure. Figure 1.4 How far has Sri Lanka come in the areas measured by Doing Business? Distance to frontier, 2005 and 2011 Note: For economies added to the Doing Business sample after 2005, the starting point is the year in which they were added: 2006 for Montenegro; 2007 for Brunei Darussalam, Liberia and Luxembourg; 2008 for The Bahamas, Bahrain and Qatar; and 2009 for Cyprus and Kosovo. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2012 Sri Lanka 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Sri Lanka Best performer globally Afghanistan DB2012 Bangladesh DB2012 Sri Lanka DB2012 Sri Lanka DB2011 Maldives DB2012 Pakistan DB2012 Indicator Nepal DB2012 India DB2012 DB2012 Starting a Business 38 35 30 86 166 59 100 90 New Zealand (1) (rank) Procedures (number) 4 4 4 7 12 5 7 10 Canada (1)* Time (days) 35 35 7 19 29 9 29 21 New Zealand (1) Cost (% of income per 4.7 5.4 25.8 30.6 46.8 8.9 37.4 11.2 Denmark (0.0)* capita) Paid-in Min. Capital (% 0.0 0.0 0.0 0.0 149.6 3.5 0.0 0.0 82 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 111 110 162 82 181 20 140 104 China (1) (rank) Procedures (number) 18 18 12 11 34 8 13 11 Denmark (5) Time (days) 217 217 334 201 227 174 222 222 Singapore (26)* Cost (% of income per 40.6 46.8 4876.4 154.5 1631.4 12.7 753.3 262.5 Qatar (1.1) capita) Doing Business 2012 Sri Lanka 11 Best performer globally Afghanistan DB2012 Bangladesh DB2012 Sri Lanka DB2012 Sri Lanka DB2011 Maldives DB2012 Pakistan DB2012 Indicator Nepal DB2012 India DB2012 DB2012 Getting Electricity (rank) 95 97 104 182 98 132 99 166 Iceland (1) Procedures (number) 4 4 4 7 7 6 5 6 Germany (3)* Time (days) 132 132 109 372 67 101 70 206 Germany (17) Cost (% of income per 1191.8 1381.4 3956.8 3526.1 216.2 708.8 1995.8 1346.0 Japan (0.0) capita) Registering Property 161 158 172 173 97 152 24 125 New Zealand (3) (rank) Procedures (number) 8 8 9 8 5 6 3 6 Portugal (1)* Time (days) 83 83 250 245 44 57 5 50 Portugal (1) Cost (% of property 5.1 5.1 5.0 6.6 7.3 16.7 5.0 7.7 Slovak Republic (0.0) value) Getting Credit (rank) 78 75 150 78 40 166 67 67 United Kingdom (1)* Strength of legal rights 4 4 6 7 8 4 7 6 New Zealand (10)* index (0-10) Depth of credit 5 5 0 2 4 0 3 4 Japan (6)* information index (0-6) Public registry coverage 0.0 0.0 0.0 0.6 0.0 0.0 0.0 6.9 Portugal (86.2) (% of adults) Private bureau coverage 29.4 18.6 0.0 0.0 15.1 0.0 0.3 2.0 New Zealand (100.0)* (% of adults) Protecting Investors 46 74 183 24 46 79 79 29 New Zealand (1) (rank) Extent of disclosure 6 4 1 6 7 0 6 6 France (10)* index (0-10) Doing Business 2012 Sri Lanka 12 Best performer globally Afghanistan DB2012 Bangladesh DB2012 Sri Lanka DB2012 Sri Lanka DB2011 Maldives DB2012 Pakistan DB2012 Indicator Nepal DB2012 India DB2012 DB2012 Extent of director 5 5 1 7 4 8 1 6 Singapore (9)* liability index (0-10) Ease of shareholder suits 7 7 1 7 7 8 9 7 New Zealand (10)* index (0-10) Strength of investor 6.0 5.3 1.0 6.7 6.0 5.3 5.3 6.3 New Zealand (9.7) protection index (0-10) Paying Taxes (rank) 173 171 63 100 147 1 86 158 Canada (8) Payments (number per 71 71 8 21 33 3 34 47 Norway (4) year) Time (hours per year) 256 256 275 302 254 0 326 560 Luxembourg (59) Trading Across Borders 53 53 179 115 109 137 162 75 Singapore (1) (rank) Documents to export 6 6 10 6 8 8 9 7 France (2) (number) Hong Kong SAR, Time to export (days) 21 21 74 25 16 21 41 21 China (5)* Cost to export (US$ per 715 715 3545 965 1095 1550 1960 660 Malaysia (450) container) Documents to import 6 6 10 8 9 9 9 8 France (2) (number) Time to import (days) 19 19 77 31 20 22 35 18 Singapore (4) Cost to import (US$ per 745 745 3830 1370 1070 1526 2095 705 Malaysia (435) container) Enforcing Contracts 136 136 161 180 182 92 137 154 Luxembourg (1) (rank) Doing Business 2012 Sri Lanka 13 Best performer globally Afghanistan DB2012 Bangladesh DB2012 Sri Lanka DB2012 Sri Lanka DB2011 Maldives DB2012 Pakistan DB2012 Indicator Nepal DB2012 India DB2012 DB2012 Time (days) 1318 1318 1642 1442 1420 665 910 976 Singapore (150) Cost (% of claim) 22.8 22.8 25.0 63.3 39.6 16.5 26.8 23.8 Bhutan (0.1) Procedures (number) 40 40 47 41 46 41 39 46 Ireland (21)* Resolving Insolvency 42 44 105 107 128 41 112 74 Japan (1) (rank) Time (years) 1.7 1.7 2.0 4.0 7.0 1.5 5.0 2.8 Ireland (0.4) Cost (% of estate) 5 5 25 8 9 4 9 4 Singapore (1)* Recovery rate (cents on 48.3 47.0 26.5 25.8 20.1 50.4 24.5 36.4 Japan (92.7) the dollar) Note: The methodology for the paying taxes indicators changed in Doing Business 2012; see the data notes for details. For these indicators, the best performer globally is the economy that has implemented the most efficient practices in its tax system and is not necessarily the one with the highest ranking. For more information on “no practice� marks, see the data notes for details. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2012 Sri Lanka 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures that are officially required or commonly received done in practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that all government and nongovernment entities involved in the process  Has a turnover of at least 100 times income per capita. function without corruption. And it assumes that the business:  Does not qualify for any special benefits.  Is a limited liability company, located in the  Does not own real estate. largest business city.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2012 Sri Lanka 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Sri Lanka? costs 4.7% of income per capita and requires paid-in According to data collected by Doing Business, starting minimum capital of 0.0% of income per capita (figure a business there requires 4 procedures, takes 35 days, 2.1). Figure 2.1 What it takes to start a business in Sri Lanka Paid-in minimum capital (% of income per capita): 0.0 Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Sri Lanka 16 STARTING A BUSINESS Globally, Sri Lanka stands at 38 in the ranking of 183 regional average ranking provide other useful economies on the ease of starting a business (figure information for assessing how easy it is for an 2.2). The rankings for comparator economies and the entrepreneur in Sri Lanka to start a business. Figure 2.2 How Sri Lanka and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2012 Sri Lanka 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 2.1). easy (or difficult) it is to start a business in Sri Lanka That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 2.1 The ease of starting a business in Sri Lanka over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 35 38 Procedures (number) 8 8 8 8 5 4 4 4 4 Time (days) 58 50 50 50 39 38 38 35 35 Cost (% of income per 12.3 10.7 10.4 9.2 8.5 7.1 5.9 5.4 4.7 capita) Paid-in Min. Capital (% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 of income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Sri Lanka 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by Sri Lanka on ways to improve the ease of starting a the economies that today have the best performance business. And changes in regional averages can show regionally or globally on the procedures, time, cost or where Sri Lanka is keeping up—and where it is falling paid-in minimum capital required to start a business behind. (figure 2.3). These economies may provide a model for Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2012 Sri Lanka 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In the case of paid-in minimum capital, 82 economies globally and 6 economies in South Asia have no paid-in minimum capital. Source: Doing Business database. Doing Business 2012 Sri Lanka 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Sri Lanka (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has Sri Lanka made starting a business easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Sri Lanka 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Sri Lanka is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Colombo firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Private Limited Liability Company professionals and the study of laws, regulations and Start-up capital: 10 times GNI per capita publicly available information on business entry in that economy. Following is a detailed summary of Paid-in minimum capital (% of income per those procedures, along with the associated time capita): 0.0 and cost. These procedures are those that apply to a company matching the standard assumptions (the ―standardized company‖) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Sri Lanka—and the time and cost Time to No. Procedure Cost to complete complete Apply for approval name 1 2 days LKR 350 + 12% VAT The reservation is valid for 3 months. Register at the Companies Registry A company may draft or adopt the standard set of articles of association in Table A of the Companies Act of Sri Lanka. Professional charges are higher for drafting new articles of association than for adopting the standard articles. The articles of association must be submitted in duplicate to the LKR 8500+ 12% VAT Registrar of Companies with the balance of documents for incorporation. No prior approval from the Registrar General of for registration fee Companies is required for the articles of association. According to the (form 1) + LKR 350 + 2 new Companies Act, notary publics are no longer required to witness 2 days 12% VAT for each of the signing of the articles of association. the forms: 18, 19 and the articles of A flat fee of LKR 8500 as the registration fee for Form 1, and LKR 350 + association 12% VAT is charged of the other two forms 18 and 19 and the articles of association. The certificate of incorporation will be received in about 3 days. Under the new Companies Act, it is no longer required to confirm the principal directors and the situation of the registered office of the company within 14 days of incorporation. Moreover, the common seal was rendered optional. Doing Business 2012 Sri Lanka 22 Time to No. Procedure Cost to complete complete Register with tax authorities to obtain a TIN The applicant or an authorized representative of the applicant must be physically present at the Inland Revenue Department to pick up and complete the application for a TIN number. The taxpayer identification 1 day no charge 3 number (TIN) and the VAT registration number (temporary) can be obtained in a day. To obtain permanent VAT registration, the applicant must submit documents proving turnover of LKR 500,000 over 3 months. This is done along with income tax registration. The procedure takes 1–3 days. Register with Department of Labor to obtain EPF and ETF registration Companies must register with two funds, the Employees Provident Fund (EPF) and the Employees Trust Fund (ETF). Both funds are government- owned and maintained by the Central Bank. To register with these funds, the employer must visit the Ministry of Labor and complete relevant forms. Companies must also pay gratuities to employees that 1 day to file and have been employed for more than 5 years. The gratuity provisions do approximately one 4 not apply to companies that have fewer than 15 employees. There is no month for the ETF no charge pension scheme for private sector employees. Businesses that engage and EPF numbers to in activities of a dangerous nature should obtain special Factories be issued Ordinance checkups. The issuance of ETF and EPF numbers may sometimes take 4–6 months. However, a number is assigned to the company upon application. Accordingly, the company has fulfilled its obligation and may remit monies to the department for ETF and EPF registration under the assigned number. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Sri Lanka 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes  Is a limited liability company operating in  Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The  Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long.  Has 60 builders and other employees.  Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring  Is a new construction (there was no special conditions). previous construction on the land).  Will take 30 weeks to construct (excluding all  Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2012 Sri Lanka 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 18 procedures, takes 217 days build a warehouse in Sri Lanka? According to data and costs 40.6% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in Sri Lanka Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Sri Lanka 25 DEALING WITH CONSTRUCTION PERMITS Globally, Sri Lanka stands at 111 in the ranking of 183 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Sri Lanka to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Sri Lanka and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2012 Sri Lanka 26 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how of the process have changed—and which have not easy (or difficult) it is to deal with construction permits (table 3.1). That can help identify where the potential in Sri Lanka today, data over time show which aspects for improvement is greatest. Table 3.1 The ease of dealing with construction permits in Sri Lanka over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 110 111 Procedures (number) 18 18 18 17 18 18 18 Time (days) 217 217 217 216 217 217 217 Cost (% of income per 79.9 67.3 59.2 63.4 51.1 46.8 40.6 capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Sri Lanka 27 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by on ways to improve the ease of dealing with the economies that today have the best performance construction permits. And changes in regional regionally or globally on the procedures, time or cost averages can show where Sri Lanka is keeping up—and required to deal with construction permits (figure 3.3). where it is falling behind. These economies may provide a model for Sri Lanka Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2012 Sri Lanka 28 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Sri Lanka 29 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Sri Lanka (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has Sri Lanka made dealing with construction permits easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 The government made getting construction permits more difficult by increasing fees and adding a procedure. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Sri Lanka 30 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Sri Lanka are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : Colombo information collected from experts in construction licensing, including architects, construction Estimated lawyers, construction firms, utility service providers LKR 27,500,000 Warehouse Value : and public officials who deal with building regulations. These procedures are those that apply The procedures, along with the associated time and to a company and structure matching the standard cost, are summarized below. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Sri Lanka —and the time and cost Time to No. Procedure Cost to complete complete Obtain clearance issued by Municipal Treasurer An application for a permit to engage in development activity is not 1 processed until all outstanding taxes, as assessed by the Colombo 2 days LKR 5,000 Municipal Council, have been paid and a clearance has been obtained to that effect. Additional clearances may be required, depending on the case, from Department of Health, Fire and the City Planning Division. Submit development permit application to Municipal Council of Colombo (CMC) 1 day no charge 2 Receive on-site inspection from Municipal Council of Colombo (CMC) 3 1 day LKR 496 The applicant normally provides transportation or is responsible for the cost of a taxi or a trishaw. The cost depends on the location, but does not normally exceed USD 10. Receive on-site inspection from fire department and obtain fire safety requirements for proposed building The Fire Department will carry out the inspection when the relevant 4 department of the CMC sends the plan. The officers of the Fire 14 days LKR 188 Department will carry out a study of the plan and then may conduct a fire inspection and issue fire requirements. It takes 10 working days to obtain a fire inspection. The LKR 188 is for the application fee, because the inspection itself is carried out at no charge. * Obtain Defense clearance issued by Ministry of Defense 5 14 days no charge Projects of all sizes have to obtain defence clearance from the Ministry of Defense. Application is submitted to an officer in the Ministry, which Doing Business 2012 Sri Lanka 31 Time to No. Procedure Cost to complete complete is then transferred to respective department for a review on security matters. There is no official fee for this procedure. Obtain development permit (building permit) from Municipal Council of Colombo (CMC) An application for a building permit must be submitted along with five copies of the building plan. The following are the internal steps involved in the issuance of the development permit: - The Water Supply and Drainage Department of the Municipal Council of Colombo (CMC) marks the drainage and water lines on the proposed plan and issues the water and drainage clearance. - The Fire Service Department of the CMC issues the fire report with or without conditions. - The Building Department of the CMC issues the street line confirmation. An on-site inspection is conducted by an area inspector of the CMC and a report is prepared based on the investigations. - The inspector’s report is assessed by a technical staff assistant and then by a planning officer or building engineer, and presented to the Planning Committee with comments and recommendations. - The Planning Committee may approve the building plan and grant the development permit with or without conditions. - The street/building lines must be demarcated on the ground, before 6 the commencement of construction. 75 days LKR 10,505 The building permit application form costs SLR 150. If the floor area is more than 3,500 square feet, the application should be certified by an architect and a chartered engineer. The following documents are needed: - A certificate from a qualified civil structural engineer regarding the design, supervision, and structural stability of the proposed development in order to ensure that no damage would be caused to adjoining properties. - An insurance policy and a letter of indemnity. As of December 2007 the Municipal Council of Colombo introduced a new development tax at the rate of 5% of project value. However, massive protests from private sector made authorities reduce it to 1%. The purpose of this tax is to supplement the development of aging infrastructure and build new housing for poor. Twenty percent of this amount will be paid at the time of obtaining the building permit and the rest of balance paid at the time of obtaining the occupancy permit. Request and receive water inspection 7 1 day LKR 496 Obtain water sanction from Water and Drainage Department of the CMC 8 The water sanction must be obtained before installation of permanent 14 days no charge fittings. The following documents must be submitted: - The prescribed application form. - A copy of the approved building plan. Doing Business 2012 Sri Lanka 32 Time to No. Procedure Cost to complete complete - A copy of the development permit. - A copy of any previous water bills, if applicable. - Any receipt or notice issued by the local authority, to confirm the assessment number. - A receipt of tax payment. Request and receive sewage inspection 9 1 day LKR 496 Obtain drainage certificate from Water and Drainage Department of the Municipal Council of Colombo (CMC) The following documents must be submitted to obtain a drainage certificate: - The prescribed application form, signed in duplicate. - Six copies of the approved building plan. 14 days LKR 24,380 10 - The water and drainage plans. - Two copies of the development permit. - A copy of the water sanction. All applications for drainage certificates must be submitted by a contractor registered with the local authority, and the drainage connection should be carried out by such contractor. Request and receive on-site inspection by area inspector of the planning department of the Municipal Council of Colombo (CMC) to check the conformity of the warehouse to the development 1 day LKR 500 11 permit Request and receive on-site inspection by fire inspector 12 1 day LKR 496 Obtain certificate of conformity from Municipal Council of Colombo The application to obtain a certificate of conformity must be signed by the owner(s) and a qualified person. The certificate of conformity is issued only under the names of the owners. To obtain a certificate of conformity, an application must be submitted with the following documents: - Drainage certificate. - Approved building plan: the building plan should be strictly in 13 compliance with the Building Regulations of the Urban Development 42 days LKR 22,575 Authority Act. - On-site inspection by an area inspector of the Planning Department of the CMC to ensure that construction has been completed according to the approved plan. - On-site inspection by a fire inspector. The inspector’s report is then assessed by a technical staff assistant and by a planning officer or building engineer, and presented to the Planning Committee. - A certificate approving the mechanical ventilation system. - Any other certificates mentioned in the development permit. Doing Business 2012 Sri Lanka 33 Time to No. Procedure Cost to complete complete Planning Committee issues the certificate of conformity if the construction complies with the approved plan. The architect and the structural engineer should sign the certificate of conformity. The remaining balance of 1% of development tax must be paid before obtaining the occupancy permit is issued. Apply for water connection 14 1 day no charge Receive on-site inspection by inspector from National Water Supply and Drainage Board 1 day no charge 15 * Obtain water connection To obtain the water connection, BuildCo must submit an application to the National Water Supply and Drainage Board, Assessment Notice, title deed and ownership certificate. After that receive an on-site 32 days LKR 31,000 16 inspection, pay water installation costs, and sign an agreement with the board. The company must also obtain a road permit if there is damage to the road in installing the water connection. This permit is issued by the Municipal Council of Colombo. It takes 7 days to obtain, and the costs depend on the damage to the road. Apply for phone connection 17 1 day no charge Documents to be presented: Company certificate of incorporation; billing proof at current location. * Obtain phone connection 18 To obtain telephone connection, the company must submit an 14 days LKR 13,773 application to Sri Lanka Telecom along with water/sewage billing proof, receive an on-site inspection, and pay telephone installation costs. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Sri Lanka 34 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  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 overhead  Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer’s private domain is feet). negligible. The electricity connection:  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 Sri Lanka 35 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 132 days and costs 1191.8% of connection in Sri Lanka? According to data collected income per capita (figure 4.1). by Doing Business, getting electricity there requires 4 Figure 4.1 What it takes to obtain an electricity connection in Sri Lanka Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Sri Lanka 36 GETTING ELECTRICITY Globally, Sri Lanka stands at 95 in the ranking of 183 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in Sri 4.2). The rankings for comparator economies and the Lanka to connect a warehouse to electricity. Figure 4.2 How Sri Lanka and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2012 Sri Lanka 37 GETTING ELECTRICITY Even more helpful than rankings for other economies economies, the practices of their utilities may provide a may be the indicators underlying those rankings (table model for Sri Lanka on ways to improve the ease of 4.1). If obtaining a new electricity connection requires getting electricity. Regional and global averages on fewer procedures, less time or less cost in other these indicators may provide useful benchmarks. Table 4.1 The ease of getting electricity in Sri Lanka and comparator economies Global average Afghanistan Bangladesh South Asia Sri Lanka Maldives Pakistan average Nepal India Indicator Rank 95 104 182 98 132 99 166 127 .. Procedures (number) 4 4 7 7 6 5 6 6 5 Time (days) 132 109 372 67 101 70 206 145 111 Cost (% of income per capita) 1191.8 3956.8 3526.1 216.2 708.8 1995.8 1346.0 1,775.9 1,942.3 Source: Doing Business database. Doing Business 2012 Sri Lanka 38 GETTING ELECTRICITY What are the details? The indicators reported here for Sri Lanka are based on OBTAINING AN ELECTRICITY CONNECTION a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Colombo utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: Ceylon Electricity Board verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Sri Lanka—and the time and cost Time to No. Procedure Cost to complete complete Submit application to Ceylon Electricity Board and await external site inspection An application cannot be submitted online. An application form issued by the relevant Authority (Ceylon Electricity Board - CEB ) should be submitted to the Bulk Supply Unit of CEB , together with (i) a copy of the 14 calendar days LKR 2,000.0 1 Approved Building Plan, (ii) documentary evidence (Certificate of Ownership, Statutory Notice of Assessment for the current year, Non- vesting Certificate or a Writing issued by the CMCl) to establish the assessment number allotted to the property by the CMC and (iii) a copy of the Certificate of Incorporation. These documents need not be notarized. Ceylon Electricity Board conducts site inspection and provides estimate to customer 2 37 calendar days no charge Utility engineer visits site to ascertain the distance from nearest supply point, and to estimate total cost of construction works. Request and receive Internal wiring inspection from Colombo Municipal Commission. The request for internal wiring inspection from the Colombo Municipal 14 calendar days LKR 15,000.0 3 Commission in person. Applicant has to submit only the building plan (COC) approved by CMC. This inspection is carried out by a Chartered Electrical Engineer, who is registered with the City Office of CEB. Request for the inspection could be made by phone. Customer signs supply contract with Ceylon Electricity Board, and 4 Ceylon Electricity Board conducts external connection works, installs 67 calendar days LKR 3,205,852.5 the meter and electricity starts flowing Doing Business 2012 Sri Lanka 39 Time to No. Procedure Cost to complete complete The security (meter) deposit is refundable on the disconnection of the electricity supply. Labour costs are charged by the CMC for laying cables, excavation and reinstatement works on Municipal Roads. Construction cost is essentially for construction of sub-station. This amount has to be submitted to the CEB. Approved building plan from CMC is sufficient from applicant's side. But CEB has to get approval from following institutes (before cable laying);- Presidential Security Division; Traffic Police; Sri Lanka Police; Colombo Municipal Council. All the material needed for the external connection is provided by the CEB. Meter is installed by the Construction Unit of the CEB and at the same time the connection is provided by the Area Unit of the CEB. Prior to the connection, the applicant should enter into an Agreement with the CEB for supply of electricity. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Sri Lanka 40 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned.  Are located in the periurban area of the economy’s largest business city.  Has no mortgages attached and has been under the same ownership for the past 10  Have 50 employees each, all of whom are years. nationals.  Consists of 557.4 square meters (6,000 square  Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal  Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2012 Sri Lanka 41 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 83 days and costs 5.1% of the Sri Lanka? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 8 Figure 5.1 What it takes to register property in Sri Lanka Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Sri Lanka 42 REGISTERING PROPERTY Globally, Sri Lanka stands at 161 in the ranking of 183 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Sri Lanka to transfer property. Figure 5.2 How Sri Lanka and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2012 Sri Lanka 43 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 5.1). easy (or difficult) it is to register property in Sri Lanka That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 5.1 The ease of registering property in Sri Lanka over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 158 161 Procedures (number) 8 8 8 8 8 8 8 8 Time (days) 83 83 83 83 83 83 83 83 Cost (% of property value) 5.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Sri Lanka 44 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by These economies may provide a model for Sri Lanka the economies that today have the best performance on ways to improve the ease of registering property. regionally or globally on the procedures, time or cost And changes in regional averages can show where Sri required to complete a property transfer (figure 5.3). Lanka is keeping up—and where it is falling behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2012 Sri Lanka 45 REGISTERING PROPERTY Cost (% of property value) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Sri Lanka 46 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Sri Lanka (table 5.2)? Table 5.2 How has Sri Lanka made registering property easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Sri Lanka 47 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business City: Colombo through information collected from local property Property Value: 13,520,709.8 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in Sri Lanka—and the time and cost Time to No. Procedure Cost to complete complete * Study of title deeds On receipt of the last title deed and plan from the seller, a title search has to be carried out at the relevant Land Registry. A lawyer/notary engaged by the purchaser has to recommend the title. Good title has to be established for the past 35 years. All deeds and plans have to be checked. If prior deeds are not available with the seller the notary will have to check duplicates of deeds at the Land Registry. If plans are not available, the relevant surveyors would have to be contacted and obtain duplicates of the plans. Other checks must be carried out as well by the lawyer (notary) at the local authority. Confirmation from the lawyer (notary) should be obtained that the title to the property is clear. On confirmation that the title to the property is clear, step 2 will apply; if not title insurance is recommended, and the 3-7 days next step would be to obtain a policy of title Insurance (procedure 1a). (simultaneous with LKR 1,000 1 The costs of the search are: procedures 2 and 3) LKR 2.5 in stamps to be affixed to the application LKR 5 in stamps to be affixed to the application to check the duplicate of a deed LKR 102.50 to obtain copy of deed which has 4 pages or less. If the deed has more than 4 pages then LKR 22.5 is to be paid for each additional page LKR 10 for search at the Land Registry Lawyer fees are additional. If title insurance is recommended in procedure 1 due to a defect in title, then the next step would be to obtain a Buyer's Policy of Title Insurance to cover defects. This step is optional and contingent to the result of step 1. If the policy is needed, the time necessary to obtain this title will depend on the time taken by the title insurance company to evaluate the title, make a decision to issue or not to issue the title insurance policy Doing Business 2012 Sri Lanka 48 Time to No. Procedure Cost to complete complete and the cost will depend on the premium payable. Usually title insurance is recommended for the following reasons: • Prior deeds and documentation not being available and further if the registers at the land registry cannot be traced for 35 years (if the books are damaged). • If there are any discrepancies in the title deeds and plans. • If the present owner had owned an undivided share of a larger land, and had sub-divided it without the consent of the other parties or without a Deed of Partition or Partition Plan. * Obtain seller certificate The seller obtains the following documents from the Municipality: 1. The building and street line certificate 21 days 2. Certificate of non-vesting (simultaneous with LKR 500 2 3. Tax receipts in proof of payment of rates and taxes for the last quarter procedures 1 and 3) 4. Certificate of conformity in respect of the building 5. Certificate of ownership stating that the seller is the owner of the land and premises * Measure property/ obtain or produce map 14 days About 0.1% of 3 Obtaining a new updated plan of the land and the building is advisable (simultaneous with property value to ensure that the boundaries on the ground have not changed or if the procedures 1 and 2) survey plan is old. Sign sale deed The following document with regard to the Selling company must be presented to the buyer’s lawyer/notary for the deed of transfer to be signed in favor of the buyer: The documents are as follows: 1. Articles of Association of the company 1% of purchase price 4 2. Certificate of incorporation of the seller 2 days (Lawyer’s fees) + LKR 3. Resolution authorizing the sale of land. If the purchase-sale is a major 500 additional cost) transaction as defined by section 185 of Companies Act No. 7 of 2007, such a transaction should require the shareholders sanction as well. The buyer needs to pass a resolution to purchase the property. On receipt of the above documents the deed of transfer in favor of the purchaser can be signed. Lawyer’s fees are paid by the buyer and will depend on the lawyer (usually 1% of purchase price). Pay taxes Stamp duty payable as follows 5 After execution of the deed of transfer stamp duty will have to be paid 1 day 3% on the First Rs. within 7 days to a nominated state bank in favor of the relevant 100 000 Provincial Council in which the land is situated. 4% on the Balance Prepare sale deed 6 30 - 42 days No cost After payment of stamp duty, the deed duly attested by the notary, will Doing Business 2012 Sri Lanka 49 Time to No. Procedure Cost to complete complete have to be sent for registration to the relevant land registry. The deed is registered and returned to the notary from the Land Registry. Registration of new owner @ tax agency/ municipality / utility The name of the new company will have to be registered as the new 7 owner at the Municipality. The certificate of ownership is obtained from 21 days LKR 200 the Municipality on execution of the deed of transfer in favor of the new owner. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Sri Lanka 50 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine  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 Sri Lanka 51 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Sri Lanka stands at 78 in the ranking of 183 collateral and bankruptcy laws in Sri Lanka facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 5 on the The rankings for comparator economies and the depth of credit information index and a score of 4 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Sri Lanka support lending and scores indicate more credit information and stronger borrowing. legal rights for borrowers and lenders. Figure 6.1 How Sri Lanka and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 Sri Lanka 52 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened— well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Sri Lanka support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Sri Lanka over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 75 78 Strength of legal rights 3 3 3 3 4 4 4 4 index (0-10) Depth of credit 4 4 4 3 5 5 5 5 information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (% of adults) Private bureau 1.9 2.2 3.1 2.9 8.7 14.3 18.6 29.4 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Sri Lanka 53 GETTING CREDIT One way to put an economy’s getting credit indicators index for Sri Lanka in 2011 and shows the number of into context is to see where the economy stands in the other economies having the same score in 2011. distribution of scores across other economies. Figure Figure 6.3 shows the same thing for the depth of credit 6.2 highlights the score on the strength of legal rights information index. Figure 6.2 Have legal rights for borrowers and lenders Figure 6.3 Have the coverage and accessibility of credit become stronger? information grown? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2011 information index (0–6), 2011 Source: Doing Business database. Source: Doing Business database. Doing Business 2012 Sri Lanka 54 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Sri Lanka (table 6.2)? Table 6.2 How has Sri Lanka made getting credit easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. Access to credit information was strengthened with a new system consolidation process at the private credit bureau, allowing credit data to be submitted by all shareholder DB2010 lending institutions without any reporting threshold. The volume of registry data has grown 10-fold relative to the same period in 2007. The legal rights of creditors were strengthened by enforcing the new Companies Act. When a company goes into liquidation, the claims of its secured creditors are no longer frozen. Secured creditors now have the right during liquidation to seize or attach their collateral or appoint a DB2009 receiver. Sri Lanka also implemented an online system for uploading credit information. Now the Credit Information Bureau (CRIB) can collect data on all loans extended by its members. The minimum threshold for the loans recorded was eliminated and data can be maintained over a longer period. 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 Sri Lanka 55 GETTING CREDIT What are the details? The getting credit indicators reported here for Sri The data on the legal rights of borrowers and lenders Lanka are based on detailed information collected in are gathered through a survey of financial lawyers and that economy. The data on credit information sharing verified through analysis of laws and regulations as are collected through a survey of a public credit well as public sources of information on collateral and registry or private credit bureau (if one exists). To bankruptcy laws. For the strength of legal rights index, construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in Sri Lanka Indicator Sri Lanka South Asia OECD high income Strength of legal rights index (0-10) 4 6 7 Depth of credit information index (0-6) 5 3 5 Public registry coverage (% of adults) 0.0 1.7 9.5 Private bureau coverage (% of adults) 29.4 5.8 63.9 Strength of legal rights index (0–10) Index score: 4 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of No movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend No automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement No include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an No electronic database indexed by debtor's names? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No debtor defaults outside an insolvency procedure? Doing Business 2012 Sri Lanka 56 Strength of legal rights index (0–10) Index score: 4 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 5 bureau registry Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as No No 0 financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect Yes No 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms 130,589 0 Number of individuals 3,950,118 0 Source: Doing Business database. Doing Business 2012 Sri Lanka 57 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors’ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders’ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices  Is a publicly traded corporation listed on the economy’s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns.  Has a board of directors and a chief executive  The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law.  All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer.  Mr. James, a director and the majority  Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2012 Sri Lanka 58 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Sri Lanka? The index (figure 7.1). While the indicator does not economy has a score of 6.0 on the strength of investor measure all aspects related to the protection of protection index, with a higher score indicating minority investors, a higher ranking does indicate that stronger protections (see the summary of scoring at an economy’s regulations offer stronger investor the end of this chapter for details). protections against self-dealing in the areas measured. Globally, Sri Lanka stands at 46 in the ranking of 183 economies on the strength of investor protection Figure 7.1 How Sri Lanka and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 Sri Lanka 59 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how ranking on the strength of investor protection index well regulations in Sri Lanka protect minority investors over time shows whether the economy is slipping today, data over time show whether the protections behind other economies in investor protections—or have been strengthened (table 7.1). And the global surpassing them. Table 7.1 The strength of investor protections in Sri Lanka over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 74 46 Extent of disclosure 4 4 4 4 4 4 6 index (0-10) Extent of director 5 5 5 5 5 5 5 liability index (0-10) Ease of shareholder 7 7 7 7 7 7 7 suits index (0-10) Strength of investor 5.3 5.3 5.3 5.3 5.3 5.3 6.0 protection index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Sri Lanka 60 PROTECTING INVESTORS But the overall ranking on the strength of investor and ease of shareholder suits indices may also be protection index tells only part of the story. Economies revealing (figure 7.2). Equally interesting may be the may offer strong protections in some areas but not changes over time in the regional average scores for others. So the scores recorded over time for Sri Lanka those indices. on the extent of disclosure, extent of director liability Figure 7.2 Have investor protections become stronger? Strength of investor protection index (0-10) Extent of disclosure index (0-10) Doing Business 2012 Sri Lanka 61 PROTECTING INVESTORS Extent of director liability index (0-10) Ease of shareholder suits index (0-10) Note: The higher the score, the stronger the investor protections. The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Sri Lanka 62 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in Sri Lanka (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has Sri Lanka strengthened investor protections—or not? By Doing Business report year DB Year Reform Sri Lanka strengthened investor protections by requiring greater corporate disclosure in DB2012 case of transactions between interested parties. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Sri Lanka 63 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for shareholder suits indices, a score is assigned for each Sri Lanka are based on detailed information collected of a range of conditions relating to disclosure, director through a survey of corporate and securities lawyers liability and shareholder suits in a standard case study and are based on securities regulations, company laws transaction (see the notes at the end of this chapter). and court rules of evidence. To construct the extent of The summary below shows the details underlying the disclosure, extent of director liability and ease of scores for Sri Lanka. Summary of scoring for the protecting investors indicators in Sri Lanka Indicator Sri Lanka South Asia OECD high income Extent of disclosure index (0-10) 6 5 6 Extent of director liability index (0-10) 5 4 5 Ease of shareholder suits index (0-10) 7 6 7 Strength of investor protection index (0-10) 6.0 5.0 6.0 Score Extent of disclosure index (0-10) 6 What corporate body provides legally sufficient approval for the transaction? 1 Whether disclosure of the conflict of interest by Mr. James to the board of directors is 1 required? Whether immediate disclosure of the transaction to the public and/or shareholders is 2 required? Whether disclosure of the transaction in published periodic filings (annual reports) is 2 required? Whether an external body must review the terms of the transaction before it takes place? 0 Extent of director liability index (0-10) 5 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold members of the approving body liable for the damage that 1 the Buyer-Seller transaction causes to the company? Whether a court can void the transaction upon a successful claim by a shareholder plaintiff? 1 Doing Business 2012 Sri Lanka 64 Score Whether Mr. James pays damages for the harm caused to the company upon a successful 1 claim by the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 shareholder plaintiff? Whether fines and imprisonment can be applied against Mr. James? 0 Ease of shareholder suits index (0-10) 7 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction 0 documents before filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to 0 investigate the transaction? Whether the plaintiff can obtain any documents from the defendant and witnesses during 4 trial? Whether the plaintiff can request categories of documents from the defendant without 0 identifying specific ones? Whether the plaintiff can directly question the defendant and witnesses during trial? 2 Whether the level of proof required for civil suits is lower than that of criminal cases? 1 Strength of investor protection index (0-10) 6.0 Source: Doing Business database. Notes: Extent of disclosure index (0–10) Scoring for the extent of disclosure index is based on 5 components: Which corporate body can provide legally sufficient approval for the transaction 0 = CEO or managing director alone; 1 = shareholders or board of directors vote and Mr. James can vote; 2 = board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote. Whether disclosure of the conflict of interest by Mr. James to the board of directors is required 0 = no disclosure; 1 = disclosure of the existence of a conflict without any specifics; 2 = full disclosure of all material facts. Whether immediate disclosure of the transaction to the public, the regulator or the shareholders is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Whether disclosure of the transaction in the annual report is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Doing Business 2012 Sri Lanka 65 Whether it is required that an external body (for example, an external auditor) review the transaction before it takes place 0 = no; 1 = yes. Extent of director liability index (0–10) Scoring for the extent of director liability index is based on 7 components: Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction causes to the company 0 = suits are unavailable or available only for shareholders holding more than 10% of the company’s share capital; 1 = direct or derivative suits available for shareholders holding 10% of share capital or less. Whether shareholders can hold Mr. James liable for the damage that the transaction causes to the company 0 = Mr. James is not liable or is liable only if he acted fraudulently or in bad faith; 1 = Mr. James is liable if he influenced the approval or was negligent; 2 = Mr. James is liable if the transaction is unfair or prejudicial to the other shareholders. Whether shareholders can hold the approving body (the CEO or members of the board of directors) liable for the damage that the transaction causes to the company 0 = members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1 = liable for negligence in the approval of the transaction; 2 = liable if the transaction is unfair or prejudicial to the other shareholders. Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0 = rescission is unavailable or available only in case of Seller’s fraud or bad faith; 1 = rescission is available when the transaction is oppressive or prejudicial to the other shareholders; 2 = rescission is available when the transaction is unfair or entails a conflict of interest. Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether both fines and imprisonment can be applied against Mr. James 0 = no; 1 = yes. Ease of shareholder suits index (0–10) Scoring for the ease of shareholder suits index is based on 6 components: What range of documents is available to the plaintiff from the defendant and witnesses during trial Score of 1 for each of the following: information that the defendant has indicated he intends to rely on for his defense; information that directly proves specific facts in the plaintiff’s claim; any information relevant to the subject matter of the claim; and any information that may lead to the discovery of relevant information. Doing Business 2012 Sri Lanka 66 Whether the plaintiff can directly examine the defendant and witnesses during trial 0 = no; 1 = yes, with prior approval by the court of the questions posed; 2 = yes, without prior approval. Whether the plaintiff can obtain categories of relevant documents from the defendant without identifying each document specifically 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital can request that a government inspector investigate the transaction without filing suit in court 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital have the right to inspect the transaction documents before filing suit 0 = no; 1 = yes. Whether the standard of proof for civil suits is lower than that for a criminal case 0 = no; 1 = yes. Strength of investor protection index (0–10) Simple average of the extent of disclosure, extent of director liability and ease of shareholder suits indices. Doing Business 2012 Sri Lanka 67 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 2 being applied to the total tax rate. To make the Profit or corporate income tax data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2009. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded.  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 Sri Lanka 68 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Sri Lanka stands at 173 in the ranking of 183 taxes in Sri Lanka—and how much do firms pay in economies on the ease of paying taxes (figure 8.1). The taxes? On average, firms make 71 tax payments a year, rankings for comparator economies and the regional spend 256 hours a year filing, preparing and paying average ranking provide other useful information for taxes and pay total taxes amounting to 26.7% of profit assessing the tax compliance burden for businesses in (see the summary at the end of this chapter for Sri Lanka. details). Figure 8.1 How Sri Lanka and comparator economies rank on the ease of paying taxes Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Sri Lanka 69 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how process have changed — and which have not (table easy (or difficult) it is to comply with tax rules in Sri 8.1). That can help identify where the potential for Lanka today, data over time show which aspects of the easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Sri Lanka over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 171 173 Payments (number per 58 59 59 59 59 71 71 year) Time (hours per year) 256 256 256 256 256 256 256 Total tax rate (% profit) 56.8 59.9 61.8 61.8 61.8 91.0 105.2 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the rank on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Sri Lanka 70 PAYING TAXES Equally helpful may be the benchmarks provided by on ways to ease the administrative burden of tax the economies that today have the best performance compliance. And changes in regional averages can regionally or globally on the number of payments or show where Sri Lanka is keeping up—and where it is the time required to prepare and file taxes (figure 8.2). falling behind. These economies may provide a model for Sri Lanka Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2012 Sri Lanka 71 PAYING TAXES Total tax rate (% of profit) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. The best performer globally on an indicator has implemented the most efficient practices in its tax system but is not necessarily the one with the highest ranking on the indicator. In some cases 2 or more economies share the top regional ranking on an indicator. DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Sri Lanka 72 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Sri Lanka (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Sri Lanka made paying taxes easier—or not? By Doing Business report year DB Year Reform Sri Lanka made paying taxes less costly for businesses by abolishing the turnover tax and social security contribution DB2012 and by reducing corporate income tax, value added tax and national building tax rates. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Sri Lanka 73 PAYING TAXES What are the details? The indicators reported here for Sri Lanka are based on completed during the year. Respondents are asked a standard set of taxes and contributions that would how much in taxes and mandatory contributions the be paid by the case study company used by Doing business must pay and what the process is for doing Business in collecting the data (see the section in this so. The taxes and contributions paid are listed in the chapter on what the indicators cover). Tax practitioners summary below, along with the associated number of are asked to review standard financial statements as payments, time and tax rate. well as a standard list of transactions that the company Summary of tax rates and administrative burden in Sri Lanka Indicator Sri Lanka South Asia OECD high income Payments (number per year) 71 28 13 Time (hours per year) 256 281 186 Profit tax (%) 26.7 18.6 15.4 Labor tax and contributions (%) 16.9 7.7 24.0 Other taxes (%) 61.6 18.2 3.2 Total tax rate (% profit) 105.2 44.4 42.7 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate National Business Tax 12 0 3.0% turnover 44.2 taxable Corporate income tax 5 16 35.0% 25.6 income Turnover tax 1 0 1.0% turnover 14.7 gross Social security contribution 12 96 12.0% 13.5 salaries Provident fund gross 12 0 3.0% 3.4 contribution salaries annual Property tax 1 0 35.0% property 1.7 value taxable Social responsibility levy 0 0 1.50% 1.1 income Doing Business 2012 Sri Lanka 74 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Tax on check transactions transaction 12 0 0.1% 0.7 (stamp duty) value interest included in Tax on interest 0 withheld 0 10.0% 0.3 income other taxes Fuel tax 1 0 0.1 varies from Municipal business tax 1 0 LKR 250 to 0.1 LKR 5,000 Fixed fee Vehicle tax 1 0 0 (LKR 1,000) various Stamp duty 1 0 0 small amount rates Value added tax (VAT) 12 144 12.0% value added 0 not included Totals 71 256 105.2 Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Sri Lanka 75 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining all the documents (excluding tariffs) associated with exporting and Inland transport and handling importing a standard shipment of goods by ocean transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business:  Is of medium size and employs 60 people.  Do not require refrigeration or any other  Is located in the periurban area of the special environment. economy’s largest business city.  Do not require any special phytosanitary or  Is a private, limited liability company, environmental safety standards other than domestically owned, formally registered accepted international standards. and operating under commercial laws and regulations of the economy.  Are one of the economy’s leading export or import products. The traded goods:  Are transported in a dry-cargo, 20-foot full  Are not hazardous nor do they include container load. military items. Doing Business 2012 Sri Lanka 76 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Sri Lanka? Globally, Sri Lanka stands at 53 in the ranking of 183 According to data collected by Doing Business, economies on the ease of trading across borders exporting a standard container of goods requires 6 (figure 9.1). The rankings for comparator economies documents, takes 21 days and costs $715. Importing and the regional average ranking provide other useful the same container of goods requires 6 documents, information for assessing how easy it is for a business takes 19 days and costs $745 (see the summary of in Sri Lanka to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Sri Lanka and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2012 Sri Lanka 77 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 9.1). easy (or difficult) it is to export or import in Sri Lanka That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 9.1 The ease of trading across borders in Sri Lanka over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 53 53 Documents to export 5 5 6 6 6 6 6 (number) Time to export (days) 25 25 21 21 21 21 21 Cost to export (US$ per 647 647 660 715 715 715 715 container) Documents to import 9 9 6 6 6 6 6 (number) Time to import (days) 26 26 20 20 20 19 19 Cost to import (US$ per 639 639 694 745 745 745 745 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Equally helpful may be the benchmarks provided by economies may provide a model for Sri Lanka on ways the economies that today have the best performance to improve the ease of trading across borders. And regionally or globally on the documents, time or cost changes in regional averages can show where Sri required to export or import (figure 9.2). These Lanka is keeping up—and where it is falling behind. Doing Business 2012 Sri Lanka 78 TRADING ACROSS BORDERS Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2012 Sri Lanka 79 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2012 Sri Lanka 80 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Sri Lanka 81 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Sri Lanka (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has Sri Lanka made trading across borders easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Sri Lanka 82 TRADING ACROSS BORDERS What are the details? The indicators reported here for Sri Lanka are based on freight forwarders, shipping lines, customs brokers, a set of specific procedural requirements for trading a port officials and banks. The procedural requirements, standard shipment of goods by ocean transport (see and the associated time and cost, for exporting and the section in this chapter on what the indicators importing a standard shipment of goods are listed in cover). Information on the procedures as well as the the summary below, along with the required required documents and the time and cost to documents. complete each procedure is collected from local Summary of procedures and documents for trading across borders in Sri Lanka Indicator Sri Lanka South Asia OECD high income Documents to export (number) 6 8 4 Time to export (days) 21 32 10 Cost to export (US$ per container) 715 1,590 1,032 Documents to import (number) 6 9 5 Time to import (days) 19 33 11 Cost to import (US$ per container) 745 1,768 1,085 Procedures to export Time (days) Cost (US$) Documents preparation 12 160 Customs clearance and technical control 3 285 Ports and terminal handling 3 155 Inland transportation and handling 3 115 Totals 21 715 Procedures to import Time (days) Cost (US$) Documents preparation 12 190 Customs clearance and technical control 2 285 Ports and terminal handling 3 155 Inland transportation and handling 2 115 Totals 19 745 Doing Business 2012 Sri Lanka 83 TRADING ACROSS BORDERS Documents to export Documents to import Bill of lading Bill of lading Customs export declaration Certificate of Origin Commercial Invoice Commercial invoice Certificate of origin Customs import declaration Terminal handling receipts Import license Shipping note (pre-advice form) Packing list Doing Business 2012 Sri Lanka 84 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs, including expert fees assumptions about the case: Enforcement costs  The seller and buyer are located in the economy’s largest business city.  The buyer orders custom-made goods,  The dispute on the quality of the goods then fails to pay. requires an expert opinion.  The seller sues the buyer before a  The judge decides in favor of the seller; there competent court. is no appeal.  The value of the claim is 200% of income  The seller enforces the judgment through a per capita. public sale of the buyer’s movable assets.  The seller requests a pretrial attachment to secure the claim. Doing Business 2012 Sri Lanka 85 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Sri Lanka stands at 136 in the ranking of 183 dispute through the courts in Sri Lanka? According to economies on the ease of enforcing contracts (figure data collected by Doing Business, enforcing a contract 10.1). The rankings for comparator economies and the requires 40 procedures, takes 1318 days and costs regional average ranking provide other useful 22.8% of the value of the claim (see the summary at benchmarks for assessing the efficiency of contract the end of this chapter for details). enforcement in Sri Lanka. Figure 10.1 How Sri Lanka and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2012 Sri Lanka 86 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how identify which areas have changed and where the easy (or difficult) it is to enforce a contract in Sri Lanka potential for improvement is greatest (table 10.1). today, data on the underlying indicators over time help Table 10.1 The ease of enforcing contracts in Sri Lanka over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 136 136 Time (days) 1,318 1,318 1,318 1,318 1,318 1,318 1,318 1,318 1,318 Cost (% of claim) 22.8 22.8 22.8 22.8 22.8 22.8 22.8 22.8 22.8 Procedures (number) 40 40 40 40 40 40 40 40 40 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Sri Lanka 87 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by for Sri Lanka on ways to improve the efficiency of the economies that today have the best performance contract enforcement. And changes in regional regionally or globally on the number of steps, time or averages can show where Sri Lanka is keeping up—and cost required to enforce a contract through the courts where it is falling behind. (figure 10.2). These economies may provide a model Figure 10.2 Has enforcing contracts become easier over time? Procedures (number) Time (days) Doing Business 2012 Sri Lanka 88 ENFORCING CONTRACTS Cost (% of claim) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Sri Lanka 89 ENFORCING CONTRACTS Economies in all regions have improved contract often work on reducing backlogs by introducing enforcement in recent years. A judiciary can be periodic reviews to clear inactive cases from the docket improved in different ways. Higher-income economies and by making procedures faster. What reforms tend to look for ways to enhance efficiency by making it easier (or more difficult) to enforce contracts introducing new technology. Lower-income economies has Doing Business recorded in Sri Lanka (table 10.2)? Table 10.2 How has Sri Lanka made enforcing contracts easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Sri Lanka 90 ENFORCING CONTRACTS What are the details? The indicators reported here for Sri Lanka are based on codes of civil procedure and other court regulations, as a set of specific procedural steps required to resolve a well as through surveys completed by local litigation standardized commercial dispute through the courts lawyers (and, in a quarter of the economies covered by (see the section in this chapter on what the indicators Doing Business, by judges as well). The procedures for cover). These procedures, and the time and cost of resolving a commercial lawsuit, and the associated completing them, are identified through study of the time and cost, are listed in the summary below. Summary of procedures for enforcing a contract in Sri Lanka—and the time and cost Indicator Sri Lanka South Asia OECD high income Time (days) 1318 1,074.75 518.03 Filing and service 62 Trial and judgment 1000 Enforcement of judgment 256 Cost (% of claim) 22.8 27.24 19.71 Attorney cost (% of claim) 20.2 Court cost (% of claim) 1.1 Enforcement Cost (% of claim) 1.48071370400533 Procedures (number) 40 43.38 31.42 Source: Doing Business database. Doing Business 2012 Sri Lanka 91 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be business and the case. It assumes that the recovered company:  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 Sri Lanka 92 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses Globally, Sri Lanka stands at 42 in the ranking of 183 characterize the top-performing economies. How economies on the ease of resolving insolvency (figure efficient are insolvency proceedings in Sri Lanka? 11.1). The rankings for comparator economies and the According to data collected by Doing Business, regional average ranking provide other useful resolving insolvency takes 1.7 years on average and benchmarks for assessing the efficiency of insolvency costs 5% of the debtor’s estate. The average recovery proceedings in Sri Lanka. rate is 48.3 cents on the dollar. Figure 11.1 How Sri Lanka and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2012 Sri Lanka 93 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the changed—and where it has not (table 11.1). That can efficiency of insolvency proceedings in Sri Lanka today, help identify where the potential for improvement is data over time show where the efficiency has greatest. Table 11.1 The ease of resolving insolvency in Sri Lanka over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 44 42 Time (years) 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 Cost (% of estate) 5 5 5 5 5 5 5 5 5 Recovery rate (cents on 47.3 48.1 48.7 50.6 44.6 43.4 43.4 47.0 48.3 the dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2012 Sri Lanka 94 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by on ways to improve the efficiency of insolvency the economies that today have the best performance proceedings. And changes in regional averages can regionally or globally on the time or cost of insolvency show where Sri Lanka is keeping up—and where it is proceedings or on the recovery rate (figure 11.2). falling behind. These economies may provide a model for Sri Lanka Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2012 Sri Lanka 95 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Sri Lanka 96 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Sri Lanka (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Sri Lanka made resolving insolvency easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Sri Lanka 97 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income (GNI) per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2012 reports 2010 income per capita property. Second, they gauge the time and cost of as published in the World Bank’s World Development achieving a regulatory goal or complying with Indicators 2011. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2010 GNI in contract, go through bankruptcy or trade across U.S. dollars is used as the denominator. Data were borders. Third, they measure the extent of legal not available from the World Bank for Afghanistan; protections of property, for example, the protections Australia; The Bahamas; Bahrain; Brunei Darussalam; of investors against looting by company directors or Canada; Cyprus; Djibouti; the Islamic Republic of the range of assets that can be used as collateral Iran; Kuwait; New Zealand; Oman; Puerto Rico according to secured transactions laws. Fourth, a set of (territory of the United States); Qatar; Saudi Arabia; indicators documents the tax burden on businesses. Suriname; Taiwan, China; the United Arab Emirates; Finally, a set of data covers different aspects of West Bank and Gaza; and the Republic of Yemen. In employment regulation. these cases GDP or GNP per capita data and growth rates from the International Monetary Fund’s World The data for all sets of indicators in Doing Business Economic Outlook database and the Economist 3 2012 are for June 2011. Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and income group classifications, available at The Doing Business data are collected in a http://www.worldbank.org/data/countryclass. The standardized way. To start, the Doing Business team, World Bank does not assign regional classifications with academic advisers, designs a questionnaire. The to high-income economies. For the purpose of the questionnaire uses a simple business case to ensure Doing Business report, high-income OECD comparability across economies and over time—with economies are assigned the ―regional‖ classification assumptions about the legal form of the business, its OECD high income. Figures and tables presenting size, its location and the nature of its operations. regional averages include economies from all Questionnaires are administered through more than income groups (low, lower middle, upper middle 9,028 local experts, including lawyers, business and high income). consultants, accountants, freight forwarders, Population government officials and other professionals routinely administering or advising on legal and regulatory Doing Business 2012 reports midyear 2010 population statistics as published in World requirements. These experts have several rounds of Development Indicators 2011. interaction with the Doing Business team, involving conference calls, written correspondence and visits by the team. For Doing Business 2012 team members The Doing Business methodology offers several visited 40 economies to verify data and recruit advantages. It is transparent, using factual information respondents. The data from questionnaires are about what laws and regulations say and allowing subjected to numerous rounds of verification, leading multiple interactions with local respondents to clarify to revisions or expansions of the information collected. potential misinterpretations of questions. Having representative samples of respondents is not an issue; 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 Sri Lanka 98 Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business published a subnational study comparisons and benchmarks are valid across for the Philippines and a regional report for Southeast economies. Finally, the data not only highlight the Europe covering 7 economies (Albania, Bosnia and extent of specific regulatory obstacles to business but Herzegovina, Kosovo, the former Yugoslav Republic of also identify their source and point to what might be Macedonia, Moldova, Montenegro and Serbia) and 22 reformed. cities. It also published a city profile for Juba, in the Information on the methodology for each Doing Republic of South Sudan. Business topic can be found on the Doing Business The subnational studies point to differences in website at http://www.doingbusiness.org/methodology/. business regulation and its implementation—as well as in the pace of regulatory reform—across cities in the same economy. For several economies subnational Limits to what is measured studies are now periodically updated to measure The Doing Business methodology has 5 limitations that change over time or to expand geographic coverage should be considered when interpreting the data. First, to additional cities. This year that is the case for the the collected data refer to businesses in the economy’s subnational studies in the Philippines; the regional largest business city and may not be representative of report in Southeast Europe; the ongoing studies in regulation in other parts of the economy. To address Italy, Kenya and the United Arab Emirates; and the this limitation, subnational Doing Business indicators projects implemented jointly with local think tanks in were created (see the section on subnational Doing Indonesia, Mexico and the Russian Federation. Business indicators). Second, the data often focus on a Besides the subnational Doing Business indicators, specific business form—generally a limited liability Doing Business conducted a pilot study this year on company (or its legal equivalent) of a specified size— the second largest city in 3 large economies to assess and may not be representative of the regulation on within-country variations. The study collected data for other businesses, for example, sole proprietorships. Rio de Janeiro in addition to São Paulo in Brazil, for Third, transactions described in a standardized case Beijing in addition to Shanghai in China and for St. scenario refer to a specific set of issues and may not Petersburg in addition to Moscow in Russia. represent the full set of issues a business encounters. Fourth, the measures of time involve an element of judgment by the expert respondents. When sources Changes in what is measured indicate different estimates, the time indicators reported in Doing Business represent the median The methodology for 3 of the Doing Business topics values of several responses given under the was updated this year—getting credit, dealing with assumptions of the standardized case. construction permits and paying taxes. Finally, the methodology assumes that a business has First, for getting credit, the scoring of one of the 10 full information on what is required and does not components of the strength of legal rights index was waste time when completing procedures. In practice, amended to recognize additional protections of completing a procedure may take longer if the secured creditors and borrowers. Previously the business lacks information or is unable to follow up highest score of 1 was assigned if secured creditors promptly. Alternatively, the business may choose to were not subject to an automatic stay or moratorium disregard some burdensome procedures. For both on enforcement procedures when a debtor entered a reasons the time delays reported in Doing Business court-supervised reorganization procedure. Now the 2012 would differ from the recollection of highest score of 1 is also assigned if the law provides secured creditors with grounds for relief from an Doing Business 2012 Sri Lanka 99 automatic stay or moratorium (for example, if the regulatory environment for local entrepreneurs in each movable property is in danger) or sets a time limit for economy has changed over time. the automatic stay. Ease of doing business Second, because the ease of doing business index now The ease of doing business index ranks economies includes the getting electricity indicators, procedures, from 1 to 183. For each economy the ranking is time and cost related to obtaining an electricity calculated as the simple average of the percentile connection were removed from the dealing with rankings on each of the 10 topics included in the index construction permits indicators. in Doing Business 2012: starting a business, dealing Third, a threshold has been introduced for the total tax with construction permits, registering property, getting rate for the purpose of calculating the ranking on the credit, protecting investors, paying taxes, trading ease of paying taxes. All economies with a total tax across borders, enforcing contracts, resolving rate below the threshold (which will be calculated and insolvency and, new this year, getting electricity. The adjusted on a yearly basis) will now receive the same employing workers indicators are not included in this ranking on the total tax rate indicator. The threshold is year’s aggregate ease of doing business ranking. In not based on any underlying theory. Instead, it is addition to this year’s ranking, Doing Business presents meant to emphasize the purpose of the indicator: to a comparable ranking for the previous year, adjusted highlight economies where the tax burden on business for any changes in methodology as well as additions of 4 is high relative to the tax burden in other economies. economies or topics. Giving the same ranking to all economies whose total Construction of the ease of doing business index tax rate is below the threshold avoids awarding economies in the scoring for having an unusually low Here is one example of how the ease of doing business total tax rate, often for reasons unrelated to index is constructed. In the Republic of Korea it takes 5 government policies toward enterprises. For example, procedures, 7 days and 14.6% of annual income per economies that are very small or that are rich in capita in fees to open a business. There is no minimum natural resources do not need to levy broad-based capital required. On these 4 indicators Korea ranks in th th rd taxes. the 18 , 14 , 53 and 0 percentiles. So on average st Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on Data challenges and revisions th getting credit, 25 percentile on paying taxes, 8 th th percentile on enforcing contracts, 7 percentile on Most laws and regulations underlying the Doing resolving insolvency and so on. Higher rankings Business data are available on the Doing Business indicate simpler regulation and stronger protection of website at http://www.doingbusiness.org. All the property rights. The simple average of Korea’s sample questionnaires and the details underlying the st percentile rankings on all topics is 21 . When all indicators are also published on the website. Questions economies are ordered by their average percentile on the methodology and challenges to data can be rankings, Korea stands at 8 in the aggregate ranking submitted through the website’s ―Ask a Question‖ on the ease of doing business. function at http://www.doingbusiness.org. More complex aggregation methods—such as principal components and unobserved components— Ease of doing business and distance to frontier 4 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a This year’s report presents results for 2 aggregate comparable time series since the year the relevant economy or topic measures: the aggregate ranking on the ease of doing was first included in the data set. The time series is available on the business and a new measure, the ―distance to frontier.‖ Doing Business website (http://www.doingbusiness.org). The Doing While the ease of doing business ranking compares Business report publishes yearly rankings for the year of publication as well as the previous year to shed light on year-to-year economies with one another at a point in time, the developments. Six topics and more than 50 economies have been distance to frontier measure shows how much the added since the inception of the project. Earlier rankings on the ease of doing business are therefore not comparable. Doing Business 2012 Sri Lanka 100 yield a ranking nearly identical to the simple average Consider the example of Canada. It stands at 12 in the 5 used by Doing Business. Thus, Doing Business uses aggregate ranking on the ease of doing business. Its the simplest method: weighting all topics equally and, ranking is 3 on both starting a business and resolving within each topic, giving equal weight to each of the insolvency, and 5 on protecting investors. But its 6 topic components. ranking is only 59 on enforcing contracts, 42 on trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a Variation in performance across the indicator sets is ―no practice‖ mark. Similarly, an economy receives a not at all unusual. It reflects differences in the degree ―no practice‖ or ―not possible‖ mark if regulation exists of priority that government authorities give to but is never used in practice or if a competing particular areas of business regulation reform and the regulation prohibits such practice. Either way, a ―no ability of different government agencies to deliver practice‖ mark puts the economy at the bottom of the tangible results in their area of responsibility. ranking on the relevant indicator. Economies that improved the most across 3 or more The ease of doing business index is limited in scope. It Doing Business topics in 2010/11 does not account for an economy’s proximity to large Doing Business 2012 uses a simple method to calculate markets, the quality of its infrastructure services (other which economies improved the most in the ease of than services related to trading across borders and doing business. First, it selects the economies that in getting electricity), the strength of its financial system, 2010/11 implemented regulatory reforms making it the security of property from theft and looting, its easier to do business in 3 or more of the 10 topics macroeconomic conditions or the strength of 7 included in this year’s ease of doing business ranking. underlying institutions. Thirty economies meet this criterion: Armenia, Burkina Variability of economies’ rankings across topics Faso, Burundi, Cape Verde, the Central African Republic, Chile, Colombia, the Democratic Republic of Each indicator set measures a different aspect of the Congo, Côte d'Ivoire, The Gambia, Georgia, Korea, business regulatory environment. The rankings of an Latvia, Liberia, FYR Macedonia, Mexico, Moldova, economy can vary, sometimes significantly, across Montenegro, Morocco, Nicaragua, Oman, Peru, Russia, indicator sets. The average correlation coefficient São Tomé and Príncipe, Senegal, Sierra Leone, between the 10 indicator sets included in the Slovenia, the Solomon Islands, South Africa and aggregate ranking is 0.36, and the coefficients Ukraine. Second, Doing Business ranks these between any 2 sets of indicators range from 0.17 economies on the increase in their ranking on the ease (between protecting investors and getting electricity) of doing business from the previous year using to 0.57 (between starting a business and protecting comparable rankings. investors). These correlations suggest that economies rarely score universally well or universally badly on the Selecting the economies that implemented regulatory indicators. reforms in at least 3 topics and improved the most in the aggregate ranking is intended to highlight economies with ongoing, broad-based reform programs. 5 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to Distance to frontier measure Do It‖ (World Bank, Washington, DC, 2005). Principal components This year’s report introduces a new measure to and unobserved components methods yield a ranking nearly identical to that from the simple average method because both illustrate how the regulatory environment for local these methods assign roughly equal weights to the topics, since the businesses in each economy has changed over time. pairwise correlations among indicators do not differ much. An The distance to frontier measure illustrates the alternative to the simple average method is to give different weights distance of an economy to the ―frontier‖ and shows to the topics, depending on which are considered of more or less importance in the context of a specific economy. 6 7 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2012 Sri Lanka 101 the extent to which the economy has closed this gap The difference between an economy’s distance to over time. The frontier is a score derived from the most frontier score in 2005 and its score in 2011 illustrates efficient practice or highest score achieved on each of the extent to which the economy has closed the gap to the component indicators in 9 Doing Business indicator the frontier over time. sets (excluding the employing workers and getting The maximum (max) and minimum (min) observed electricity indicators) by any economy since 2005. In values are computed for the 174 economies included starting a business, for example, New Zealand has in the Doing Business sample since 2005 and for all achieved the highest performance on the time (1 day), years (from 2005 to 2011). The year 2005 was chosen Canada and New Zealand on the number of as the baseline for the economy sample because it was procedures required (1), Denmark and Slovenia on the the first year in which data were available for the cost (0% of income per capita) and Australia on the majority of economies (a total of 174) and for all 9 paid-in minimum capital requirement (0% of income indicator sets included in the measure. To mitigate the per capita). effects of extreme outliers in the distributions of the Calculating the distance to frontier for each economy rescaled data (very few economies need 694 days to involves 2 main steps. First, individual indicator scores complete the procedures to start a business, but many th are normalized to a common unit. To do so, each of need 9 days), the maximum (max) is defined as the 95 the 32 component indicators y is rescaled to (y − percentile of the pooled data for all economies and all min)/(max − min), with the minimum value (min) years for each indicator. representing the frontier—the highest performance on Take Colombia, which has a score of 0.21 on the that indicator across all economies since 2005. Second, distance to frontier measure for 2011. This score for each economy the scores obtained for individual indicates that the economy is 21 percentage points indicators are aggregated through simple averaging away from the frontier constructed from the best into one distance to frontier score. An economy’s performances across all economies and all years. distance to the frontier is indicated on a scale from 0 Colombia was further from the frontier in 2005, with a to 100, where 0 represents the frontier and 100 the score of 0.43. The difference between the scores shows lowest performance. an improvement over time. Doing Business 2012 Sri Lanka 102 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2012 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 183 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Reports http://www.doingbusiness.org/custom-query/ Access to Doing Business reports as well as subnational and regional reports, reform case Law library studies and customized economy and regional Online collection of business laws and profiles regulations relating to business and gender http://www.doingbusiness.org/reports/ issues http://www.doingbusiness.org/law-library/ Methodology http://wbl.worldbank.org/ The methodologies and research papers underlying Doing Business Contributors http://www.doingbusiness.org/methodology/ More than 9,000 specialists in 183 economies who participate in Doing Business Research http://www.doingbusiness.org/contributors/doing- Abstracts of papers on Doing Business topics business/ and related policy issues http://www.doingbusiness.org/research/ Doing Business 2012 Sri Lanka 103