65639 Regional Profile: South Asia (SA) © 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 SOUTH ASIA (SA) 3 CONTENTS Introduction ......................................................................................................................................................................4 The business environment..............................................................................................................................................5 Starting a business........................................................................................................................................................ 11 Dealing with construction permits ............................................................................................................................ 19 Getting electricity ......................................................................................................................................................... 25 Registering property .................................................................................................................................................... 30 Getting credit ................................................................................................................................................................ 37 Protecting investors ..................................................................................................................................................... 42 Paying taxes ................................................................................................................................................................... 49 Trading across borders ................................................................................................................................................ 55 Enforcing contracts....................................................................................................................................................... 64 Resolving insolvency .................................................................................................................................................... 70 Data notes ...................................................................................................................................................................... 76 Resources on the Doing Business website ................................................................................................................ 80 Doing Business 2012 SOUTH ASIA (SA) 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is in this report are current as of June 1, 2011 (except for for a local entrepreneur to open and run a small to the paying taxes indicators, which cover the period medium-size business when complying with relevant January–December 2010). regulations. It measures and tracks changes in The Doing Business methodology has limitations. Other regulations affecting 10 areas in the life cycle of a areas important to business—such as an economy’s business: starting a business, dealing with construction proximity to large markets, the quality of its permits, getting electricity, registering property, infrastructure services (other than those related to getting credit, protecting investors, paying taxes, trading across borders and getting electricity), the trading across borders, enforcing contracts and security of property from theft and looting, the resolving insolvency. transparency of government procurement, In a series of annual reports Doing Business presents macroeconomic conditions or the underlying strength quantitative indicators on business regulations and the of institutions—are not directly studied by Doing protection of property rights that can be compared Business. The indicators refer to a specific type of across 183 economies, from Afghanistan to Zimbabwe, business, generally a local limited liability company over time. The data set covers 46 economies in Sub- operating in the largest business city. Because Saharan Africa, 32 in Latin America and the Caribbean, standard assumptions are used in the data collection, 24 in East Asia and the Pacific, 24 in Eastern Europe comparisons and benchmarks are valid across and Central Asia, 18 in the Middle East and North economies. The data not only highlight the extent of Africa and 8 in South Asia, as well as 31 OECD high- obstacles to doing business; they also help identify the income economies. The indicators are used to analyze source of those obstacles, supporting policy makers in economic outcomes and identify what reforms have designing regulatory reform. worked, where and why. More information is available in the full report. Doing This regional profile presents the Doing Business Business 2012 presents the indicators, analyzes their indicators for South Asia (SA). It also shows the relationship with economic outcomes and regional average, the best performance globally for recommends regulatory reforms. The data, along with each indicator and data for the following comparator information on ordering the Doing Business 2012 regions: Latin America, East Asia and the Pacific (EAP), report, are available on the Doing Business website at Eastern Europe and Central Asia (ECA), Middle East and http://www.doingbusiness.org. North Africa (MENA) and OECD high income. The data Doing Business 2012 SOUTH ASIA (SA) 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s The ranking on each topic is the simple average of regulatory environment for business, a good place to the percentile rankings on its component 1 start is to find out how it compares with the indicators (see the data notes for more details). regulatory environment in other economies. Doing The aggregate ranking on the ease of doing Business provides an aggregate ranking on the ease business benchmarks each economy’s of doing business based on indicator sets that performance on the indicators against that of all measure and benchmark regulations applying to other economies in the Doing Business sample domestic small to medium-size businesses through (figure 1.1). While this ranking tells much about their life cycle. Economies are ranked from 1 to 183 the business environment in an economy, it does by the ease of doing business index. For each not tell the whole story. The ranking on the ease of economy the index is calculated as the ranking on the doing business, and the underlying indicators, do simple average of its percentile rankings on each of not measure all aspects of the business the 10 topics included in the index in Doing Business environment that matter to firms and investors or 2012: starting a business, dealing with construction that affect the competitiveness of the economy. permits, getting electricity, registering property, Still, a high ranking does mean that the getting credit, protecting investors, paying taxes, government has created a regulatory environment trading across borders, enforcing contracts and conducive to operating a business. resolving insolvency. Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 SOUTH ASIA (SA) 6 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy stands regional average (figure 1.2). Another perspective is in the aggregate ranking on the ease of doing business is provided by the regional average rankings on the topics useful. Also useful is to know how it ranks compared with included in the ease of doing business index (figure 1.3). other economies in the region and compared with the Figure 1.2 How economies in South Asia (SA) rank on the ease of doing business *The economy with the best performance globally is included as a benchmark. In some cases 2 or more economies share the top ranking on an indicator. Source: Doing Business database. Doing Business 2012 SOUTH ASIA (SA) 7 THE BUSINESS ENVIRONMENT Figure 1.3 How South Asia (SA) ranks on Doing Business topics Regional average ranking Source: Doing Business database. Doing Business 2012 SOUTH ASIA (SA) 8 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing The absolute values of the indicators tell another part business tells only part of the story, so do changes in of the story (table 1.1). Policy makers can learn much that ranking. Yearly movements in rankings can by comparing the indicators for their economy with provide some indication of changes in an economy’s those for the lowest- and highest-scoring economies regulatory environment for firms, but they are always in the region as well as those for the best performers relative. An economy’s ranking might change because globally. These comparisons may reveal unexpected of developments in other economies. An economy that strengths in an area of business regulation—such as a implemented business regulation reforms may fail to regulatory process that can be completed with a small rise in the rankings (or may even drop) if it is passed number of procedures in a few days and at a low cost. by others whose business regulation reforms had a more significant impact as measured by Doing Business. Table 1.1 Summary of Doing Business indicators for South Asia (SA) Lowest regional Best regional Best global Indicator Regional average performance performance performance Starting a Business 166 (India) 30 (Afghanistan) 82 1 (New Zealand) (rank) Procedures (number) 12 (India) 4 (Afghanistan)* 7 1 (Canada)* Time (days) 36 (Bhutan) 7 (Afghanistan) 23 1 (New Zealand) Cost (% of income per 37.4 (Nepal) 4.7 (Sri Lanka) 21.6 0 (Denmark)* capita) Paid-in Min. Capital (% 149.6 (India) (6 Economies*) 19.1 (82 Economies*) of income per capita) Dealing with 1 (Hong Kong SAR, Construction Permits 181 (India) 20 (Maldives) 117 China) (rank) Procedures (number) 34 (India) 8 (Maldives) 16 5 (Denmark) Time (days) 334 (Afghanistan) 174 (Maldives) 222 26 (Singapore)* Cost (% of income per 4,876.4 (Afghanistan) 12.7 (Maldives) 980.0 1.1 (Qatar) capita) Getting Electricity 182 (Bangladesh) 95 (Sri Lanka) 128 1 (Iceland) (rank) Procedures (number) 7 (Bangladesh)* 4 (Sri Lanka)* 6 3 (Germany)* Time (days) 372 (Bangladesh) 67 (India) 145 17 (Germany) Cost (% of income per 3,956.8 (Afghanistan) 216.2 (India) 1775.9 0 (Japan) capita) Doing Business 2012 SOUTH ASIA (SA) 9 Lowest regional Best regional Best global Indicator Regional average performance performance performance Registering Property 173 (Bangladesh) 24 (Nepal) 123 3 (New Zealand) (rank) Procedures (number) 9 (Afghanistan) 3 (Nepal)* 6 1 (Portugal)* Time (days) 250 (Afghanistan) 5 (Nepal) 103 1 (Portugal) Cost (% of property 16.7 (Maldives) 5.0 (Nepal)* 7.3 0 (Slovak Republic) value) Getting Credit (rank) 166 (Maldives) 40 (India) 97 1 (United Kingdom)* Strength of legal rights 3 (Bhutan) 8 (India) 6 10 (New Zealand)* index (0-10) Depth of credit 2 (Bangladesh) 5 (Sri Lanka) 3 6 (Japan)* information index (0-6) Public registry coverage 0.6 (Bangladesh) 6.9 (Pakistan) 1.7 86.2 (Portugal) (% of adults) Private bureau coverage 0.0 (Maldives) 29.4 (Sri Lanka) 5.9 100 (New Zealand)* (% of adults) Protecting Investors 183 (Afghanistan) 24 (Bangladesh) 79 1 (New Zealand) (rank) Extent of disclosure 0 (Maldives) 7 (India) 5 10 (France)* index (0-10) Extent of director 1 (Afghanistan)* 8 (Maldives) 4 9 (Singapore)* liability index (0-10) Ease of shareholder 1 (Afghanistan) 9 (Nepal) 6 10 (New Zealand)* suits index (0-10) Strength of investor 1.0 (Afghanistan) 6.7 (Bangladesh) 5.0 9.7 (New Zealand) protection index (0-10) Paying Taxes (rank) 173 (Sri Lanka) 1 (Maldives) 99 8 (Canada) Payments (number per 71 (Sri Lanka) 3 (Maldives) 28 4 (Norway) year) Time (hours per year) 560 (Pakistan) 254 (India) 281 59 (Luxembourg) Trading Across 179 (Afghanistan) 53 (Sri Lanka) 125 1 (Singapore) Borders (rank) Documents to export 10 (Afghanistan) 6 (Sri Lanka)* 8 2 (France) (number) 5 (Hong Kong SAR, Time to export (days) 74 (Afghanistan) 16 (India) 32 China)* Cost to export (US$ per 3545 (Afghanistan) 660 (Pakistan) 1590 450 (Malaysia) container) Doing Business 2012 SOUTH ASIA (SA) 10 Lowest regional Best regional Best global Indicator Regional average performance performance performance Documents to import 12 (Bhutan) 6 (Sri Lanka) 9 2 (France) (number) Time to import (days) 77 (Afghanistan) 18 (Pakistan) 33 4 (Singapore) Cost to import (US$ per 3830 (Afghanistan) 705 (Pakistan) 1768 435 (Malaysia) container) Enforcing Contracts 182 (India) 35 (Bhutan) 135 1 (Luxembourg) (rank) Time (days) 1642 (Afghanistan) 225 (Bhutan) 1075 150 (Singapore) Cost (% of claim) 63.3 (Bangladesh) 0.1 (Bhutan) 27.2 0.1 (Bhutan) Procedures (number) 47 (Afghanistan)* 39 (Nepal) 43 21 (Ireland)* Resolving Insolvency 183 (Bhutan) 41 (Maldives) 99 1 (Japan) (rank) Time (years) 7.0 (India) 1.5 (Maldives) 3.4 0.4 (Ireland) Cost (% of estate) 25 (Afghanistan) 4 (Maldives)* 9 1 (Singapore)* Recovery rate (cents on 20.1 (India) 50.4 (Maldives) 29.0 92.7 (Japan) 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. * 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 SOUTH ASIA (SA) 11 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for INDICATORS MEASURE business owners and employees. Legal entities can outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures that are officially required or commonly received done in practice by an entrepreneur to start up and No prior contact with officials formally operate an industrial or commercial business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must Official costs only, no bribes deposit before registration (or within 3 months). The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost Paid-in minimum capital (% of income and paid-in minimum capital requirement. per capita) To make the data comparable across economies, Deposited in a bank or with a notary before Doing Business uses several assumptions about the registration (or within 3 months) business and the procedures. It assumes that all information is readily available to the entrepreneur • Conducts general commercial or industrial and that there has been no prior contact with activities. officials. It also assumes that all government and • Has a start-up capital of 10 times income per nongovernment entities involved in the process capita. function without corruption. And it assumes that the business: • Has a turnover of at least 100 times income per capita. • Is a limited liability company, located in the largest business city. • Does not qualify for any special benefits. • Has between 10 and 50 employees. • Does not own real estate. • Is 100% domestically owned. Doing Business 2012 SOUTH ASIA (SA) 12 STARTING A BUSINESS Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in South suggest an answer (figure 2.1). The average ranking of Asia (SA) to start a business? The global rankings of the region and comparator regions provide a useful these economies on the ease of starting a business benchmark. Figure 2.1 How economies in South Asia (SA) rank on the ease of starting a business Source: Doing Business database. The indicators underlying the rankings may be more and the paid-in minimum capital requirement (figure revealing. Data collected by Doing Business show what 2.2). Comparing these indicators across the region and it takes to start a business in each economy in the with averages both for the region and for comparator region: the number of procedures, the time, the cost regions can provide useful insights. Doing Business 2012 SOUTH ASIA (SA) 13 STARTING A BUSINESS Figure 2.2 What it takes to start a business in economies in South Asia (SA) Procedures (number) Doing Business 2012 SOUTH ASIA (SA) 14 STARTING A BUSINESS Time (days) Doing Business 2012 SOUTH ASIA (SA) 15 STARTING A BUSINESS Cost (% of income per capita) Doing Business 2012 SOUTH ASIA (SA) 16 STARTING A BUSINESS Paid-in minimum capital (% of income per capita) Source: Doing Business database. Doing Business 2012 SOUTH ASIA (SA) 17 STARTING A BUSINESS What are the changes over time? Economies around the world have taken steps making stages—and often as part of a larger regulatory reform it easier to start a business—streamlining procedures program. Among the benefits have been greater firm by setting up a one-stop shop, making procedures satisfaction and savings and more registered simpler or faster by introducing technology, and businesses, financial resources and job opportunities. reducing or eliminating minimum capital requirements. What business registration reforms has Doing Business Many have undertaken business registration reforms in recorded in South Asia (SA) (table 2.1)? Table 2.1 How have economies in South Asia (SA) made starting a business easier—or not? By Doing Business report year DB Year Economy Reform Bhutan eased the process of starting a business by making its DB2012 Bhutan criminal records search electronic and making the rubber company stamps available on the local market. Bangladesh made business start-up easier by eliminating the DB2011 Bangladesh requirement to buy adhesive stamps and further enhancing the online registration system. India eased business start-up by establishing an online VAT DB2011 India registration system and replacing the physical stamp previously required with an online version. Business start-ups were simplified by taking company registration out of the commercial courts and establishing a new company registry that acts as a one-stop shop DB2010 Afghanistan combining company registration, tax registration, and publication in the official gazette, and charges a flat registration fee Business start-up was simplified by launching online business DB2010 Bangladesh name clearance and registration, shortening start-up time by 29 days. Business start-up was simplified by introducing a system that allows online registration for sales tax and removing the requirement to make a declaration of compliance on a DB2010 Pakistan stamped paper. These moves removed four days and one procedure and halved the cost of the business start-up process. Starting a business has become easier. Bangladesh made DB2009 Bangladesh involving lawyers in company registration optional. That eliminated one procedure and reduced the cost by $100. Doing Business 2012 SOUTH ASIA (SA) 18 DB Year Economy Reform For entrepreneurs it was made easier to start limited liability trading companies by eliminating two procedures--name DB2008 Bhutan approval and location clearance--and increasing efficiency at the Registrar of Companies. The time to start operating a business in Thimphu decreased. A new companies act eliminated burdensome approvals and introduced a flat registration fee. Company seals and notaries DB2008 Sri Lanka were made optional. Procedures and the time for start-up decreased. 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 SOUTH ASIA (SA) 19 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone is better off. Completing all required notifications and receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking on the ease of dealing with Does not include time spent gathering construction permits is the simple average of the information percentile rankings on its component indicators: Each procedure starts on a separate day procedures, time and cost. Procedure completed once final document is To make the data comparable across economies, received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of income per capita) • Is a limited liability company operating in Official costs only, no bribes the construction business and located in • Will be connected to water, sewerage the largest business city. (sewage system, septic tank or their • Is domestically owned and operated. equivalent) and a fixed telephone line. The connection to each utility network will be 10 • Has 60 builders and other employees. meters (32 feet, 10 inches) long. The warehouse: • Will be used for general storage, such as of • Is a new construction (there was no books or stationery (not for goods requiring previous construction on the land). special conditions). • Has complete architectural and technical • Will take 30 weeks to construct (excluding all plans prepared by a licensed architect. delays due to administrative and regulatory requirements). Doing Business 2012 SOUTH ASIA (SA) 20 DEALING WITH CONSTRUCTION PERMITS Where do the region’s economies stand today? How easy it is for entrepreneurs in economies in South with construction permits suggest an answer (figure Asia (SA) to legally build a warehouse? The global 3.1). The average ranking of the region and rankings of these economies on the ease of dealing comparator regions provide a useful benchmark. Figure 3.1 How economies in South Asia (SA) rank on the ease of dealing with construction permits Source: Doing Business database. The indicators underlying the rankings may be more of procedures, the time and the cost (figure 3.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to comply with formalities to build a averages both for the region and for comparator warehouse in each economy in the region: the number regions can provide useful insights. Doing Business 2012 SOUTH ASIA (SA) 21 DEALING WITH CONSTRUCTION PERMITS Figure 3.2 What it takes to comply with formalities to build a warehouse in economies in South Asia (SA) Procedures (number) Doing Business 2012 SOUTH ASIA (SA) 22 DEALING WITH CONSTRUCTION PERMITS Time (days) Doing Business 2012 SOUTH ASIA (SA) 23 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) * Indicates a “no practice� mark. See the data notes for details. Source: Doing Business database. Doing Business 2012 SOUTH ASIA (SA) 24 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? 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 South Asia (SA) (table 3.1)? Construction is one of them. In an effort to ensure Table 3.1 How have economies in South Asia (SA) made dealing with construction permits easier—or not? By Doing Business report year DB Year Economy Reform The government made getting construction permits more DB2010 Sri Lanka difficult by increasing fees and adding a procedure. 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 SOUTH ASIA (SA) 25 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information • Is located in the economy’s largest Reflects the time spent in practice, with little business city, in an area where other follow-up and no prior contact with officials warehouses are located. Cost required to complete each procedure (% • Is not in a special economic zone where of income per capita) the connection would be eligible for subsidization or faster service. Official costs only, no bribes • Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land. • Is 150 meters long. • Is a new construction being connected to • Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either • Has 2 stories, both above ground, with a overhead or underground, whichever is more total surface of about 1,300.6 square common in the economy and in the area meters (14,000 square feet), and is built on where the warehouse is located. The length a plot of 929 square meters (10,000 square of any connection in the customer’s private feet). domain is negligible. The electricity connection: • Involves installing one electricity meter. The monthly electricity consumption will be 0.07 • Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2012 SOUTH ASIA (SA) 26 GETTING ELECTRICITY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in South getting electricity suggest an answer (figure 4.1). The Asia (SA) to connect a warehouse to electricity? The average ranking of the region and comparator regions global rankings of these economies on the ease of provide a useful benchmark. Figure 4.1 How economies in South Asia (SA) rank on the ease of getting electricity Source: Doing Business database. The indicators underlying the rankings may be more time and the cost (figure 4.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to get a new electricity connection in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Doing Business 2012 SOUTH ASIA (SA) 27 GETTING ELECTRICITY Figure 4.2 What it takes to get an electricity connection in economies in South Asia (SA) Procedures (number) Doing Business 2012 SOUTH ASIA (SA) 28 GETTING ELECTRICITY Time (days) Doing Business 2012 SOUTH ASIA (SA) 29 GETTING ELECTRICITY Cost (% of income per capita) Source: Doing Business database. Doing Business 2012 SOUTH ASIA (SA) 30 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with property title to the buyer’s name. The transaction the municipality) is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or resell it. The ranking on the ease of registering Does not include time spent gathering property is the simple average of the percentile information rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is To make the data comparable across economies, received several assumptions about the parties to the transaction, the property and the procedures are No prior contact with officials used. Cost required to complete each procedure The parties (buyer and seller): (% of property value) • Are limited liability companies, 100% Official costs only, no bribes domestically and privately owned. No value added or capital gains taxes included • Are located in the periurban area of the economy’s largest business city. • Have 50 employees each, all of whom are nationals. • Has no mortgages attached and has been under the same ownership for the past 10 • Perform general commercial activities. years. The property (fully owned by the seller): • Consists of 557.4 square meters (6,000 square • Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000 square feet). The warehouse is in good • Is registered in the land registry or condition and complies with all safety cadastre, or both, and is free of title standards, building codes and legal disputes. requirements. The property will be transferred • Is located in a periurban commercial zone, in its entirety. and no rezoning is required. Doing Business 2012 SOUTH ASIA (SA) 31 REGISTERING PROPERTY Where do the region’s economies stand today? How easy is it for entrepreneurs in economies in South suggest an answer (figure 5.1). The average ranking of Asia (SA) to transfer property? The global rankings of the region and comparator regions provide a useful these economies on the ease of registering property benchmark. Figure 5.1 How economies in South Asia (SA) rank on the ease of registering property Source: Doing Business database. The indicators underlying the rankings may be more time and the cost (figure 5.2). Comparing these revealing. Data collected by Doing Business show what indicators across the region and with averages both for it takes to complete a property transfer in each the region and for comparator regions can provide economy in the region: the number of procedures, the useful insights. Doing Business 2012 SOUTH ASIA (SA) 32 REGISTERING PROPERTY Figure 5.2 What it takes to register property in economies in South Asia (SA) Procedures (number) Doing Business 2012 SOUTH ASIA (SA) 33 REGISTERING PROPERTY Time (days) Doing Business 2012 SOUTH ASIA (SA) 34 REGISTERING PROPERTY Cost (% of property value) * Indicates a “no practice� mark. See the data notes for details. Source: Doing Business database. Doing Business 2012 SOUTH ASIA (SA) 35 REGISTERING PROPERTY What are the changes over time? Economies worldwide have been making it easier for buyers to use or mortgage their property earlier. What entrepreneurs to register and transfer property—such property registration reforms has Doing Business as by computerizing land registries, introducing time recorded in South Asia (SA) (table 5.1)? limits for procedures and setting low fixed fees. Many have cut the time required substantially—enabling Table 5.1 How have economies in South Asia (SA) made registering property easier—or not? By Doing Business report year DB Year Economy Reform Bangladesh reduced the property transfer tax to 6.7% of the DB2011 Bangladesh property value. Maldives now allows registered companies to own land as DB2011 Maldives long as all company shares are owned by Maldivians. Pakistan made registering property more expensive by DB2011 Pakistan doubling the capital value tax to 4%. The government eased property registration by cutting the DB2010 Afghanistan property transfer tax by 3 percent of property value. The Finance Act 2008 has reduced the fee for transferring a DB2010 Nepal property from 6.0 percent to 4.5 percent of the property’s value. The time needed to register property was cut by almost half DB2009 Bangladesh through reforms at the Municipal Deed Registry Office. Through a change in format of the required "circular form", entrepreneurs are required to obtain fewer approvals from DB2008 Afghanistan various government agencies and procedural steps to transfer property have decreased. In addition, some district courts' title deeds storages are being digitalized. Doing Business 2012 SOUTH ASIA (SA) 36 DB Year Economy Reform The National Assembly endorsed the Land Bill of Bhutan 2007 on June 27, 2007. Among other provisions that affect everything from surveys to government rights to land in the name of public interest, the Act states that a National Land Commission will be established and become the highest DB2008 Bhutan decision-making authority on land matters in Bhutan . The establishment of the Commission will eventually take land transactions out of the courts, thereby freeing up judges' time to deal with judicial matters, and speeding up both the process to transfer land and the time to solve civil disputes. In July 2006, the Sindh (province) Finance Act was issued that caused the stamp duty to decrease from 3% to 2% of property value. Karachi is located in Sindh province and therefore the new rate applies to our case. However, the DB2008 Pakistan positive impact of the reform was overcome by the reinstatement of the Capital Value Tax of 2% at the national level by the Finance Act 2006, causing a net increase of 1% property value in the total cost to transfer this year. 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 SOUTH ASIA (SA) 37 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit information index measures rules and practices Private credit bureau coverage (% of adults) affecting the coverage, scope and accessibility of Number of individuals and firms listed in credit information available through a public credit largest private credit bureau as percentage of registry or a private credit bureau. The strength of adult population legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine • Has 100 employees. the scope of the secured transactions system, • Is 100% domestically owned, as is the lender. involving a secured borrower and a secured lender and examining legal restrictions on the use of The ranking on the ease of getting credit is based on movable collateral. These scenarios assume that the the percentile rankings on its component indicators: borrower: the depth of credit information index (weighted at 37.5%) and the strength of legal rights index • Is a private, limited liability company. (weighted at 62.5%). • Has its headquarters and only base of operations in the largest business city. Doing Business 2012 SOUTH ASIA (SA) 38 GETTING CREDIT Where do the region’s economies stand today? How well do the credit information systems and credit suggest an answer (figure 6.1). The average collateral and bankruptcy laws in economies in South ranking of the region and comparator regions provide Asia (SA) facilitate access to credit? The global a useful benchmark. rankings of these economies on the ease of getting Figure 6.1 How economies in South Asia (SA) rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 SOUTH ASIA (SA) 39 GETTING CREDIT Another way to assess how well regulations and particular score on the strength of legal rights index. institutions support lending and borrowing in the Figure 6.3 shows the same thing for the depth of credit region is to look at the distribution of its economies by information index. Higher scores indicate stronger their scores on the getting credit indicators. Figure 6.2 legal rights for borrowers and lenders and more credit shows how many economies in the region received a information. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How extensive—and how accessible—is and lenders in economies in South Asia (SA)? credit information in economies in South Asia (SA)? Number of economies in region with each score on strength Number of economies in region with each score on depth of of legal rights index (0–10) credit information index (0–6) Source: Doing Business database. Source: Doing Business database. Doing Business 2012 SOUTH ASIA (SA) 40 GETTING CREDIT What are the changes over time? 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 South Asia (SA) (table 6.1)? Table 6.1 How have economies in South Asia (SA) made getting credit easier—or not? By Doing Business report year DB Year Economy Reform Bhutan improved its credit information system by launching DB2012 Bhutan the operation of a public credit registry. Access to credit was strengthened with a new law on secured transactions that broadens the scope of assets that can be DB2010 Afghanistan used as collateral—including future assets—and allows a general description of debts and obligations. The new law also allows out- of-court enforcement. 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 Sri Lanka 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 Sri Lanka 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. An electronic registry was introduced that covers the rights granted by companies. The registry can be searched by name of debtor, and is linked geographically to cover the whole DB2008 India country. The private credit bureau has incorporated firms to its database and now provides credit information on corporate entities. Doing Business 2012 SOUTH ASIA (SA) 41 DB Year Economy Reform The private credit bureau has expanded the scope of information distributed to include positive as well as negative credit information. In addition to late payments and defaults DB2008 Pakistan information, the original and outstanding loan amounts are now distributed to lenders as well. Pakistan 's public credit registry eliminated its loan threshold of 500,000 Pakistan rupees ($8,350), boosting coverage by 20 times. The credit bureau restricted the availability of information on DB2008 Sri Lanka repaid defaults to only 1 year, while defaults settled through the courts are kept for 3 years. 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 SOUTH ASIA (SA) 42 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority shareholder protections against directors’ use of Available legal remedies (damages, repayment corporate assets for personal gain—or self-dealing. of profits, fines, imprisonment and rescission The indicators distinguish 3 dimensions of investor of the transaction) protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and shareholders’ ability to sue officers and directors for Ease of shareholder suits index (0–10) misconduct (ease of shareholder suits index). The Documents and information available during ranking on the strength of investor protection index is trial the simple average of the percentile rankings on these 3 indices. To make the data comparable across Access to internal corporate documents economies, a case study uses several assumptions (directly or through a government inspector) about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, • Is a publicly traded corporation listed on the extent of director liability and ease of economy’s most important stock exchange shareholder suits indices (or at least a large private company with multiple shareholders). • The price is higher than the going price for used • Has a board of directors and a chief executive trucks, but the transaction goes forward. officer (CEO) who may legally act on behalf of • All required approvals are obtained, and all Buyer where permitted, even if this is not required disclosures made, though the specifically required by law. transaction is prejudicial to Buyer. The transaction involves the following details: • Shareholders sue the interested parties and the • Mr. James, a director and the majority members of the board of directors. shareholder of the company, proposes that the company purchase used trucks from another company he owns. Doing Business 2012 SOUTH ASIA (SA) 43 PROTECTING INVESTORS Where do the region’s economies stand today? How strong are investor protections in economies in protection of minority investors, a higher ranking does South Asia (SA)? The global rankings of these indicate that an economy’s regulations offer stronger economies on the strength of investor protection investor protections against self-dealing in the areas index suggest an answer (figure 7.1). While the measured. indicator does not measure all aspects related to the Figure 7.1 How economies in South Asia (SA) rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 SOUTH ASIA (SA) 44 PROTECTING INVESTORS But the overall ranking on the strength of investor be revealing (figure 7.2). Higher scores indicate protection index tells only part of the story. Economies stronger investor protections. Comparing the scores may offer strong protections in some areas but not across the region and with averages both for the others. So the scores recorded for economies in South region and for comparator regions can provide useful Asia (SA) on the extent of disclosure, extent of director insights. liability and ease of shareholder suits indices may also Figure 7.2 How strong are investor protections in economies in South Asia (SA)? Strength of investor protection index (0–10) Doing Business 2012 SOUTH ASIA (SA) 45 PROTECTING INVESTORS Extent of disclosure index (0–10) Doing Business 2012 SOUTH ASIA (SA) 46 PROTECTING INVESTORS Extent of director liability index (0–10) Doing Business 2012 SOUTH ASIA (SA) 47 PROTECTING INVESTORS Ease of shareholder suits index (0–10) Source: Doing Business database. Doing Business 2012 SOUTH ASIA (SA) 48 PROTECTING INVESTORS What are the changes over time? Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or revisions to court well-functioning courts and up-to-date procedural procedures. What investor protection reforms has rules that give minority investors the means to prove Doing Business recorded in South Asia (SA) (table 7.1)? their case and obtain a judgment within a reasonable Table 7.1 How have economies in South Asia (SA) strengthened investor protections—or not? By Doing Business report year DB Year Economy Reform Sri Lanka strengthened investor protections by requiring DB2012 Sri Lanka greater corporate disclosure in case of transactions between interested parties. 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 SOUTH ASIA (SA) 49 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about transactions made over the year. Information is Completing tax return forms, filing with also compiled on the frequency of filing and proper agencies payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is the simple average of the percentile rankings on Preparing separate tax accounting books, if its component indicators: number of annual required payments, time and total tax rate, with a threshold Total tax rate (% of profit before all taxes) 2 being applied to the total tax rate. To make the data comparable across economies, several Profit or corporate income tax assumptions about the business and the taxes and Social contributions and labor taxes paid by contributions are used. the employer • TaxpayerCo is a medium-size business that Property and property transfer taxes started operations on January 1, 2009. Dividend, capital gains and financial • The business starts from the same financial transactions taxes position in each economy. All the taxes and mandatory contributions paid during Waste collection, vehicle, road and other taxes the second year of operation are recorded. • Taxes and mandatory contributions include • Taxes and mandatory contributions are corporate income tax, turnover tax and all measured at all levels of government. labor taxes and contributions paid by the company. • A range of standard deductions and exemptions are also recorded. 2 The threshold is defined as the highest total tax rate among the top 30% of economies in the ranking on the total tax rate. It will be calculated and adjusted on a yearly basis. The threshold is not based on any underlying theory. Instead, it is intended to mitigate the effect of very low tax rates on the ranking on the ease of paying taxes. Doing Business 2012 SOUTH ASIA (SA) 50 PAYING TAXES Where do the region’s economies stand today? What is the administrative burden of complying with information for assessing the tax compliance burden taxes in economies in South Asia (SA)—and how much for businesses (figure 8.1). The average ranking of the do firms pay in taxes? The global rankings of these region and comparator regions provide a useful economies on the ease of paying taxes offer useful benchmark. Figure 8.1 How economies in South Asia (SA) 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 SOUTH ASIA (SA) 51 PAYING TAXES The indicators underlying the rankings may be more as well as the total tax rate (figure 8.2). Comparing revealing. Data collected by Doing Business show what these indicators across the region and with averages it takes to comply with tax regulations in each both for the region and for comparator regions can economy in the region—the number of payments per provide useful insights. year and the time required to prepare and file taxes— Figure 8.2 How easy is it to pay taxes in economies in South Asia (SA)—and what are the total tax rates? Payments (number per year) Doing Business 2012 SOUTH ASIA (SA) 52 PAYING TAXES Time (hours per year) Doing Business 2012 SOUTH ASIA (SA) 53 PAYING TAXES Total tax rate (% of profit) Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 SOUTH ASIA (SA) 54 PAYING TAXES What are the changes over time? Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. South Asia (SA) (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How have economies in South Asia (SA) made paying taxes easier—or not? By Doing Business report year DB Year Economy Reform India eased the administrative burden of paying taxes for DB2012 India firms by introducing mandatory electronic filing and payment for value added tax. DB2012 Pakistan Pakistan increased the profit tax rate for small firms. Sri Lanka made paying taxes less costly for businesses by abolishing the turnover tax and social security contribution DB2012 Sri Lanka and by reducing corporate income tax, value added tax and national building tax rates. India reduced the administrative burden of paying taxes by DB2011 India abolishing the fringe benefit tax and improving electronic payment. The corporate income tax rate was cut from 40 percent to DB2010 Bangladesh 37.5 percent, while increasing the capital gains tax rate from 5 percent to 15 percent. 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 SOUTH ASIA (SA) 55 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining all the documents (excluding tariffs) associated with exporting and importing a standard shipment of goods by ocean Inland transport and handling transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover procedural requirements such as documentation Port and terminal handling requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also cover trade logistics, including the time and cost of Cost required to export and import (US$ per inland transport to the largest business city. The container) ranking on the ease of trading across borders is All documentation the simple average of the percentile rankings on its component indicators: documents, time and cost Inland transport and handling to export and import. Customs clearance and inspections To make the data comparable across economies, Port and terminal handling Doing Business uses several assumptions about the Official costs only, no bribes business and the traded goods. The business: • Do not require refrigeration or any other • Is of medium size and employs 60 people. special environment. • Is located in the periurban area of the • Do not require any special phytosanitary or economy’s largest business city. environmental safety standards other than • Is a private, limited liability company, accepted international standards. domestically owned, formally registered • Are one of the economy’s leading export or and operating under commercial laws and import products. regulations of the economy. • Are transported in a dry-cargo, 20-foot full The traded goods: container load. • Are not hazardous nor do they include military items. Doing Business 2012 SOUTH ASIA (SA) 56 TRADING ACROSS BORDERS Where do the region’s economies stand today? How easy it is for businesses in economies in South across borders suggest an answer (figure 9.1). The Asia (SA) to export and import goods? The global average ranking of the region and comparator regions rankings of these economies on the ease of trading provide a useful benchmark. Figure 9.1 How economies in South Asia (SA) rank on the ease of trading across borders Source: Doing Business database. The indicators underlying the rankings may be more documents, the time and the cost (figure 9.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to export or import a standard container of averages both for the region and for comparator goods in each economy in the region: the number of regions can provide useful insights. Doing Business 2012 SOUTH ASIA (SA) 57 TRADING ACROSS BORDERS Figure 9.2 What it takes to trade across borders in economies in South Asia (SA) Documents to export (number) Doing Business 2012 SOUTH ASIA (SA) 58 TRADING ACROSS BORDERS Time to export (days) Doing Business 2012 SOUTH ASIA (SA) 59 TRADING ACROSS BORDERS Cost to export (US$ per container) Doing Business 2012 SOUTH ASIA (SA) 60 TRADING ACROSS BORDERS Documents to import (number) Doing Business 2012 SOUTH ASIA (SA) 61 TRADING ACROSS BORDERS Time to import (days) Doing Business 2012 SOUTH ASIA (SA) 62 TRADING ACROSS BORDERS Cost to import (US$ per container) Source: Doing Business database. Doing Business 2012 SOUTH ASIA (SA) 63 TRADING ACROSS BORDERS What are the changes over time? In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in South Asia (SA) (table 9.1)? risk-based inspections and electronic data interchange Table 9.1 How have economies in South Asia (SA) made trading across borders easier—or not? By Doing Business report year DB Year Economy Reform Pakistan reduced the time to export by improving electronic communication between the Karachi Port authorities and the DB2011 Pakistan private terminals, which have also boosted efficiency by introducing new equipment. Automation of customs clearance at the Chittagong port has DB2010 Bangladesh shortened the time required to clear goods. An electronic data interchange (EDI) was implemented, allowing exporters to submit documents to customs online. DB2009 India The EDI system also enables customs to automatically assess export documents, making customs clearance more efficient. The new system reduced the time needed to export. Through introduction of an Electronic Data Interchange (EDI) system, customs declarations are now carried out through the internet. This system has also allowed the operation of a Risk DB2008 India Management System (RMS), an E-manifest system, and an E- payment system which facilitated the decrease in import time by 7 days. An electronic submission of customs declarations was DB2008 Sri Lanka introduced, cutting time for trading. 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 SOUTH ASIA (SA) 64 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and What do the indicators cover? the judge or court officer Doing Business measures the efficiency of the Steps to file and serve the case judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its component indicators: procedures, time and cost. Time for trial and obtaining judgment The dispute in the case study involves the breach Time to enforce the judgment of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This distinguishes the case from simple debt No bribes enforcement. To make the data comparable across Average attorney fees economies, Doing Business uses several assumptions about the case: Court costs, including expert fees • The seller and buyer are located in the Enforcement costs economy’s largest business city. • The buyer orders custom-made goods, then fails to pay. • The dispute on the quality of the goods • The seller sues the buyer before a requires an expert opinion. competent court. • The judge decides in favor of the seller; there • The value of the claim is 200% of income is no appeal. per capita. • The seller enforces the judgment through a • The seller requests a pretrial attachment to public sale of the buyer’s movable assets. secure the claim. Doing Business 2012 SOUTH ASIA (SA) 65 ENFORCING CONTRACTS Where do the region’s economies stand today? How efficient is the process of resolving a commercial ease of enforcing contracts suggest an answer (figure dispute through the courts in economies in South Asia 10.1). The average ranking of the region and (SA)? The global rankings of these economies on the comparator regions provide a useful benchmark. Figure 10.1 How economies in South Asia (SA) rank on the ease of enforcing contracts Source: Doing Business database. The indicators underlying the rankings may also be procedures, the time and the cost (figure 10.2). revealing. Data collected by Doing Business show what Comparing these indicators across the region and with it takes to enforce a contract through the courts in averages both for the region and for comparator each economy in the region: the number of regions can provide useful insights. Doing Business 2012 SOUTH ASIA (SA) 66 ENFORCING CONTRACTS Figure 10.2 What it takes to enforce a contract through the courts in economies in South Asia (SA) Procedures (number) Doing Business 2012 SOUTH ASIA (SA) 67 ENFORCING CONTRACTS Time (days) Doing Business 2012 SOUTH ASIA (SA) 68 ENFORCING CONTRACTS Cost (% of claim) Source: Doing Business database. Doing Business 2012 SOUTH ASIA (SA) 69 ENFORCING CONTRACTS What are the changes over time? Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in South Asia (SA) (table introducing new technology. Lower-income economies 10.1)? often work on reducing backlogs by introducing Table 10.1 How have economies in South Asia (SA) made enforcing contracts easier—or not? By Doing Business report year DB Year Economy Reform Nepal improved oversight and monitoring in the court, DB2012 Nepal speeding up the process for filing claims. Enforcing contracts was made easier by creating a Land Commission to handle cases involving the transfer of property. Because a large number of land disputes had been DB2009 Bhutan ending up in court, setting up the new commission took about 30 percent of all cases out of the district courts. As a result, the total time required to enforce a contract through the courts was reduced. 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 SOUTH ASIA (SA) 70 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome of insolvency proceedings involving domestic Fees of insolvency administrators entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial institutions. The data are derived from survey Assessors’ and auctioneers’ fees responses by local insolvency practitioners and Other related fees verified through a study of laws and regulations as well as public information on bankruptcy systems. Recovery rate for creditors (cents on the dollar) The ranking on the ease of resolving insolvency is based on the recovery rate, which is recorded as Measures the cents on the dollar recovered cents on the dollar recouped by creditors through by creditors reorganization, liquidation or debt enforcement Present value of debt recovered (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings function of time, cost and other factors, such as are deducted lending rate and the likelihood of the company continuing to operate. Depreciation of furniture is taken into account To make the data comparable across economies, Doing Business uses several assumptions about the Outcome for the business (survival or not) business and the case. It assumes that the affects the maximum value that can be company: recovered • Is a domestically owned, limited liability company operating a hotel. • Has 201 employees, 1 main secured creditor • Operates in the economy’s largest business and 50 unsecured creditors. city. • Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2012 SOUTH ASIA (SA) 71 RESOLVING INSOLVENCY Where do the region’s economies stand today? How efficient are insolvency proceedings in economies benchmark for assessing the efficiency of insolvency in South Asia (SA)? The global rankings of these proceedings. Speed, low costs and continuation of economies on the ease of resolving insolvency suggest viable businesses characterize the top-performing an answer (figure 11.1). The average ranking of the economies. region and comparator regions provide a useful Figure 11.1 How economies in South Asia (SA) rank on the ease of resolving insolvency Source: Doing Business database. The indicators underlying the rankings may be more Comparing these indicators across the region and with revealing. Data collected by Doing Business show the averages both for the region and for comparator average time and cost required to resolve insolvency regions can provide useful insights. as well as the average recovery rate (figure 11.2). Doing Business 2012 SOUTH ASIA (SA) 72 RESOLVING INSOLVENCY Figure 11.2 How efficient is the insolvency process in economies in South Asia (SA) Time (years) Doing Business 2012 SOUTH ASIA (SA) 73 RESOLVING INSOLVENCY Cost (% of estate) Doing Business 2012 SOUTH ASIA (SA) 74 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) * Indicates a “no practice� mark. See the data notes for details. Source: Doing Business database. Doing Business 2012 SOUTH ASIA (SA) 75 RESOLVING INSOLVENCY What are the changes over time? A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in South Asia (SA) (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How have economies in South Asia (SA) made resolving insolvency easier—or not? By Doing Business report year DB Year Economy Reform Procedures under the 2002 Securitization Act have become DB2010 India more effective, easing the process and reducing the time required to close a business. 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 SOUTH ASIA (SA) 76 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the protection of property rights—and their effect on ECONOMY CHARACTERISTICS businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of regulation, such as the number of procedures to start a Gross national income (GNI) per capita business or to register and transfer commercial property. Second, they gauge the time and cost of Doing Business 2012 reports 2010 income per capita achieving a regulatory goal or complying with as published in the World Bank’s World regulation, such as the time and cost to enforce a Development Indicators 2011. Income is calculated contract, go through bankruptcy or trade across using the Atlas method (current US$). For cost borders. Third, they measure the extent of legal indicators expressed as a percentage of income per protections of property, for example, the protections capita, 2010 GNI in U.S. dollars is used as the of investors against looting by company directors or denominator. Data were not available from the the range of assets that can be used as collateral World Bank for Afghanistan; Australia; The Bahamas; according to secured transactions laws. Fourth, a set of Bahrain; Brunei Darussalam; Canada; Cyprus; indicators documents the tax burden on businesses. Djibouti; the Islamic Republic of Iran; Kuwait; New Finally, a set of data covers different aspects of Zealand; Oman; Puerto Rico (territory of the United employment regulation. States); Qatar; Saudi Arabia; Suriname; Taiwan, China; the United Arab Emirates; West Bank and The data for all sets of indicators in Doing Business Gaza; and the Republic of Yemen. In these cases 3 2012 are for June 2011. GDP or GNP per capita data and growth rates from the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Methodology Unit were used. The Doing Business data are collected in a standardized way. To start, the Doing Business team, Region and income group with academic advisers, designs a questionnaire. The Doing Business uses the World Bank regional and questionnaire uses a simple business case to ensure income group classifications, available at comparability across economies and over time—with http://www.worldbank.org/data/countryclass. The assumptions about the legal form of the business, its World Bank does not assign regional classifications size, its location and the nature of its operations. to high-income economies. For the purpose of the Questionnaires are administered through more than Doing Business report, high-income OECD 9,028 local experts, including lawyers, business economies are assigned the “regional� classification consultants, accountants, freight forwarders, OECD high income. Figures and tables presenting government officials and other professionals routinely regional averages include economies from all administering or advising on legal and regulatory income groups (low, lower middle, upper middle requirements. These experts have several rounds of and high income). interaction with the Doing Business team, involving conference calls, written correspondence and visits by Population the team. For Doing Business 2012 team members Doing Business 2012 reports midyear 2010 visited 40 economies to verify data and recruit population statistics as published in World respondents. The data from questionnaires are Development Indicators 2011. subjected to numerous rounds of verification, leading to revisions or expansions of the information collected. 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 SOUTH ASIA (SA) 77 The Doing Business methodology offers several business lacks information or is unable to follow up advantages. It is transparent, using factual information promptly. Alternatively, the business may choose to about what laws and regulations say and allowing disregard some burdensome procedures. For both multiple interactions with local respondents to clarify reasons the time delays reported in Doing Business potential misinterpretations of questions. Having 2012 would differ from the recollection of representative samples of respondents is not an issue; entrepreneurs reported in the World Bank Enterprise Doing Business is not a statistical survey, and the texts Surveys or other perception surveys. of the relevant laws and regulations are collected and answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be Subnational Doing Business indicators collected in a large sample of economies. Because This year Doing Business published a subnational study standard assumptions are used in the data collection, for the Philippines and a regional report for Southeast comparisons and benchmarks are valid across Europe covering 7 economies (Albania, Bosnia and economies. Finally, the data not only highlight the Herzegovina, Kosovo, the former Yugoslav Republic of extent of specific regulatory obstacles to business but Macedonia, Moldova, Montenegro and Serbia) and 22 also identify their source and point to what might be cities. It also published a city profile for Juba, in the reformed. Republic of South Sudan. Information on the methodology for each Doing The subnational studies point to differences in Business topic can be found on the Doing Business business regulation and its implementation—as well as website at http://www.doingbusiness.org/methodology/. in the pace of regulatory reform—across cities in the same economy. For several economies subnational studies are now periodically updated to measure Limits to what is measured change over time or to expand geographic coverage The Doing Business methodology has 5 limitations that to additional cities. This year that is the case for the should be considered when interpreting the data. First, subnational studies in the Philippines; the regional the collected data refer to businesses in the economy’s report in Southeast Europe; the ongoing studies in largest business city and may not be representative of Italy, Kenya and the United Arab Emirates; and the regulation in other parts of the economy. To address projects implemented jointly with local think tanks in this limitation, subnational Doing Business indicators Indonesia, Mexico and the Russian Federation. were created (see the section on subnational Doing Besides the subnational Doing Business indicators, Business indicators). Second, the data often focus on a Doing Business conducted a pilot study this year on specific business form—generally a limited liability the second largest city in 3 large economies to assess company (or its legal equivalent) of a specified size— within-country variations. The study collected data for and may not be representative of the regulation on Rio de Janeiro in addition to São Paulo in Brazil, for other businesses, for example, sole proprietorships. Beijing in addition to Shanghai in China and for St. Third, transactions described in a standardized case Petersburg in addition to Moscow in Russia. scenario refer to a specific set of issues and may not represent the full set of issues a business encounters. Fourth, the measures of time involve an element of Changes in what is measured judgment by the expert respondents. When sources indicate different estimates, the time indicators The methodology for 3 of the Doing Business topics reported in Doing Business represent the median was updated this year—getting credit, dealing with values of several responses given under the construction permits and paying taxes. assumptions of the standardized case. First, for getting credit, the scoring of one of the 10 Finally, the methodology assumes that a business has components of the strength of legal rights index was full information on what is required and does not amended to recognize additional protections of waste time when completing procedures. In practice, secured creditors and borrowers. Previously the completing a procedure may take longer if the highest score of 1 was assigned if secured creditors Doing Business 2012 SOUTH ASIA (SA) 78 were not subject to an automatic stay or moratorium business and a new measure, the “distance to frontier.� on enforcement procedures when a debtor entered a While the ease of doing business ranking compares court-supervised reorganization procedure. Now the economies with one another at a point in time, the highest score of 1 is also assigned if the law provides distance to frontier measure shows how much the secured creditors with grounds for relief from an regulatory environment for local entrepreneurs in each automatic stay or moratorium (for example, if the economy has changed over time. movable property is in danger) or sets a time limit for Ease of doing business the automatic stay. The ease of doing business index ranks economies Second, because the ease of doing business index now from 1 to 183. For each economy the ranking is includes the getting electricity indicators, procedures, calculated as the simple average of the percentile time and cost related to obtaining an electricity rankings on each of the 10 topics included in the index connection were removed from the dealing with in Doing Business 2012: starting a business, dealing construction permits indicators. with construction permits, registering property, getting Third, a threshold has been introduced for the total tax credit, protecting investors, paying taxes, trading rate for the purpose of calculating the ranking on the across borders, enforcing contracts, resolving ease of paying taxes. All economies with a total tax insolvency and, new this year, getting electricity. The rate below the threshold (which will be calculated and employing workers indicators are not included in this adjusted on a yearly basis) will now receive the same year’s aggregate ease of doing business ranking. In ranking on the total tax rate indicator. The threshold is addition to this year’s ranking, Doing Business presents not based on any underlying theory. Instead, it is a comparable ranking for the previous year, adjusted meant to emphasize the purpose of the indicator: to for any changes in methodology as well as additions of 4 highlight economies where the tax burden on business economies or topics. is high relative to the tax burden in other economies. Construction of the ease of doing business index Giving the same ranking to all economies whose total tax rate is below the threshold avoids awarding Here is one example of how the ease of doing business economies in the scoring for having an unusually low index is constructed. In the Republic of Korea it takes 5 total tax rate, often for reasons unrelated to procedures, 7 days and 14.6% of annual income per government policies toward enterprises. For example, capita in fees to open a business. There is no minimum economies that are very small or that are rich in capital required. On these 4 indicators Korea ranks in th th rd natural resources do not need to levy broad-based the 18 , 14 , 53 and 0 percentiles. So on average st taxes. Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on th th getting credit, 25 percentile on paying taxes, 8 Data challenges and revisions th percentile on enforcing contracts, 7 percentile on resolving insolvency and so on. Higher rankings Most laws and regulations underlying the Doing indicate simpler regulation and stronger protection of Business data are available on the Doing Business property rights. The simple average of Korea’s website at http://www.doingbusiness.org. All the st percentile rankings on all topics is 21 . When all sample questionnaires and the details underlying the economies are ordered by their average percentile indicators are also published on the website. Questions on the methodology and challenges to data can be submitted through the website’s “Ask a Question� 4 In case of revisions to the methodology or corrections to the function at http://www.doingbusiness.org. underlying data, the data are back-calculated to provide a comparable time series since the year the relevant economy or topic was first included in the data set. The time series is available on the Ease of doing business and distance to Doing Business website (http://www.doingbusiness.org). The Doing Business report publishes yearly rankings for the year of publication frontier as well as the previous year to shed light on year-to-year developments. Six topics and more than 50 economies have been This year’s report presents results for 2 aggregate added since the inception of the project. Earlier rankings on the measures: the aggregate ranking on the ease of doing ease of doing business are therefore not comparable. Doing Business 2012 SOUTH ASIA (SA) 79 rankings, Korea stands at 8 in the aggregate ranking investors). These correlations suggest that economies on the ease of doing business. rarely score universally well or universally badly on the indicators. More complex aggregation methods—such as principal components and unobserved components— Consider the example of Canada. It stands at 12 in the yield a ranking nearly identical to the simple average aggregate ranking on the ease of doing business. Its 5 used by Doing Business. Thus, Doing Business uses ranking is 3 on both starting a business and resolving the simplest method: weighting all topics equally and, insolvency, and 5 on protecting investors. But its within each topic, giving equal weight to each of the ranking is only 59 on enforcing contracts, 42 on 6 topic components. trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a Variation in performance across the indicator sets is specific area—for example, insolvency—it receives a not at all unusual. It reflects differences in the degree “no practice� mark. Similarly, an economy receives a of priority that government authorities give to “no practice� or “not possible� mark if regulation exists particular areas of business regulation reform and the but is never used in practice or if a competing ability of different government agencies to deliver regulation prohibits such practice. Either way, a “no tangible results in their area of responsibility. practice� mark puts the economy at the bottom of the Economies that improved the most across 3 or more ranking on the relevant indicator. Doing Business topics in 2010/11 The ease of doing business index is limited in scope. It Doing Business 2012 uses a simple method to calculate does not account for an economy’s proximity to large which economies improved the most in the ease of markets, the quality of its infrastructure services (other doing business. First, it selects the economies that in than services related to trading across borders and 2010/11 implemented regulatory reforms making it getting electricity), the strength of its financial system, easier to do business in 3 or more of the 10 topics the security of property from theft and looting, its 7 included in this year’s ease of doing business ranking. macroeconomic conditions or the strength of Thirty economies meet this criterion: Armenia, Burkina underlying institutions. Faso, Burundi, Cape Verde, the Central African Variability of economies’ rankings across topics Republic, Chile, Colombia, the Democratic Republic of Congo, Côte d’Ivoire, The Gambia, Georgia, Korea, Each indicator set measures a different aspect of the Latvia, Liberia, FYR Macedonia, Mexico, Moldova, business regulatory environment. The rankings of an Montenegro, Morocco, Nicaragua, Oman, Peru, economy can vary, sometimes significantly, across Russian Federation, São Tomé and Príncipe, Senegal, indicator sets. The average correlation coefficient Sierra Leone, Slovenia, the Solomon Islands, South between the 10 indicator sets included in the Africa and Ukraine. Second, Doing Business ranks these aggregate ranking is 0.36, and the coefficients economies on the increase in their ranking on the ease between any 2 sets of indicators range from 0.17 of doing business from the previous year using (between protecting investors and getting electricity) comparable rankings. to 0.57 (between starting a business and protecting Selecting the economies that implemented regulatory 5 reforms in at least 3 topics and improved the most in See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to the aggregate ranking is intended to highlight Do It� (World Bank, Washington, DC, 2005). Principal components economies with ongoing, broad-based reform and unobserved components methods yield a ranking nearly programs. identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less importance in the context of a specific economy. 6 7 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2012 SOUTH ASIA (SA) 80 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/