65415 Economy Profile: Malaysia © 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 Malaysia 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 34 Registering property .................................................................................................................. 40 Getting credit .............................................................................................................................. 50 Protecting investors ................................................................................................................... 57 Paying taxes ................................................................................................................................ 67 Trading across borders .............................................................................................................. 75 Enforcing contracts .................................................................................................................... 84 Resolving insolvency .................................................................................................................. 91 Data notes ................................................................................................................................... 97 Resources on the Doing Business website ............................................................................ 102 Doing Business 2012 Malaysia 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2010). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy‘s regulations affecting 10 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts and transparency of government procurement, resolving insolvency. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 183 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 32 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 18 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2012 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and indicators for Malaysia. To allow useful comparison, it recommends regulatory reforms. The data, along with also provides data for other selected economies information on ordering Doing Business 2012, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2011 (except for http://www.doingbusiness.org. Doing Business 2012 Malaysia 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy‘s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: East Asia & Pacific business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Upper middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 183 by the ease of Population: 27,913,990 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 7,900.00 percentile rankings on each of the 10 topics included in the index in Doing Business 2012: starting a business, DB2012 rank: 18 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2011 rank: 23 investors, paying taxes, trading across borders, Change in rank: 5 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see Note: See the data notes for sources and the data notes for more details). 1 definitions. The aggregate ranking on the ease of doing business benchmarks each economy‘s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 Malaysia 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2012 Malaysia 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy the regional average (figure 1.2). The economy‘s stands in the aggregate ranking on the ease of doing rankings on the topics included in the ease of doing business is useful. Also useful is to know how it ranks business index provide another perspective (figure compared with other economies and compared with 1.3). Figure 1.2 How Malaysia and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2012 Malaysia 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Malaysia ranks on Doing Business topics Source: Doing Business database. Doing Business 2012 Malaysia 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing This measure shows the distance of each economy to business tells only part of the story, so do changes in the ―frontier,‖ a synthetic measure based on the most that ranking. Yearly movements in rankings can efficient practice or highest score observed for each provide some indication of changes in an economy‘s Doing Business indicator across all economies and regulatory environment for firms, but they are always years included in the Doing Business sample since relative. An economy‘s ranking might change because 2005. Nine areas of business regulation are covered. of developments in other economies. An economy that Comparing the measure for an economy at 2 points in implemented business regulation reforms may fail to time allows users to assess how much the economy‘s rise in the rankings (or may even drop) if it is passed regulatory environment as measured by Doing by others whose business regulation reforms had a Business has changed over time—how far it has moved more significant impact as measured by Doing toward (or away from) the most efficient practices and Business. strongest regulations in areas covered by Doing Moreover, year-to-year changes in the overall rankings Business (figure 1.4). The results may show that the do not reflect how the business regulatory pace of change varies widely across the areas environment in an economy has changed over time— measured. They also may show that an economy is or how it has changed in different areas. To aid in relatively close to the frontier in some areas and assessing such changes, Doing Business 2012 relatively far from it in others. introduces the distance to frontier measure. Figure 1.4 How far has Malaysia come in the areas measured by Doing Business? Distance to frontier, 2005 and 2011 Note: For economies added to the Doing Business sample after 2005, the starting point is the year in which they were added: 2006 for Montenegro; 2007 for Brunei Darussalam, Liberia and Luxembourg; 2008 for The Bahamas, Bahrain and Qatar; and 2009 for Cyprus and Kosovo. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2012 Malaysia 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy‘s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Malaysia Best performer globally Hong Kong SAR, China Taiwan, China DB2012 Korea, Rep. DB2012 Malaysia DB2012 Malaysia DB2011 Thailand DB2012 Indicator Japan DB2012 China DB2012 DB2012 DB2012 Starting a Business 50 111 151 5 107 24 16 78 New Zealand (1) (rank) Procedures (number) 4 9 14 3 8 5 3 5 Canada (1)* Time (days) 6 17 38 3 23 7 10 29 New Zealand (1) Cost (% of income per 16.4 17.5 3.5 1.9 7.5 14.6 2.5 6.2 Denmark (0.0)* capita) Paid-in Min. Capital (% 0.0 0.0 100.4 0.0 0.0 0.0 0.0 0.0 82 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 113 111 179 1 63 26 87 14 China (1) (rank) Procedures (number) 22 22 33 6 14 12 25 8 Denmark (5) Time (days) 260 260 311 67 193 30 125 157 Singapore (26)* Cost (% of income per 7.1 7.9 444.1 17.8 27.9 79.5 41.9 9.5 Qatar (1.1) capita) Doing Business 2012 Malaysia 11 Best performer globally Hong Kong SAR, China Taiwan, China DB2012 Korea, Rep. DB2012 Malaysia DB2012 Malaysia DB2011 Thailand DB2012 Indicator Japan DB2012 China DB2012 DB2012 DB2012 Getting Electricity (rank) 59 60 115 4 26 11 3 9 Iceland (1) Procedures (number) 6 6 5 4 3 4 4 4 Germany (3)* Time (days) 51 51 145 43 117 49 23 35 Germany (17) Cost (% of income per 95.5 105.2 640.9 1.7 0.0 38.6 52.4 77.6 Japan (0.0) capita) Registering Property 59 59 40 57 58 71 33 28 New Zealand (3) (rank) Procedures (number) 5 5 4 5 6 7 3 2 Portugal (1)* Time (days) 48 48 29 36 14 11 5 2 Portugal (1) Cost (% of property 3.3 3.2 3.6 4.1 5.7 5.1 6.2 6.3 Slovak Republic (0.0) value) Getting Credit (rank) 1 1 67 4 24 8 67 67 United Kingdom (1)* Strength of legal rights 10 10 6 10 7 8 5 5 New Zealand (10)* index (0-10) Depth of credit 6 6 4 5 6 6 5 5 Japan (6)* information index (0-6) Public registry coverage 49.4 62.0 82.5 0.0 0.0 0.0 0.0 0.0 Portugal (86.2) (% of adults) Private bureau coverage 83.4 100.0 0.0 86.3 99.0 100.0 90.9 41.7 New Zealand (100.0)* (% of adults) Protecting Investors 4 4 97 3 17 79 79 13 New Zealand (1) (rank) Extent of disclosure 10 10 10 10 7 7 7 10 France (10)* index (0-10) Doing Business 2012 Malaysia 12 Best performer globally Hong Kong SAR, China Taiwan, China DB2012 Korea, Rep. DB2012 Malaysia DB2012 Malaysia DB2011 Thailand DB2012 Indicator Japan DB2012 China DB2012 DB2012 DB2012 Extent of director 9 9 1 8 6 2 4 7 Singapore (9)* liability index (0-10) Ease of shareholder suits 7 7 4 9 8 7 5 6 New Zealand (10)* index (0-10) Strength of investor 8.7 8.7 5.0 9.0 7.0 5.3 5.3 7.7 New Zealand (9.7) protection index (0-10) Paying Taxes (rank) 41 39 122 3 120 38 71 100 Canada (8) Payments (number per 13 12 7 3 14 12 15 23 Norway (4) year) Time (hours per year) 133 145 398 80 330 225 245 264 Luxembourg (59) Trading Across Borders 29 28 60 2 16 4 23 17 Singapore (1) (rank) Documents to export 6 6 8 4 3 3 6 5 France (2) (number) Hong Kong SAR, Time to export (days) 17 17 21 5 10 7 12 14 China (5)* Cost to export (US$ per 450 450 500 575 880 680 655 625 Malaysia (450) container) Documents to import 7 7 5 4 5 3 6 5 France (2) (number) Time to import (days) 14 14 24 5 11 7 12 13 Singapore (4) Cost to import (US$ per 435 450 545 565 970 695 720 750 Malaysia (435) container) Enforcing Contracts 31 60 16 5 34 2 88 24 Luxembourg (1) (rank) Doing Business 2012 Malaysia 13 Best performer globally Hong Kong SAR, China Taiwan, China DB2012 Korea, Rep. DB2012 Malaysia DB2012 Malaysia DB2011 Thailand DB2012 Indicator Japan DB2012 China DB2012 DB2012 DB2012 Time (days) 425 585 406 280 360 230 510 479 Singapore (150) Cost (% of claim) 27.5 27.5 11.1 21.2 32.2 10.3 17.7 12.3 Bhutan (0.1) Procedures (number) 29 30 34 26 30 33 45 36 Ireland (21)* Resolving Insolvency 47 57 75 16 1 13 14 51 Japan (1) (rank) Time (years) 1.5 2.3 1.7 1.1 0.6 1.5 1.9 2.7 Ireland (0.4) Cost (% of estate) 15 15 22 9 4 4 4 36 Singapore (1)* Recovery rate (cents on 44.6 39.8 36.1 81.2 92.7 82.3 82.1 43.3 Japan (92.7) the dollar) Note: The methodology for the paying taxes indicators changed in Doing Business 2012; see the data notes for details. For these indicators, the best performer globally is the economy that has implemented the most efficient practices in its tax system and is not necessarily the one with the highest ranking. For more information on “no practice� marks, see the data notes for details. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy‘s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2012 Malaysia 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy‘s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures that are officially required or commonly received done in practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that all government and nongovernment entities involved in the process  Has a turnover of at least 100 times income per capita. function without corruption. And it assumes that the business:  Does not qualify for any special benefits.  Is a limited liability company, located in the  Does not own real estate. largest business city.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2012 Malaysia 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Malaysia? costs 16.4% of income per capita and requires paid-in According to data collected by Doing Business, starting minimum capital of 0.0% of income per capita (figure a business there requires 4 procedures, takes 6 days, 2.1). Figure 2.1 What it takes to start a business in Malaysia Paid-in minimum capital (% of income per capita): 0.0 Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Malaysia 16 STARTING A BUSINESS Globally, Malaysia stands at 50 in the ranking of 183 regional average ranking provide other useful economies on the ease of starting a business (figure information for assessing how easy it is for an 2.2). The rankings for comparator economies and the entrepreneur in Malaysia to start a business. Figure 2.2 How Malaysia and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2012 Malaysia 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 2.1). easy (or difficult) it is to start a business in Malaysia That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 2.1 The ease of starting a business in Malaysia over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 111 50 Procedures (number) 10 10 10 10 10 10 10 9 4 Time (days) 37 37 37 37 31 20 18 17 6 Cost (% of income per 33.1 32.0 26.6 25.1 23.1 18.9 15.6 17.5 16.4 capita) Paid-in Min. Capital (% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 of income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Malaysia 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by Malaysia on ways to improve the ease of starting a the economies that today have the best performance business. And changes in regional averages can show regionally or globally on the procedures, time, cost or where Malaysia is keeping up—and where it is falling paid-in minimum capital required to start a business behind. (figure 2.3). These economies may provide a model for Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2012 Malaysia 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In the case of paid-in minimum capital, 82 economies globally and 14 economies in East Asia & Pacific have no paid-in minimum capital. Source: Doing Business database. Doing Business 2012 Malaysia 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Malaysia (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has Malaysia made starting a business easier—or not? By Doing Business report year DB Year Reform Malaysia made starting a business easier by merging company, tax, social security and employment fund DB2012 registrations at the one-stop shop and providing same-day registration. Malaysia eased business start-up by introducing more online DB2011 services. Business start-up was eased with a new one-stop shop to streamline registration. In addition, the Malaysian Institute of Chartered Secretaries and Administrators (MAICSA) reduced DB2010 company incorporation charges and corporate fees. The service is still new, and the government is planning a public awareness campaign about the new system. Amendments to the Companies Act simplified business DB2009 registration and reduced the time required by introducing online filing of registration documents. 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 Malaysia 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Malaysia is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Kuala Lumpur firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Sendirian Berhad (Sdn. Bhd.) - Private Limited professionals and the study of laws, regulations and Company publicly available information on business entry in Start-up capital: 10 times GNI per capita that economy. Following is a detailed summary of those procedures, along with the associated time Paid-in minimum capital (% of income per and cost. These procedures are those that apply to capita): 0.0 a company matching the standard assumptions (the ―standardized company‖) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Malaysia—and the time and cost Time to No. Procedure Cost to complete complete Application to the Companies Commission of Malaysia (CCM) on the prescribed form (13A) to ensure the availability of the proposed company's name MYR 30 per name 1 1 day search application Name search can be conducted online and payment can be made online Company Secretary prepares company incorporation documents 2 A company secretary is required to prepare the incorporation 3 days MYR 1000 documents and provide a statutory declaration of compliance (Companies Act 1965). File necessary documents with the Companies Commission of Malaysia (CCM) one-stop shop and obtain company incorporation, tax registration, as well as registration with the Employment Provident Fund (EPF), Social Security Organization and the Inland Revenue Board Comment: Promoters must pay the registration fee and file the MYR 3,000 following incorporation documents with the Companies Commission 1 day (registration fee)+ 3 within 3 months of name reservation: MYR 220 (stamp) - The memorandum and articles of association and the statutory declaration of compliance (Form 48A) (prepared by a lawyer or the company secretary). - The particulars of (a) two subscribers holding a minimum of one share of MYR 1 each and (b) At least two directors who have their principal or sole place of residence in Malaysia. - The original Form 13A and a copy of the letter from the CCM Doing Business 2012 Malaysia 22 Time to No. Procedure Cost to complete complete approving the name of the company have to be attached as well. - The address or location of the registered office. - Form 6 (statutory declaration of compliance) upholding compliance with the requirements of the Companies Act 1965 and the Companies Regulations on matters precedent and incidental to the company‘s registration. This form must be filed by the company secretary. After the submission of the incorporation papers, the CCM issues Form 9 (certificate of incorporation) in 1-2 working days upon lodgement of the relevant documents. The registration fee for the authorized share capital is charged the following scale and is payable to the Companies Commission: Capital up to MYR 100, 000: MYR 900; 100,001 to 500,000: MYR 2550; 500,001 to MYR 1 million: MYR 4250; 1,000,0001 to 5 million: MYR 6800; 5,000,001 to 10, 000,000: MYR 8500; 10,000,001 to MYR 25 Million: MYR 17,000; 25,000,001 to 50 Million: MYR 34,000; 50,000,001 to 100 Million: MYR 42,500; over 100 Million: MYR 59,500 Since April 01, 2010 the authority for stamping of documents has been delegated to the CCM and entrepreneurs no longer have to go to the Inland Revenue Board (IRB). The stamp cost is RM100 for the Memorandum and RM100 for the Articles with a 2nd set stamped at RM10 each. Purchase company seal, share certificates and statutory books from MYR 100 (post- the Companies Commission of Malaysia (CCM) 1 day incorporation 4 package) Usually, the seal can be ready in 3 days for RM100. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Malaysia 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy‘s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes  Is a limited liability company operating in  Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The  Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long.  Has 60 builders and other employees.  Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring  Is a new construction (there was no special conditions). previous construction on the land).  Will take 30 weeks to construct (excluding all  Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2012 Malaysia 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 22 procedures, takes 260 days build a warehouse in Malaysia? According to data and costs 7.1% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in Malaysia Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Malaysia 25 DEALING WITH CONSTRUCTION PERMITS Globally, Malaysia stands at 113 in the ranking of 183 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Malaysia to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Malaysia and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2012 Malaysia 26 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how of the process have changed—and which have not easy (or difficult) it is to deal with construction permits (table 3.1). That can help identify where the potential in Malaysia today, data over time show which aspects for improvement is greatest. Table 3.1 The ease of dealing with construction permits in Malaysia over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 111 113 Procedures (number) 22 22 22 22 22 22 22 Time (days) 284 284 284 260 260 260 260 Cost (% of income per 11.5 10.8 10.0 7.9 7.1 7.9 7.1 capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Malaysia 27 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by ways to improve the ease of dealing with construction the economies that today have the best performance permits. And changes in regional averages can show regionally or globally on the procedures, time or cost where Malaysia is keeping up—and where it is falling required to deal with construction permits (figure 3.3). behind. These economies may provide a model for Malaysia on Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2012 Malaysia 28 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Malaysia 29 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Malaysia (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has Malaysia made dealing with construction permits easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Malaysia 30 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Malaysia are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : Kuala Lumpur information collected from experts in construction licensing, including architects, construction Estimated lawyers, construction firms, utility service providers MYR 2,000,000 Warehouse Value : and public officials who deal with building regulations. These procedures are those that apply The procedures, along with the associated time and to a company and structure matching the standard cost, are summarized below. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Malaysia —and the time and cost Time to No. Procedure Cost to complete complete Request and obtain Planning Permission Planning permission, which is issued as a Development Order by the Planning Department of the local authority, authorizes development of the land. The permit is valid for 12 months, within which time construction must begin. The fees for the Planning Approval Application are MYR 40 for every 1,000 square meters for the first 10,000 square meters and MYR 20 for every additional 1,000 square meters for the next 5,000 square meters. Hence, the amount is calculated as follows: 14,000 square meters = 10,000 square meters + 4,000 square meters. First 10,000 square meters: MYR 40 x 10 = MYR 400 (MYR 40 per 1,000 square meters). 50 days MYR 480 1 Next 4,000 square meters: MYR 20 x 4 = MYR 80 (MYR 20 per 1,000 square meters). Total: MYR 400 + MYR 80 = MYR 480. The processing time for the applications is usually as follows: - 120 days for large-scale projects (consisting of complicated development plans, buildings of more than five levels, construction involving layout plans for a development area of more than 2 acres, or projects affecting the population density and change of zone area). - 60 days for mid-scale projects (requiring construction plans of buildings of fewer than five levels, a temporary change in land/building usage involving a land area of fewer than 5,000 square feet or involving changes/additions/alterations made to the available shops/housing units). - 45 days for small-scale projects (involving suggested Doing Business 2012 Malaysia 31 Time to No. Procedure Cost to complete complete additions/changes/alterations to existing bungalow units, two-story units and terrace units, and new bungalow units built in accordance with approved layout plans only). Request and obtain Building Plan Approval The approval of the building plans authorizes construction of the building within 12 months from the date of approval. Approval is granted by the Building Department of the local authority. 2 90 days MYR 1,301 The filing fees for the application for building plan approval are MYR 10 per 10 square meters or any part thereof (a minimum of MYR 100) under the First Schedule of the Federal Territory of Kuala Lumpur Building By-Laws of 1985. In the case here, involving a 1,300.6 sq. m. built-up area, the application fee would be MYR 1,300.60 * Request and obtain Approvals for Earthworks and Structural Drawings No approval is necessary for structural drawings. When the application for Building Plan Approval is submitted, the structural drawings for the site concerned are kept by the Building Department for record 3 purposes only. Approval of earthworks should be obtained from the 90 days MYR 100 Public Works Department. The cost of the approval can be ascertained only on submission of the construction drawings. However, as a guide, the department charges MYR 100 per hectare. A month after submission of the application for earthworks approval, the department issues either a formal approval or a comment. However, in practice, the process takes much longer. Request and obtain Approval from Planning Department (Local Authority) BuildCo must obtain several approvals from different departments 90 days no charge 4 within the local authority. Payment of application fees is made upon submission of the preliminary application for planning permission and building plan approval. (For the schedule of fees, see Procedures 1 and 2.) * Request and obtain Approval from Engineering Department (Local Authority) 90 days no charge 5 * Request and obtain Approval from Town Services Department (Local Authority) 90 days no charge 6 * Request and obtain Approval from Building Control Department (Local Authority) After construction has been completed, a final inspection is conducted 7 by the Building Department to issue its approval. Approval is granted 90 days no charge only after all approvals are obtained from the various departments listed in the development order, and is meant to ensure that the construction has been completed in compliance with the approved building plan and the requirements listed in it. The period of 3 to 4 Doing Business 2012 Malaysia 32 Time to No. Procedure Cost to complete complete months is just an estimate and might vary with the time it takes the various other departments or agencies to issue their approvals. After that, another 3 to 4 weeks following the final inspection are needed for the final approval from the Building Department to be issued. The Building Department supervises the construction work stage-by- stage by conducting on-site inspections and reviewing the progress report usually submitted by the architect after each stage. * Request and obtain Approval from the Public Works Department 8 90 days no charge * Receive drainage inspection from the Drainage & Irrigation Department 1 day no charge 9 The inspection takes place after a week‘s notice. * Obtain Approval from the Drainage & Irrigation Department 10 90 days no charge * Receive sanitary inspection from the Sewerage Services Department 1 day no charge 11 * Obtain Approval from the Sewerage Services Department The time it takes to obtain approval depends on the type of sewerage 90 days no charge 12 system used. It takes 3 months to process applications for sewerage systems used for treatment of discharge and a month to process applications for other types of sewerage systems. * Receive plumbing inspection from the Water Authority 13 1 day no charge * Obtain Approval from the Water Authority 14 90 days no charge * Receive fire inspection from the Fire & Rescue Department 15 1 day no charge Notification is provided 30 days prior to the date of the actual inspection. * Obtain Approval from the Fire & Rescue Department 16 90 days no charge * Obtain Approval from Telekom Malaysia (Telco) 17 90 days no charge * Connect to telecommunication services 18 14 days no charge * Connect to sewerage services 19 14 days no charge Doing Business 2012 Malaysia 33 Time to No. Procedure Cost to complete complete * Connect to water installations 20 14 days no charge * Receive final inspection 21 1 day no charge Request and obtain Certificate of Completion The Certificate of Completion has been introduced substituting the Certificate of Fitness for Occupation in 2007. Upon the coming into force (in force from 27 November 2007) of By-Law 23 of the Building (Federal Territory of Kuala Lumpur)(Amendment) By-Laws 1985, the Certificate of Completion is issued when forms G1 to G21 in respect of stage certifications as set out in the Second Schedule of the By-Laws 1985 have been duly certified and received by the principal submitting 22 person. The principal submitting person must also certify in Form F that 16 days no charge he has supervised the erection and completion of building and that to the best of his knowledge and belief the building has been constructed and completed in accordance with the Act, the By-Laws and the approved plans. The time to obtain request and obtain the certificate is about 16 days. For the issuance of a temporary certificate, By-Law 24 of the Federal Territory of Kuala Lumpur Building By-Laws 1985 which states that 10% of the amount of the application fee for the building plan approval is charged is no longer applicable and has been deleted by the P.U. (A) 394/2007:s.15. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Malaysia 34 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy‘s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is 150 meters long.  Is a new construction being connected to  Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead  Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer‘s private domain is feet). negligible. The electricity connection:  Involves installing one electricity meter. The monthly electricity consumption will be 0.07  Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2012 Malaysia 35 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 51 days and costs 95.5% of income connection in Malaysia? According to data collected by per capita (figure 4.1). Doing Business, getting electricity there requires 6 Figure 4.1 What it takes to obtain an electricity connection in Malaysia Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Malaysia 36 GETTING ELECTRICITY Globally, Malaysia stands at 59 in the ranking of 183 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in 4.2). The rankings for comparator economies and the Malaysia to connect a warehouse to electricity. Figure 4.2 How Malaysia and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2012 Malaysia 37 GETTING ELECTRICITY Even more helpful than rankings for other economies economies, the practices of their utilities may provide a may be the indicators underlying those rankings (table model for Malaysia on ways to improve the ease of 4.1). If obtaining a new electricity connection requires getting electricity. Regional and global averages on fewer procedures, less time or less cost in other these indicators may provide useful benchmarks. Table 4.1 The ease of getting electricity in Malaysia and comparator economies Pacific average Global average Taiwan, China Korea, Rep. Hong Kong East Asia & SAR, China Malaysia Thailand Japan China Indicator Rank 59 115 4 26 11 3 9 75 .. Procedures (number) 6 5 4 3 4 4 4 5 5 Time (days) 51 145 43 117 49 23 35 88 111 Cost (% of income per capita) 95.5 640.9 1.7 0.0 38.6 52.4 77.6 1,079.4 1,942.3 Source: Doing Business database. Doing Business 2012 Malaysia 38 GETTING ELECTRICITY What are the details? The indicators reported here for Malaysia are based on OBTAINING AN ELECTRICITY CONNECTION a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Kuala Lumpur utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: Tenaga Nasional Berhad verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Malaysia—and the time and cost Time to No. Procedure Cost to complete complete Hire certified electrical engineer who provides certificate of compliance of internal wiring 1 calendar day MYR 650.0 1 This is a requirement while submitting application to utility. Applicant submits application to Tenaga Nasional Berhad (TNB) via Electrical engineer, and awaits site visit Submission shall be complete with all relevant documents and load data. Supply application form availaible at TNB offices (online applications are 14 calendar days no charge 2 only available for domestic customers and housing delevopment projects). Documents to be attached are: site / location plan, electrical drawings, layout plan and identity card of owner. Douments to be attached include development plan approved by local authority, load profile & load details and premilinary metering scheme. Receive site visit from TNB and await estimate 3 7 calendar days no charge Once the utility engineer has visited the site, he submits the file for internal clearances, and then prepares the connection charge (estimate). Customer receives estimates, makes payment of connection charges and security deposit, and TNB conducts external connection Customer receives estimate and makes payment at the utility. Once 22 calendar days MYR 20,180.0 4 payment is received, utility commences external connection works, after getting internal approvals and permits from local authorities. Security deposit is 2 months electricity usage, reimbursed at the time the account is terminated. 5 * Electrical contractor purchases material and conducts external 7 calendar days MYR 4,500.0 Doing Business 2012 Malaysia 39 Time to No. Procedure Cost to complete complete connection works Some materials need to be purchased by customer (meter panel board, switchboard, cables, etc), which are related to the meter installation. This is available easily in local markets, and electrical contractor does the external connection. TNB installs meter and turns on electricity Customer receives security deposit notice from TNB and makes payment 6 of security deposit (reimbursed in third month bill). Customers submits 7 calendar days no charge Form G and H completed, electrical engineer's certificate of compliance of internal wiring (will need to provide this compliance certificate after all internal wiring is complete). TNB installs meter and turns on electricity. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Malaysia 40 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy‘s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer‘s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned.  Are located in the periurban area of the economy‘s largest business city.  Has no mortgages attached and has been under the same ownership for the past 10  Have 50 employees each, all of whom are years. nationals.  Consists of 557.4 square meters (6,000 square  Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal  Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2012 Malaysia 41 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 48 days and costs 3.3% of the Malaysia? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 5 Figure 5.1 What it takes to register property in Malaysia Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Malaysia 42 REGISTERING PROPERTY Globally, Malaysia stands at 59 in the ranking of 183 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Malaysia to transfer property. Figure 5.2 How Malaysia and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2012 Malaysia 43 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 5.1). easy (or difficult) it is to register property in Malaysia That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 5.1 The ease of registering property in Malaysia over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 59 59 Procedures (number) 5 5 5 5 5 5 5 5 Time (days) 144 144 144 144 144 144 48 48 Cost (% of property value) 3.0 3.1 3.1 3.2 3.2 3.3 3.2 3.3 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Malaysia 44 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by These economies may provide a model for Malaysia on the economies that today have the best performance ways to improve the ease of registering property. And regionally or globally on the procedures, time or cost changes in regional averages can show where Malaysia required to complete a property transfer (figure 5.3). is keeping up—and where it is falling behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2012 Malaysia 45 REGISTERING PROPERTY Cost (% of property value) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Malaysia 46 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Malaysia (table 5.2)? Table 5.2 How has Malaysia made registering property easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. Malaysia‘s introduction of online stamping reduced the time DB2011 and cost to transfer property. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Malaysia 47 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer‘s name—identified by Doing Business City: Kuala Lumpur through information collected from local property Property Value: 1,326,754.0 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in Malaysia—and the time and cost Time to No. Procedure Cost to complete complete Lawyer conducts necessary searches The sale-purchase agreement is sent to the Stamp Office for stamping. The parties will mutually agree on whose solicitors will prepare the sale- RM 54 (stamping 1 purchase agreement. The lawyer will usually conduct: 1 day fee) - Land search - Bankruptcy Search - Winding-up Search Lawyers' Buyer and seller sign sales-purchase agreement in presence of professional fee (not lawyer and lawyer fills out Form 14A Memorandum of Transfer including service tax and disbursements) The Memorandum of Transfer (Form 14A) has to be attested by a for preparing sale licensed professional - can be a lawyer or an official from the land office. and purchase This is stated in the Land Code. agreement and 2 1 day completing the Documentation shall include: transfer of property - Memorandum of Transfer (Form 14A) is as follows:- - Copy of the sale-purchase agreement For the first - Copy of title deed - Form PDS15 (Stamping Proforma) RM150,000 of the purchase price - 1% (subject to a minimum fee of RM3 Memorandum of Transfer (14A) sent to Stamp Office for adjudication of Stamp Duty and valuation by JPPH 1 - 8 days (online) 3 or up to 20 days no additional cost The valuation department will conduct an inspection to value the manually property, if required. The inspection is not mandatory to conclude the valuation and it is at the discretion of the valuation department, but in Doing Business 2012 Malaysia 48 Time to No. Procedure Cost to complete complete practice, it takes place in the majority of the cases. The Stamp Office will issue a notice of assessment based on the valuation department‘s report. Submission can be made either manually or online through the website http://pinharta.hasil.gov.my. E-stamping (online) is now available only to legal firms, banks, company secretaries, accounting firms and companies. If completed online the submission must include: 1. The sale-purchase agreement 2. Copy of the Issue Document of Title (IDT) 3. Form 14A 4. Form PDS 15 5. Other supporting documents Once accepted, an adjudication number will be assigned by the system. When the Stamp Office receives the submission, the documents are transferred to JPPH for valuation. When required, a valuation inspection will be made on the property by JPPH. In most of the cases, commercial properties will be assessed. The JPPH will prepare a valuation report which is sent to the Stamp Office. The applicant will be able to follow the status of the adjudication online. Payment of stamp duty and stamping of Form 14A Stamp duty must then be paid to the Stamp Office, based on the Notice of Assessment, within fourteen (14) days from the date of such notice or the period indicated by the Collector of Stamp Duty. Usually the Collector will give thirty (30) days from the date of such notice to pay the stamp duty. This procedure may take one day if the purchaser or purchaser‘s lawyer goes personally. Otherwise it can take up to 5-7 days 1% on first RM for the Memorandum of Transfer to be endorsed and be ready for collection. 100,000, 2% on excess of RM Payment may also be made electronically via Financial Processing 100,000 up to RM 4 1 day Exchange (FPX), or at the Stamp Office. 500,000 and 3% on excess over RM The documentation shall include: 500,000 (Stamp Form 14A (Memorandum of Transfer) duty) Notice of Assessment (obtained in Procedure 3) Form PDS 3 The documentation shall include: Form 14A (Memorandum of Transfer) Notice of Assessment (obtained in Procedure 3) The transfer is registered at the Land Office/Registry RM 100 (registration The purchaser‘s lawyer presents the duly stamped Memorandum of 21 - 60 days fee) + RM 60 (search 5 Transfer (Form 14A) for registration at the Land Office/Registry. This fee) must be done within three months from the date of the Memorandum of Transfer (Form 14A) which is usually dated when it is submitted for Doing Business 2012 Malaysia 49 Time to No. Procedure Cost to complete complete adjudication. A title search is conducted just prior to presentation to ensure that there are no encumbrances or restraint against dealings which may hinder the registration of the Memorandum of Transfer (Form 14A). The documentation shall include: • Copies of Quit rent and Assessment receipts • Certified true copies of the Memorandum and Articles of Association, Form 24 (Return on Allotment of Shares), Form 49 (Return Giving Particulars in Register of Directors, Managers and Secretaries and Changes of Particulars) of the Purchaser and Vendor • Certified true copies of the Vendor‘s and Purchaser‘s board resolutions giving authority to sell and purchase the property respectively • Search report on the Purchaser as extracted from the Companies Commission of Malaysia • Duly stamped Memorandum of Transfer (Form 14A) • Copy of Notice of Assessment bearing Stamp Office‘s endorsement that ad valorem stamp duty has been paid (obtained in Procedure 3) • Original of the title document After submission, the applicants get the ―presentation receipt‖ the same day. It gives the time of submission and that is the time of legal ―registration‖. The computerized system at the Land Registry also immediately tags the land as ‗pending transfer‘ and hence anyone searching the property can be informed. However, the ―presentation receipt‖ is not enough for Banks which will generally request the original title to grant loans. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Malaysia 50 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower‘s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors‘ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors‘ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine  Has 100 employees. the scope of the secured transactions system,  Is 100% domestically owned, as is the lender. involving a secured borrower and a secured lender and examining legal restrictions on the use of The ranking on the ease of getting credit is based on movable collateral. These scenarios assume that the the percentile rankings on its component indicators: borrower: the depth of credit information index (weighted at 37.5%) and the strength of legal rights index  Is a private, limited liability company. (weighted at 62.5%).  Has its headquarters and only base of operations in the largest business city. Doing Business 2012 Malaysia 51 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Malaysia stands at 1 in the ranking of 183 collateral and bankruptcy laws in Malaysia facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 6 on the The rankings for comparator economies and the depth of credit information index and a score of 10 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Malaysia support lending and scores indicate more credit information and stronger borrowing. legal rights for borrowers and lenders. Figure 6.1 How Malaysia and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 Malaysia 52 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened— well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Malaysia support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Malaysia over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 1 1 Strength of legal rights 10 10 10 10 10 10 10 10 index (0-10) Depth of credit 6 6 6 6 6 6 6 6 information index (0-6) Public registry coverage 33.9 33.7 42.2 44.5 52.9 48.5 62.0 49.4 (% of adults) Private bureau n.a. n.a. n.a. n.a. n.a. 82.0 100.0 83.4 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Malaysia 53 GETTING CREDIT One way to put an economy‘s getting credit indicators index for Malaysia in 2011 and shows the number of into context is to see where the economy stands in the other economies having the same score in 2011. distribution of scores across other economies. Figure Figure 6.3 shows the same thing for the depth of credit 6.2 highlights the score on the strength of legal rights information index. Figure 6.2 Have legal rights for borrowers and lenders Figure 6.3 Have the coverage and accessibility of credit become stronger? information grown? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2011 information index (0–6), 2011 Source: Doing Business database. Source: Doing Business database. Doing Business 2012 Malaysia 54 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs‘ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Malaysia (table 6.2)? Table 6.2 How has Malaysia made getting credit easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Malaysia 55 GETTING CREDIT What are the details? The getting credit indicators reported here for The data on the legal rights of borrowers and lenders Malaysia are based on detailed information collected are gathered through a survey of financial lawyers and in that economy. The data on credit information verified through analysis of laws and regulations as sharing are collected through a survey of a public well as public sources of information on collateral and credit registry or private credit bureau (if one exists). bankruptcy laws. For the strength of legal rights index, To construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in Malaysia East Asia & Indicator Malaysia OECD high income Pacific Strength of legal rights index (0-10) 10 7 7 Depth of credit information index (0-6) 6 2 5 Public registry coverage (% of adults) 49.4 10.3 9.5 Private bureau coverage (% of adults) 83.4 18.1 63.9 Strength of legal rights index (0–10) Index score: 10 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend Yes automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes debtor defaults outside an insolvency procedure? Doing Business 2012 Malaysia 56 Strength of legal rights index (0–10) Index score: 10 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 6 bureau registry Are data on both firms and individuals distributed? Yes Yes 1 Are both positive and negative data distributed? No Yes 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as Yes No 1 financial institutions? Are more than 2 years of historical credit information Yes Yes 1 distributed? Is data on all loans below 1% of income per capita Yes Yes 1 distributed? Is it guaranteed by law that borrowers can inspect No Yes 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms 385,000 806,000 Number of individuals 15,000,000 8,311,000 Source: Doing Business database. Doing Business 2012 Malaysia 57 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors‘ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders‘ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices  Is a publicly traded corporation listed on the economy‘s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns.  Has a board of directors and a chief executive  The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law.  All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer.  Mr. James, a director and the majority  Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2012 Malaysia 58 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Malaysia? The index (figure 7.1). While the indicator does not economy has a score of 8.7 on the strength of investor measure all aspects related to the protection of protection index, with a higher score indicating minority investors, a higher ranking does indicate that stronger protections (see the summary of scoring at an economy‘s regulations offer stronger investor the end of this chapter for details). protections against self-dealing in the areas measured. Globally, Malaysia stands at 4 in the ranking of 183 economies on the strength of investor protection Figure 7.1 How Malaysia and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 Malaysia 59 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how ranking on the strength of investor protection index well regulations in Malaysia protect minority investors over time shows whether the economy is slipping today, data over time show whether the protections behind other economies in investor protections—or have been strengthened (table 7.1). And the global surpassing them. Table 7.1 The strength of investor protections in Malaysia over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 4 4 Extent of disclosure 10 10 10 10 10 10 10 index (0-10) Extent of director 9 9 9 9 9 9 9 liability index (0-10) Ease of shareholder 7 7 7 7 7 7 7 suits index (0-10) Strength of investor 8.7 8.7 8.7 8.7 8.7 8.7 8.7 protection index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Malaysia 60 PROTECTING INVESTORS But the overall ranking on the strength of investor and ease of shareholder suits indices may also be protection index tells only part of the story. Economies revealing (figure 7.2). Equally interesting may be the may offer strong protections in some areas but not changes over time in the regional average scores for others. So the scores recorded over time for Malaysia those indices. on the extent of disclosure, extent of director liability Figure 7.2 Have investor protections become stronger? Strength of investor protection index (0-10) Extent of disclosure index (0-10) Doing Business 2012 Malaysia 61 PROTECTING INVESTORS Extent of director liability index (0-10) Ease of shareholder suits index (0-10) Note: The higher the score, the stronger the investor protections. The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Malaysia 62 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in Malaysia (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has Malaysia strengthened investor protections—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Malaysia 63 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for shareholder suits indices, a score is assigned for each Malaysia are based on detailed information collected of a range of conditions relating to disclosure, director through a survey of corporate and securities lawyers liability and shareholder suits in a standard case study and are based on securities regulations, company laws transaction (see the notes at the end of this chapter). and court rules of evidence. To construct the extent of The summary below shows the details underlying the disclosure, extent of director liability and ease of scores for Malaysia. Summary of scoring for the protecting investors indicators in Malaysia East Asia & Indicator Malaysia OECD high income Pacific Extent of disclosure index (0-10) 10 5 6 Extent of director liability index (0-10) 9 5 5 Ease of shareholder suits index (0-10) 7 6 7 Strength of investor protection index (0-10) 8.7 5.4 6.0 Score Extent of disclosure index (0-10) 10 What corporate body provides legally sufficient approval for the transaction? 3 Whether disclosure of the conflict of interest by Mr. James to the board of directors is 2 required? Whether immediate disclosure of the transaction to the public and/or shareholders is 2 required? Whether disclosure of the transaction in published periodic filings (annual reports) is 2 required? Whether an external body must review the terms of the transaction before it takes place? 1 Extent of director liability index (0-10) 9 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller 2 transaction causes to the company? Whether shareholders can hold members of the approving body liable for the damage that 2 the Buyer-Seller transaction causes to the company? Whether a court can void the transaction upon a successful claim by a shareholder plaintiff? 1 Doing Business 2012 Malaysia 64 Score Whether Mr. James pays damages for the harm caused to the company upon a successful 1 claim by the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 1 shareholder plaintiff? Whether fines and imprisonment can be applied against Mr. James? 1 Ease of shareholder suits index (0-10) 7 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction 0 documents before filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to 0 investigate the transaction? Whether the plaintiff can obtain any documents from the defendant and witnesses during 4 trial? Whether the plaintiff can request categories of documents from the defendant without 0 identifying specific ones? Whether the plaintiff can directly question the defendant and witnesses during trial? 2 Whether the level of proof required for civil suits is lower than that of criminal cases? 1 Strength of investor protection index (0-10) 8.7 Source: Doing Business database. Notes: Extent of disclosure index (0–10) Scoring for the extent of disclosure index is based on 5 components: Which corporate body can provide legally sufficient approval for the transaction 0 = CEO or managing director alone; 1 = shareholders or board of directors vote and Mr. James can vote; 2 = board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote. Whether disclosure of the conflict of interest by Mr. James to the board of directors is required 0 = no disclosure; 1 = disclosure of the existence of a conflict without any specifics; 2 = full disclosure of all material facts. Whether immediate disclosure of the transaction to the public, the regulator or the shareholders is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James‘s conflict of interest. Whether disclosure of the transaction in the annual report is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James‘s conflict of interest. Doing Business 2012 Malaysia 65 Whether it is required that an external body (for example, an external auditor) review the transaction before it takes place 0 = no; 1 = yes. Extent of director liability index (0–10) Scoring for the extent of director liability index is based on 7 components: Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction causes to the company 0 = suits are unavailable or available only for shareholders holding more than 10% of the company‘s share capital; 1 = direct or derivative suits available for shareholders holding 10% of share capital or less. Whether shareholders can hold Mr. James liable for the damage that the transaction causes to the company 0 = Mr. James is not liable or is liable only if he acted fraudulently or in bad faith; 1 = Mr. James is liable if he influenced the approval or was negligent; 2 = Mr. James is liable if the transaction is unfair or prejudicial to the other shareholders. Whether shareholders can hold the approving body (the CEO or members of the board of directors) liable for the damage that the transaction causes to the company 0 = members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1 = liable for negligence in the approval of the transaction; 2 = liable if the transaction is unfair or prejudicial to the other shareholders. Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0 = rescission is unavailable or available only in case of Seller‘s fraud or bad faith; 1 = rescission is available when the transaction is oppressive or prejudicial to the other shareholders; 2 = rescission is available when the transaction is unfair or entails a conflict of interest. Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether both fines and imprisonment can be applied against Mr. James 0 = no; 1 = yes. Ease of shareholder suits index (0–10) Scoring for the ease of shareholder suits index is based on 6 components: What range of documents is available to the plaintiff from the defendant and witnesses during trial Score of 1 for each of the following: information that the defendant has indicated he intends to rely on for his defense; information that directly proves specific facts in the plaintiff‘s claim; any information relevant to the subject matter of the claim; and any information that may lead to the discovery of relevant information. Doing Business 2012 Malaysia 66 Whether the plaintiff can directly examine the defendant and witnesses during trial 0 = no; 1 = yes, with prior approval by the court of the questions posed; 2 = yes, without prior approval. Whether the plaintiff can obtain categories of relevant documents from the defendant without identifying each document specifically 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital can request that a government inspector investigate the transaction without filing suit in court 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital have the right to inspect the transaction documents before filing suit 0 = no; 1 = yes. Whether the standard of proof for civil suits is lower than that for a criminal case 0 = no; 1 = yes. Strength of investor protection index (0–10) Simple average of the extent of disclosure, extent of director liability and ease of shareholder suits indices. Doing Business 2012 Malaysia 67 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 2 being applied to the total tax rate. To make the Profit or corporate income tax data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2009. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded.  Taxes and mandatory contributions include  Taxes and mandatory contributions are corporate income tax, turnover tax and all measured at all levels of government. labor taxes and contributions paid by the company.  A range of standard deductions and exemptions are also recorded. 2 The threshold is defined as the highest total tax rate among the top 30% of economies in the ranking on the total tax rate. It will be calculated and adjusted on a yearly basis. The threshold is not based on any underlying theory. Instead, it is intended to mitigate the effect of very low tax rates on the ranking on the ease of paying taxes. Doing Business 2012 Malaysia 68 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Malaysia stands at 41 in the ranking of 183 taxes in Malaysia—and how much do firms pay in economies on the ease of paying taxes (figure 8.1). The taxes? On average, firms make 13 tax payments a year, rankings for comparator economies and the regional spend 133 hours a year filing, preparing and paying average ranking provide other useful information for taxes and pay total taxes amounting to 17.0% of profit assessing the tax compliance burden for businesses in (see the summary at the end of this chapter for Malaysia. details). Figure 8.1 How Malaysia and comparator economies rank on the ease of paying taxes Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Malaysia 69 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how the process have changed — and which have not easy (or difficult) it is to comply with tax rules in (table 8.1). That can help identify where the potential Malaysia today, data over time show which aspects of for easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Malaysia over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 39 41 Payments (number per 35 35 35 12 12 12 13 year) Time (hours per year) 190 190 166 145 145 145 133 Total tax rate (% profit) 36.0 36.0 36.0 34.5 34.2 33.7 34.0 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the rank on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Malaysia 70 PAYING TAXES Equally helpful may be the benchmarks provided by ways to ease the administrative burden of tax the economies that today have the best performance compliance. And changes in regional averages can regionally or globally on the number of payments or show where Malaysia is keeping up—and where it is the time required to prepare and file taxes (figure 8.2). falling behind. These economies may provide a model for Malaysia on Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2012 Malaysia 71 PAYING TAXES Total tax rate (% of profit) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. The best performer globally on an indicator has implemented the most efficient practices in its tax system but is not necessarily the one with the highest ranking on the indicator. In some cases 2 or more economies share the top regional ranking on an indicator. DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Malaysia 72 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Malaysia (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Malaysia made paying taxes easier—or not? By Doing Business report year DB Year Reform Malaysia made paying taxes costlier for firms by reintroducing the real estate capital gains tax—but also DB2012 made tax compliance easier by improving electronic systems and the availability of software. DB2011 No reform. DB2010 No reform. The real property gains tax was abolished and the corporate income tax rate was reduced to 26 percent (the rate had previously been tiered). A further reduction to 25 percent is DB2009 planned for next year. The reform also introduced a single- tier tax system, in which profits are taxed only after dividend payments are exempted. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Malaysia 73 PAYING TAXES What are the details? The indicators reported here for Malaysia are based on completed during the year. Respondents are asked a standard set of taxes and contributions that would how much in taxes and mandatory contributions the be paid by the case study company used by Doing business must pay and what the process is for doing Business in collecting the data (see the section in this so. The taxes and contributions paid are listed in the chapter on what the indicators cover). Tax practitioners summary below, along with the associated number of are asked to review standard financial statements as payments, time and tax rate. well as a standard list of transactions that the company Summary of tax rates and administrative burden in Malaysia East Asia & Indicator Malaysia OECD high income Pacific Payments (number per year) 13 25 13 Time (hours per year) 133 215 186 Profit tax (%) 17.0 16.8 15.4 Labor tax and contributions (%) 15.6 10.7 24.0 Other taxes (%) 1.4 6.9 3.2 Total tax rate (% profit) 34.0 34.5 42.7 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate 20% on first MYR taxable Corporate income tax 1 online filing 26 500,000 16.7 profit and 25% on the balance monthly Provident fund 1 online filing 0 variable 13.7 salary Social security monthly 1 online filing 77 variable 1.9 contributions salary fixed fee vehicle tax 1 0 0.8 (MYR 8,545) annual Property tax 1 0 12.00% property 0.6 value Doing Business 2012 Malaysia 74 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Real Estate Capital Gains 1 0 5.00% capital gain 0.3 interest Tax on interest 0 0 25.00% 0 income depending of the value transaction Stamp duty 1 0 0 of value transaction Sales tax 6 30 10.00% sales 0 Totals 13 133 34.0 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 Malaysia 75 TRADING ACROSS BORDERS In today‘s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining all the documents (excluding tariffs) associated with exporting and Inland transport and handling importing a standard shipment of goods by ocean transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business:  Is of medium size and employs 60 people.  Do not require refrigeration or any other  Is located in the periurban area of the special environment. economy‘s largest business city.  Do not require any special phytosanitary or  Is a private, limited liability company, environmental safety standards other than domestically owned, formally registered accepted international standards. and operating under commercial laws and regulations of the economy.  Are one of the economy‘s leading export or import products. The traded goods:  Are transported in a dry-cargo, 20-foot full  Are not hazardous nor do they include container load. military items. Doing Business 2012 Malaysia 76 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Malaysia? Globally, Malaysia stands at 29 in the ranking of 183 According to data collected by Doing Business, economies on the ease of trading across borders exporting a standard container of goods requires 6 (figure 9.1). The rankings for comparator economies documents, takes 17 days and costs $450. Importing and the regional average ranking provide other useful the same container of goods requires 7 documents, information for assessing how easy it is for a business takes 14 days and costs $435 (see the summary of in Malaysia to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Malaysia and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2012 Malaysia 77 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 9.1). easy (or difficult) it is to export or import in Malaysia That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 9.1 The ease of trading across borders in Malaysia over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 28 29 Documents to export 6 6 6 6 6 6 6 (number) Time to export (days) 17 17 17 17 17 17 17 Cost to export (US$ per 432 432 432 450 450 450 450 container) Documents to import 7 7 7 7 7 7 7 (number) Time to import (days) 14 14 14 14 14 14 14 Cost to import (US$ per 385 385 385 450 450 450 435 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Equally helpful may be the benchmarks provided by economies may provide a model for Malaysia on ways the economies that today have the best performance to improve the ease of trading across borders. And regionally or globally on the documents, time or cost changes in regional averages can show where Malaysia required to export or import (figure 9.2). These is keeping up—and where it is falling behind. Doing Business 2012 Malaysia 78 TRADING ACROSS BORDERS Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2012 Malaysia 79 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2012 Malaysia 80 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Malaysia 81 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms‘ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Malaysia (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has Malaysia made trading across borders easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Malaysia 82 TRADING ACROSS BORDERS What are the details? The indicators reported here for Malaysia are based on freight forwarders, shipping lines, customs brokers, a set of specific procedural requirements for trading a port officials and banks. The procedural requirements, standard shipment of goods by ocean transport (see and the associated time and cost, for exporting and the section in this chapter on what the indicators importing a standard shipment of goods are listed in cover). Information on the procedures as well as the the summary below, along with the required required documents and the time and cost to documents. complete each procedure is collected from local Summary of procedures and documents for trading across borders in Malaysia East Asia & Indicator Malaysia OECD high income Pacific Documents to export (number) 6 6 4 Time to export (days) 17 22 10 Cost to export (US$ per container) 450 906 1,032 Documents to import (number) 7 7 5 Time to import (days) 14 23 11 Cost to import (US$ per container) 435 954 1,085 Procedures to export Time (days) Cost (US$) Documents preparation 10 95 Customs clearance and technical control 1 65 Ports and terminal handling 3 120 Inland transportation and handling 3 170 Totals 17 450 Procedures to import Time (days) Cost (US$) Documents preparation 9 85 Customs clearance and technical control 1 65 Ports and terminal handling 2 120 Inland transportation and handling 2 165 Totals 14 435 Doing Business 2012 Malaysia 83 TRADING ACROSS BORDERS Documents to export Documents to import Bill of lading Bill of lading Customs export declaration Cargo release order Commercial invoice Certificate of origin Certificate of origin Commercial invoice Cargo release order Customs import declaration Packing List Packing list Terminal handling receipts Doing Business 2012 Malaysia 84 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs, including expert fees assumptions about the case: Enforcement costs  The seller and buyer are located in the economy‘s largest business city.  The buyer orders custom-made goods,  The dispute on the quality of the goods then fails to pay. requires an expert opinion.  The seller sues the buyer before a  The judge decides in favor of the seller; there competent court. is no appeal.  The value of the claim is 200% of income  The seller enforces the judgment through a per capita. public sale of the buyer‘s movable assets.  The seller requests a pretrial attachment to secure the claim. Doing Business 2012 Malaysia 85 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Malaysia stands at 31 in the ranking of 183 dispute through the courts in Malaysia? According to economies on the ease of enforcing contracts (figure data collected by Doing Business, enforcing a contract 10.1). The rankings for comparator economies and the requires 29 procedures, takes 425 days and costs regional average ranking provide other useful 27.5% of the value of the claim (see the summary at benchmarks for assessing the efficiency of contract the end of this chapter for details). enforcement in Malaysia. Figure 10.1 How Malaysia and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2012 Malaysia 86 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how identify which areas have changed and where the easy (or difficult) it is to enforce a contract in Malaysia potential for improvement is greatest (table 10.1). today, data on the underlying indicators over time help Table 10.1 The ease of enforcing contracts in Malaysia over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 60 31 Time (days) 600 600 600 600 600 600 585 585 425 Cost (% of claim) 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5 Procedures (number) 30 30 30 30 30 30 30 30 29 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Malaysia 87 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by for Malaysia on ways to improve the efficiency of the economies that today have the best performance contract enforcement. And changes in regional regionally or globally on the number of steps, time or averages can show where Malaysia is keeping up—and cost required to enforce a contract through the courts where it is falling behind. (figure 10.2). These economies may provide a model Figure 10.2 Has enforcing contracts become easier over time? Procedures (number) Time (days) Doing Business 2012 Malaysia 88 ENFORCING CONTRACTS Cost (% of claim) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Malaysia 89 ENFORCING CONTRACTS Economies in all regions have improved contract often work on reducing backlogs by introducing enforcement in recent years. A judiciary can be periodic reviews to clear inactive cases from the docket improved in different ways. Higher-income economies and by making procedures faster. What reforms tend to look for ways to enhance efficiency by making it easier (or more difficult) to enforce contracts introducing new technology. Lower-income economies has Doing Business recorded in Malaysia (table 10.2)? Table 10.2 How has Malaysia made enforcing contracts easier—or not? By Doing Business report year DB Year Reform Malaysia continued to improve the computerization of its DB2012 courts by introducing a system making it possible to file complaints electronically. DB2011 No reform. Enforcing contracts through the courts was made easier by DB2010 increased staff and stricter deadlines that have shortened case filing times from 45 days to 30. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Malaysia 90 ENFORCING CONTRACTS What are the details? The indicators reported here for Malaysia are based on codes of civil procedure and other court regulations, as a set of specific procedural steps required to resolve a well as through surveys completed by local litigation standardized commercial dispute through the courts lawyers (and, in a quarter of the economies covered by (see the section in this chapter on what the indicators Doing Business, by judges as well). The procedures for cover). These procedures, and the time and cost of resolving a commercial lawsuit, and the associated completing them, are identified through study of the time and cost, are listed in the summary below. Summary of procedures for enforcing a contract in Malaysia—and the time and cost East Asia & Indicator Malaysia OECD high income Pacific Time (days) 425 518.71 518.03 Filing and service 35 Trial and judgment 270 Enforcement of judgment 120 Cost (% of claim) 27.5 47.79 19.71 Attorney cost (% of claim) 20.15 Court cost (% of claim) 1.1 Enforcement Cost (% of claim) 6.2 Procedures (number) 29 36.75 31.42 Source: Doing Business database. Doing Business 2012 Malaysia 91 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers‘ fees proceedings of individuals and financial Assessors‘ and auctioneers‘ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be business and the case. It assumes that the recovered company:  Is a domestically owned, limited liability company operating a hotel.  Has 201 employees, 1 main secured creditor  Operates in the economy‘s largest business and 50 unsecured creditors. city.  Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2012 Malaysia 92 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses Globally, Malaysia stands at 47 in the ranking of 183 characterize the top-performing economies. How economies on the ease of resolving insolvency (figure efficient are insolvency proceedings in Malaysia? 11.1). The rankings for comparator economies and the According to data collected by Doing Business, regional average ranking provide other useful resolving insolvency takes 1.5 years on average and benchmarks for assessing the efficiency of insolvency costs 15% of the debtor‘s estate. The average recovery proceedings in Malaysia. rate is 44.6 cents on the dollar. Figure 11.1 How Malaysia and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2012 Malaysia 93 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the changed—and where it has not (table 11.1). That can efficiency of insolvency proceedings in Malaysia today, help identify where the potential for improvement is data over time show where the efficiency has greatest. Table 11.1 The ease of resolving insolvency in Malaysia over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 57 47 Time (years) 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 1.5 Cost (% of estate) 15 15 15 15 15 15 15 15 15 Recovery rate (cents on 38.3 38.6 38.8 38.7 38.3 38.6 38.6 39.8 44.6 the dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2012 Malaysia 94 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by ways to improve the efficiency of insolvency the economies that today have the best performance proceedings. And changes in regional averages can regionally or globally on the time or cost of insolvency show where Malaysia is keeping up—and where it is proceedings or on the recovery rate (figure 11.2). falling behind. These economies may provide a model for Malaysia on Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2012 Malaysia 95 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Malaysia 96 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Malaysia (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Malaysia made resolving insolvency easier—or not? By Doing Business report year DB Year Reform Malaysia established dedicated commercial courts to handle DB2012 foreclosure proceedings. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Malaysia 97 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income (GNI) per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2012 reports 2010 income per capita property. Second, they gauge the time and cost of as published in the World Bank‘s World Development achieving a regulatory goal or complying with Indicators 2011. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2010 GNI in contract, go through bankruptcy or trade across U.S. dollars is used as the denominator. Data were borders. Third, they measure the extent of legal not available from the World Bank for Afghanistan; protections of property, for example, the protections Australia; The Bahamas; Bahrain; Brunei Darussalam; of investors against looting by company directors or Canada; Cyprus; Djibouti; the Islamic Republic of the range of assets that can be used as collateral Iran; Kuwait; New Zealand; Oman; Puerto Rico according to secured transactions laws. Fourth, a set of (territory of the United States); Qatar; Saudi Arabia; indicators documents the tax burden on businesses. Suriname; Taiwan, China; the United Arab Emirates; Finally, a set of data covers different aspects of West Bank and Gaza; and the Republic of Yemen. In employment regulation. these cases GDP or GNP per capita data and growth rates from the International Monetary Fund‘s World The data for all sets of indicators in Doing Business Economic Outlook database and the Economist 3 2012 are for June 2011. Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and income group classifications, available at The Doing Business data are collected in a http://www.worldbank.org/data/countryclass. The standardized way. To start, the Doing Business team, World Bank does not assign regional classifications with academic advisers, designs a questionnaire. The to high-income economies. For the purpose of the questionnaire uses a simple business case to ensure Doing Business report, high-income OECD comparability across economies and over time—with economies are assigned the ―regional‖ classification assumptions about the legal form of the business, its OECD high income. Figures and tables presenting size, its location and the nature of its operations. regional averages include economies from all Questionnaires are administered through more than income groups (low, lower middle, upper middle 9,028 local experts, including lawyers, business and high income). consultants, accountants, freight forwarders, Population government officials and other professionals routinely administering or advising on legal and regulatory Doing Business 2012 reports midyear 2010 population statistics as published in World requirements. These experts have several rounds of Development Indicators 2011. interaction with the Doing Business team, involving conference calls, written correspondence and visits by the team. For Doing Business 2012 team members The Doing Business methodology offers several visited 40 economies to verify data and recruit advantages. It is transparent, using factual information respondents. The data from questionnaires are about what laws and regulations say and allowing subjected to numerous rounds of verification, leading multiple interactions with local respondents to clarify to revisions or expansions of the information collected. potential misinterpretations of questions. Having representative samples of respondents is not an issue; 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 Malaysia 98 Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business published a subnational study comparisons and benchmarks are valid across for the Philippines and a regional report for Southeast economies. Finally, the data not only highlight the Europe covering 7 economies (Albania, Bosnia and extent of specific regulatory obstacles to business but Herzegovina, Kosovo, the former Yugoslav Republic of also identify their source and point to what might be Macedonia, Moldova, Montenegro and Serbia) and 22 reformed. cities. It also published a city profile for Juba, in the Information on the methodology for each Doing Republic of South Sudan. Business topic can be found on the Doing Business The subnational studies point to differences in website at http://www.doingbusiness.org/methodology/. business regulation and its implementation—as well as in the pace of regulatory reform—across cities in the same economy. For several economies subnational Limits to what is measured studies are now periodically updated to measure The Doing Business methodology has 5 limitations that change over time or to expand geographic coverage should be considered when interpreting the data. First, to additional cities. This year that is the case for the the collected data refer to businesses in the economy‘s subnational studies in the Philippines; the regional largest business city and may not be representative of report in Southeast Europe; the ongoing studies in regulation in other parts of the economy. To address Italy, Kenya and the United Arab Emirates; and the this limitation, subnational Doing Business indicators projects implemented jointly with local think tanks in were created (see the section on subnational Doing Indonesia, Mexico and the Russian Federation. Business indicators). Second, the data often focus on a Besides the subnational Doing Business indicators, specific business form—generally a limited liability Doing Business conducted a pilot study this year on company (or its legal equivalent) of a specified size— the second largest city in 3 large economies to assess and may not be representative of the regulation on within-country variations. The study collected data for other businesses, for example, sole proprietorships. Rio de Janeiro in addition to São Paulo in Brazil, for Third, transactions described in a standardized case Beijing in addition to Shanghai in China and for St. scenario refer to a specific set of issues and may not Petersburg in addition to Moscow in Russia. represent the full set of issues a business encounters. Fourth, the measures of time involve an element of judgment by the expert respondents. When sources Changes in what is measured indicate different estimates, the time indicators reported in Doing Business represent the median The methodology for 3 of the Doing Business topics values of several responses given under the was updated this year—getting credit, dealing with assumptions of the standardized case. construction permits and paying taxes. Finally, the methodology assumes that a business has First, for getting credit, the scoring of one of the 10 full information on what is required and does not components of the strength of legal rights index was waste time when completing procedures. In practice, amended to recognize additional protections of completing a procedure may take longer if the secured creditors and borrowers. Previously the business lacks information or is unable to follow up highest score of 1 was assigned if secured creditors promptly. Alternatively, the business may choose to were not subject to an automatic stay or moratorium disregard some burdensome procedures. For both on enforcement procedures when a debtor entered a reasons the time delays reported in Doing Business court-supervised reorganization procedure. Now the 2012 would differ from the recollection of highest score of 1 is also assigned if the law provides secured creditors with grounds for relief from an Doing Business 2012 Malaysia 99 automatic stay or moratorium (for example, if the regulatory environment for local entrepreneurs in each movable property is in danger) or sets a time limit for economy has changed over time. the automatic stay. Ease of doing business Second, because the ease of doing business index now The ease of doing business index ranks economies includes the getting electricity indicators, procedures, from 1 to 183. For each economy the ranking is time and cost related to obtaining an electricity calculated as the simple average of the percentile connection were removed from the dealing with rankings on each of the 10 topics included in the index construction permits indicators. in Doing Business 2012: starting a business, dealing Third, a threshold has been introduced for the total tax with construction permits, registering property, getting rate for the purpose of calculating the ranking on the credit, protecting investors, paying taxes, trading ease of paying taxes. All economies with a total tax across borders, enforcing contracts, resolving rate below the threshold (which will be calculated and insolvency and, new this year, getting electricity. The adjusted on a yearly basis) will now receive the same employing workers indicators are not included in this ranking on the total tax rate indicator. The threshold is year‘s aggregate ease of doing business ranking. In not based on any underlying theory. Instead, it is addition to this year‘s ranking, Doing Business presents meant to emphasize the purpose of the indicator: to a comparable ranking for the previous year, adjusted highlight economies where the tax burden on business for any changes in methodology as well as additions of 4 is high relative to the tax burden in other economies. economies or topics. Giving the same ranking to all economies whose total Construction of the ease of doing business index tax rate is below the threshold avoids awarding economies in the scoring for having an unusually low Here is one example of how the ease of doing business total tax rate, often for reasons unrelated to index is constructed. In the Republic of Korea it takes 5 government policies toward enterprises. For example, procedures, 7 days and 14.6% of annual income per economies that are very small or that are rich in capita in fees to open a business. There is no minimum natural resources do not need to levy broad-based capital required. On these 4 indicators Korea ranks in th th rd taxes. the 18 , 14 , 53 and 0 percentiles. So on average st Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on Data challenges and revisions th getting credit, 25 percentile on paying taxes, 8 th th percentile on enforcing contracts, 7 percentile on Most laws and regulations underlying the Doing resolving insolvency and so on. Higher rankings Business data are available on the Doing Business indicate simpler regulation and stronger protection of website at http://www.doingbusiness.org. All the property rights. The simple average of Korea‘s sample questionnaires and the details underlying the st percentile rankings on all topics is 21 . When all indicators are also published on the website. Questions economies are ordered by their average percentile on the methodology and challenges to data can be rankings, Korea stands at 8 in the aggregate ranking submitted through the website‘s ―Ask a Question‖ on the ease of doing business. function at http://www.doingbusiness.org. More complex aggregation methods—such as principal components and unobserved components— Ease of doing business and distance to frontier 4 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a This year‘s report presents results for 2 aggregate comparable time series since the year the relevant economy or topic measures: the aggregate ranking on the ease of doing was first included in the data set. The time series is available on the business and a new measure, the ―distance to frontier.‖ Doing Business website (http://www.doingbusiness.org). The Doing While the ease of doing business ranking compares Business report publishes yearly rankings for the year of publication as well as the previous year to shed light on year-to-year economies with one another at a point in time, the developments. Six topics and more than 50 economies have been distance to frontier measure shows how much the added since the inception of the project. Earlier rankings on the ease of doing business are therefore not comparable. Doing Business 2012 Malaysia 100 yield a ranking nearly identical to the simple average Consider the example of Canada. It stands at 12 in the 5 used by Doing Business. Thus, Doing Business uses aggregate ranking on the ease of doing business. Its the simplest method: weighting all topics equally and, ranking is 3 on both starting a business and resolving within each topic, giving equal weight to each of the insolvency, and 5 on protecting investors. But its 6 topic components. ranking is only 59 on enforcing contracts, 42 on trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a Variation in performance across the indicator sets is ―no practice‖ mark. Similarly, an economy receives a not at all unusual. It reflects differences in the degree ―no practice‖ or ―not possible‖ mark if regulation exists of priority that government authorities give to but is never used in practice or if a competing particular areas of business regulation reform and the regulation prohibits such practice. Either way, a ―no ability of different government agencies to deliver practice‖ mark puts the economy at the bottom of the tangible results in their area of responsibility. ranking on the relevant indicator. Economies that improved the most across 3 or more The ease of doing business index is limited in scope. It Doing Business topics in 2010/11 does not account for an economy‘s proximity to large Doing Business 2012 uses a simple method to calculate markets, the quality of its infrastructure services (other which economies improved the most in the ease of than services related to trading across borders and doing business. First, it selects the economies that in getting electricity), the strength of its financial system, 2010/11 implemented regulatory reforms making it the security of property from theft and looting, its easier to do business in 3 or more of the 10 topics macroeconomic conditions or the strength of 7 included in this year‘s ease of doing business ranking. underlying institutions. Thirty economies meet this criterion: Armenia, Burkina Variability of economies’ rankings across topics Faso, Burundi, Cape Verde, the Central African Republic, Chile, Colombia, the Democratic Republic of Each indicator set measures a different aspect of the Congo, Côte d'Ivoire, The Gambia, Georgia, Korea, business regulatory environment. The rankings of an Latvia, Liberia, FYR Macedonia, Mexico, Moldova, economy can vary, sometimes significantly, across Montenegro, Morocco, Nicaragua, Oman, Peru, Russia, indicator sets. The average correlation coefficient São Tomé and Príncipe, Senegal, Sierra Leone, between the 10 indicator sets included in the Slovenia, the Solomon Islands, South Africa and aggregate ranking is 0.36, and the coefficients Ukraine. Second, Doing Business ranks these between any 2 sets of indicators range from 0.17 economies on the increase in their ranking on the ease (between protecting investors and getting electricity) of doing business from the previous year using to 0.57 (between starting a business and protecting comparable rankings. investors). These correlations suggest that economies rarely score universally well or universally badly on the Selecting the economies that implemented regulatory indicators. reforms in at least 3 topics and improved the most in the aggregate ranking is intended to highlight economies with ongoing, broad-based reform programs. 5 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to Distance to frontier measure Do It‖ (World Bank, Washington, DC, 2005). Principal components This year‘s report introduces a new measure to and unobserved components methods yield a ranking nearly identical to that from the simple average method because both illustrate how the regulatory environment for local these methods assign roughly equal weights to the topics, since the businesses in each economy has changed over time. pairwise correlations among indicators do not differ much. An The distance to frontier measure illustrates the alternative to the simple average method is to give different weights distance of an economy to the ―frontier‖ and shows to the topics, depending on which are considered of more or less importance in the context of a specific economy. 6 7 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2012 Malaysia 101 the extent to which the economy has closed this gap The difference between an economy‘s distance to over time. The frontier is a score derived from the most frontier score in 2005 and its score in 2011 illustrates efficient practice or highest score achieved on each of the extent to which the economy has closed the gap to the component indicators in 9 Doing Business indicator the frontier over time. sets (excluding the employing workers and getting The maximum (max) and minimum (min) observed electricity indicators) by any economy since 2005. In values are computed for the 174 economies included starting a business, for example, New Zealand has in the Doing Business sample since 2005 and for all achieved the highest performance on the time (1 day), years (from 2005 to 2011). The year 2005 was chosen Canada and New Zealand on the number of as the baseline for the economy sample because it was procedures required (1), Denmark and Slovenia on the the first year in which data were available for the cost (0% of income per capita) and Australia on the majority of economies (a total of 174) and for all 9 paid-in minimum capital requirement (0% of income indicator sets included in the measure. To mitigate the per capita). effects of extreme outliers in the distributions of the Calculating the distance to frontier for each economy rescaled data (very few economies need 694 days to involves 2 main steps. First, individual indicator scores complete the procedures to start a business, but many th are normalized to a common unit. To do so, each of need 9 days), the maximum (max) is defined as the 95 the 32 component indicators y is rescaled to (y − percentile of the pooled data for all economies and all min)/(max − min), with the minimum value (min) years for each indicator. representing the frontier—the highest performance on Take Colombia, which has a score of 0.21 on the that indicator across all economies since 2005. Second, distance to frontier measure for 2011. This score for each economy the scores obtained for individual indicates that the economy is 21 percentage points indicators are aggregated through simple averaging away from the frontier constructed from the best into one distance to frontier score. An economy‘s performances across all economies and all years. distance to the frontier is indicated on a scale from 0 Colombia was further from the frontier in 2005, with a to 100, where 0 represents the frontier and 100 the score of 0.43. The difference between the scores shows lowest performance. an improvement over time. Doing Business 2012 Malaysia 102 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2012 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 183 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Reports http://www.doingbusiness.org/custom-query/ Access to Doing Business reports as well as subnational and regional reports, reform case Law library studies and customized economy and regional Online collection of business laws and profiles regulations relating to business and gender http://www.doingbusiness.org/reports/ issues http://www.doingbusiness.org/law-library/ Methodology http://wbl.worldbank.org/ The methodologies and research papers underlying Doing Business Contributors http://www.doingbusiness.org/methodology/ More than 9,000 specialists in 183 economies who participate in Doing Business Research http://www.doingbusiness.org/contributors/doing- Abstracts of papers on Doing Business topics business/ and related policy issues http://www.doingbusiness.org/research/ Doing Business 2012 Malaysia 103