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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Sri Lanka’s ‘Doing Business’ Ranking: Two sides of a coin

Sri Lanka’s ‘Doing Business’ Ranking: Two sides of a coin

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Sri Lanka’s ‘Doing Business’ Ranking: Two sides of a coin
October 29, 2012, 12:00 pm

The Island

By Ravi Ladduwahetty

The Central Bank, last Friday, hosted a conference with Economic Development Minister Basil Rajapaksa and Governor Ajith Nivard Cabraal jointly chairing it, to take cognizance of the World Bank rankings of the country under the theme Sri Lanka’s "Doing Business Ranking" for 2013 and Future Strategies.

The outline of the conference was Sri Lanka Doing Business Ranking for 2013, reasons for improvement, Revision of the 2012 Rank, the performance of the South Asian Region and the Way Forward.

The World Bank report says that Sri Lanka is the second most improved economy and also that "for the first time in seven years, a South Asian economy- Sri Lanka ranks among the most in the ease of doing business". The "Doing Business Index" is compiled by the World Bank Group( The World Bank and the International Finance Corporation- the private sector arm of the World Bank) and the ranking reflects the ease of doing business in a country, compared with the other countries in the world. The Doing Business (DB) comprises ten quantitative indicators on business regulations which could be compared against 185 countries across the globe. The areas covered were: Starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

It also transpired that Sri Lanka’s DB rankings had improved from the 98th position in 2011 to 89th position in 2012 and 81th position out of a possible 185 countries, moving up 15 places from this year to next year. Further highlights are that Sri Lanka, according to the WB study, is the second most improved country in the world in terms of DB rankings and the highest ranking country in the South Asian region and for the first time in seven years, a South Asian country ranks as the most improved.

The World Bank has recognised four core areas where Sri Lanka has implemented reforms which are: computerizing and expediting the process of obtaining a registration number for the Employees Provident Find and the Employees Trust Fund, introducing an electronic system in the Land Registry in Colombo, the strengthening of the secured transaction system by establishing an electronic searchable collateral registry at the CRIB and issuing regulations for its operation and reducing the time taken to export by implementing the ASYCUIDA World Electronic Data Interchange system. However, the Central Bank says that it cannot be satisfied or be complacent with these achievements and efforts are made to improve the regulatory environment for businesses of the targets are to be achieved to per capita income in the medium term. There are many areas that could be improved and further reforms are to be undertaken. The need to improve rankings were also stressed at the meeting.

It is also believed that the improved DB rankings with a better regulatory framework would also enhance the efficiency and the productive businesses in this country which would also demonstrate the commitment to good governance by the public sector. One of the moan aims of is to promote a favourable business climate and to propel Sri Lanka to be one of the most favoured investment destinations with improved rankings. The exchange of ideas will also assist in mapping out a blue print of implementation strategies to achieve the country’s national goals.

Sri Lanka is placed second as among the most improved economies in 2012 with 81 points and only behind Poland with 55 points. Sri Lanka is ahead of Ukraine, Uzbekistan,Burundi, Costa Rica, Mongolia, Greece, Serbia and Kazakhstan in that order among the first 10 countries in the rankings among 185 countries.

Another highlight is that Sri Lanka ranks first among the South Asian countries with 81st place ahead of Maldives (95), Pakistan ( 107), Nepal ( 108), Bangladesh (129), India ( 132), Bhutan (148) and Afghanistan (168) but in selected Asian countries, ranks behind table leaders Malaysia ( 12) Thailand (18), China ( 91) but is ahead of Vietnam (99), Indonesia ( 128 and Philippines ( 138)

Central Bank Deputy Governor Dr. Nandalal Weerasinghe, in his brief opening remarks, said that Sri Lanka could be proud of these rankings but it was not for officials to be complacent. "These are specially resounding victories for the country as a nation, but we cannot afford to rest on these laurels. We need to engage in special efforts to improve rankings further to make Sri Lanka a favoured investment destination and further drastic reforms were necessary to increase competitiveness."

Improvements and

Central Bank Assistant Governor C.J.P. Siriwardena in a detailed power point presentation, said: " Of the areas that Sri Lanka has improved in the rankings for 2013 over 2012, Starting a business has jumped 38 points up from the 71 in 2012 to 33 for next year, which has been attributable to the EPF number being issued within one hour at the Labour Department Head office from January 2012 and within one day at the Provincial offices from March 2012. Registering property has also improved by 21 points from 164 to 143 which has been attributable to the Registrar General’s Department introducing a new electronic system and administrative changes to ensure the faster registration of the Sale Deeds. Paying taxes has also improved from 175 to 169, the number of payments per year improving from 71 to 61 and the time hours per year from 256 to 254. The tax reductions and the abolishment were considered for DB 2013 ranking after they have been effective for a full tax year. The abolishment of the turnover tax, the Social Responsibility Levy and the Debit Tax and the reduction of the Statutory Corporate Income Tax and the Nation Building Tax also contributed to that as well.

Getting credit has also improved from 80 to 70 with the CRIB establishing a searchable electronic collateral registry and issuing regulations for its operation, dealing with construction permits – up 4 points from 116 to 112 where procedure No. 6 of obtaining the Defence clearance issued by the Ministry of Defence was removed which resulted in the total duration reduced. The trading across borders also improved by one point with the Sri Lanka Customs implementing the ASYCUDA electronic system by reducing the time to export by one day getting electricity a mere one point from 104 to 103, and enforcing contracts also a mere one point from 134 to 133.

The institutions which contributed to the improvement of the ranking are: Labour Department for starting a business, the Land Registry for Registering Property, CRIB for getting credit, the Ministry of Finance for paying taxes, the Colombo Municipal Council for paying taxes and the Sri Lanka Customs for trading across borders.

However, on the negative side, protecting investors has declined by three points from 46 to 49, trading across borders, down 2 points from 54 to 56 and resolving insolvency- down 2 points from 49 to 51 between the two years under review. Siriwardena also said that little or nothing has been done in the areas which had negative rankings and that efforts will be made this year to improve those as well.

Way forward

Some of the proposed measures for improvement in these rankings are: having a one stop shop in the Registrar of Companies and putting procedures online, and under dealing with the construction permits which will integrate the operations of Colombo Municipal Council, Sri Lanka Telecom and the National Water Supply and Drainage Board will also aim to reduce the time taken to issue development permits to 75 days, the Certificate of Compliance to 45 days, the telephone connection to 14 days and the water connection to 32 days while also having a one stop shop. The way forward for getting electricity would be for the Ceylon Electricity Board to streamline the approval process where the utility obtains the excavation permit and also providing transparent connection costs.

The way forward for the registration of the property was updating the website of the Land Registry, further reducing the duration, offering expedited procedures and having closed service employees at the Land Registry.

The proposed way forward for getting credit is for the Credit Information Bureau to resolve matters relating to the legal index, distribution of both positive and negative credit information and the distribution of credit information from retailers, trade creditors or utilities as well as financial institutions. For paying taxes, the proposed way forward is for the Inland Revenue Department to have an online system of tax filing and payments, and also for EPF and ETF as well. Trading across borders would e improved with the Sri Lanka Customs allowing electronic submissions and processing and providing a single window. Enforcing contracts would also be improved with the Ministry of Justice reducing the time taken to completing litigation procedures and with the Justice Ministry also providing a legal framework for out- of- courts workouts for reducing insolvency. It is also seen that the specifications of time limits for the majority of insolvency issues would also help.

Central Bank Governor Ajith Nivard Cabraal said that President Mahinda Rajapaksa had directed the Central Bank to ensure that Sri Lanka comes to at least to position 30 in the overall rankings by 2015 and that Economic Development Minister basil Rajapaksa had given positive guidance with the coordination of the government Ministries towards that goal. He said that the way forward for the next few years would be positive with the country gaining ground in the improvement of the World Bank rankings for 2013.

Discussions were also held on how to start a business and registration. The involvement of the Labour Department was also stressed. Officials pointed out that there were no delays of the registration of companies or the opening of bank accounts, but the delay was in the EPF and the ETF aspects. It was also proposed that this be brought under a one stop shop. Officials also said that the registration of companies had improved in Colombo limiting it to a mere one hour and that the outstation offices were also alerted to provide the company registration in one day. It was also said that the need for the EPF and the ETF was required not at the commencement of the business but that it could wait till the recruitment drive started.

Siriwardena, interjecting at that stage said Sri Lanka should adopt the practice in Malaysia where the Labour Department and the Registrar of Companies should join hands to provide the approvals within the same day, which was one day. He said that the system should be online where the Labour Department could provide the registration of the EPF and the ETF on the same day if the information was available online. What was needed was the integration of the systems.

Minister Basil Rajapaksa also interrupting at this stage, said that the hope was to have a common counter to expedite the process and asked who would come forward to take the responsibility. He also wanted the online registration implemented at least by June 2013.

Governor Cabraal also wanted officials to check with their enumerators to ascertain whether there were discrepancies as the World Bank report said that the development permit takes 75 days, Certificate of Compliance took 45 days, phone connection 14 days and the water connection 32 days, but in reality, the time taken was much less, according to officials.

It was also said that there was no levy of a service charge for placing entries on the website. There was also a request for a video conferencing facility to coordinate matters as some of the government departments required circulars which were detailed and they needed to clarified as well within a month. Minister Rajapaksa also wanted a video conference facility expedited. He also wanted the entries which were removed from the gazette, included in the website.

It was also said that the arrears to the investor arising from the cancelling or the reduction of the taxes could be provided not only after the approvals of the projects were provided but also after the commencement of the construction.

The Colombo Mayor also said that the procedures were minimized. He also said that the coordination of the investors with their architects were insufficient. That, he said, was the prime reason for the delay in the approvals of the projects and especially the Certificate of Compliance. He said that the architects also had to be educated with regard to this.

He also said that over 50% of the staff had left and there was a problem regarding the cadres which caused the impediments and stagnation. Minister Rajapaksa also wanted the collection of the taxes and the rates segregated from proceeding with the other approvals in order to slash transit times. "If the rates were not paid in time, you officials will at least take the gate of the premises away at least!, the Minister quipped and added that the two should not be mixed.

He also pointed out that the rudimentary mistake that the officials were making was that they tried to charge all the levies when the investors came to get their plans approved. Colombo Mayor said that the rates and taxes were important when it came to the ownership certificate.

Minister Rajapaksa said that the rates and the approvals should not be mixed up and that was the reason why the developed countries gave their approvals faster. He said that system was akin to the Ministry of Public Administration monitoring all the criteria of employees at the time retirees went to draw their pensions.

It was also proposed that the construction work of the investor could also be stopped if the rates were not forthcoming. The Mayor also pointed out that laws were archaic when it came to collecting the rates of the investors. He also said that if the payments were not coming that the property could be confiscated or auctioned but not have it written in the name of the Municipality.

Minister Rajapaksa also wanted the payment of the rates removed from the mandatory requirements of getting the plans approved. He also wanted all the criteria wanted from the investors placed and integrated into one document in order to avoid ambiguity with one procedure.

The World Bank Country Director in Sri Lanka also suggested that the system be made available online to expedite the process and added that it was the system which prevailed in most of the countries in which she has served in.

Rajapaksa also wanted to know how long it would take to implement that and asked how many procedures would be eliminated by following same.

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