A ROADMAP TO IMPROVE THE INVESTMENT CLIMATE IN SRI LANKA with the support of: Ministry of Development Strategies & International Trade Sri Lanka TABLE OF CONTENTS Contents Message from the Minister of Development Strategies and International Trade ........................................... 1 Roadmap: Improving the Investment Climate in Sri Lanka .................................................................................. 3 Key Activities and Timelines ......................................................................................................................................... 4 Activity 1: Organizational Setup to Coordinate Investment Climate Reforms ................................................. 6 Table 1: Functions and Responsibilities for Investment Climate Reforms................................................ 6 Figure 1: Organizational Setup to Coordinate the Investment Climate Reform Program..................... 7 Activity 2: Training of Task Forces on Doing Business Methodology and Good Practices .......................... 10 Activity 3: Development of Action Plans for each Task Force ............................................................................ 10 Activity 4: Validation of Action Plans by Cabinet ................................................................................................... 10 Activity 5: Monitoring of Implementation by the Cabinet Committee on Economic Management (CCEM) ................................................................................................................................................... 11 Annex A: Terms of Reference for the Investment Climate Secretariat ............................................................ 12 Annex B: Task Force Composition and Action Plans ............................................................................................ 13 Action Plan for Improving the Regulatory Environment for Starting a Business .......................................... 19 Action Plan for Improving Sri Lanka’s Regulatory Environment in Dealing with Construction Permits .................................................................................................................................................. 26 Action Plan for Improving Sri Lanka’s Regulatory Environment in Registering Property ............................ 30 Action Plan for Improving Sri Lanka’s Regulatory Environment in Getting Credit ........................................ 38 Action Plan for Improving Sri Lanka’s Regulatory Environment in Protecting Minority Investors ......................................................................................................................................................... 42 Action Plan for Improving Sri Lanka’s Regulatory Environment in Trading Across Borders ....................... 46 Action Plan for Improving Sri Lanka’s Regulatory Environment in Enforcing Contracts ............................. 52 Action Plan for Improving Sri Lanka’s Regulatory Environment in Resolving Insolvency............................ 58 Notes ................................................................................................................................................................................ 62 This document is part of the Technical Assistance support provided by the World Bank Group in joint collaboration with the Australian Government’s Department of Foreign Affairs and Trade. The report focuses on areas of the investment climate measured by the annual Doing Business report. A Roadmap to Improve the Investment Climate in Sri Lanka 1 MESSAGE FROM THE MINISTER OF DEVELOPMENT STRATEGIES AND INTERNATIONAL TRADE It is with great pleasure that I pen this message to mark to invest productively, create jobs, enhance private sector the official launch of the Investment Climate Roadmap competitiveness and thereby contribute to strong economic for Sri Lanka. Over the past several months, my team has growth. worked relentlessly with relevant public and private sector stakeholders with technical assistance from the World Bank There have been efforts to introduce investment climate Group (WBG) to identify a well-defined program of reforms reforms by successive governments; however, these efforts to address a wide range of shortcomings across all areas were not sufficiently coordinated, lacked strategic prioritization of business regulation in order to enhance the investment and institutional mechanisms to support such reforms. While climate in Sri Lanka. I trust that establishing a well-defined investment obstacles were generally well recognized there framework for the investment climate with appropriate have been shortcomings in articulating a reform agenda, sequencing of actions and an institutional mechanism is and in implementation. Therefore, this Roadmap provides essential to lead reforms going forward. To this effect, I a holistic platform for reform of the investment climate in would like to thank various government officials, private Sri Lanka, as it defines the roles and responsibilities of all sector stakeholders and our partners at the WBG who have stakeholders grouped under eight Task Forces [which will contributed to the preparation of this Roadmap, while being each cover one of eight areas under the Doing Business grateful for the generosity exhibited in providing substantive ranking], the set of initial reforms that will be pursued, the inputs, knowledge and advice during the concept stage and timeframe for accomplishment of the reforms expected and finalization of the roadmap. a mechanism to monitor progress on an ongoing basis and promptly identify and address bottlenecks. It is important to At the outset, this roadmap was developed in response to note that this Roadmap highlights the reform opportunities a policy commitment made in October 2016 by the Hon. in the areas covered by the Doing Business report that would Prime Minister Ranil Wickremesinghe, who announced the allow GoSL to have a direct impact on business conditions by government’s intention to improve Sri Lanka’s investment eliminating unnecessary regulatory and procedural obstacles climate and reach a Top 70 ranking on the World Bank’s Ease to enterprises and entrepreneurs. of Doing Business Index by 2020. The Roadmap serves as a testament from GoSL towards The Government of Sri Lanka (GoSL) has recognized that providing a better business environment that is more the main factors hindering the improvement of the business conducive to private sector development. climate in Sri Lanka are high transaction costs in complying with regulations, a dense web of business regulations which GoSL identifies the need to foster private sector growth and discourage new entrants to the market and creates incentives export-orientated investment as a key element in becoming for informality. As a result, it has obstructed enterprises to an upper-middle class economy. It is clear that investment grow, undermined productivity, limited investments and reform is a cornerstone of meaningful and long-term limited access to finance. growth; it attracts investment that generates employment opportunities, provides access to knowledge capital, and plays Under this backdrop, GoSL has recognized that its policies a significant role in formalizing the informal sector which and behaviors play a critical role in shaping the investment employs almost two thirds of the participants in Sri Lanka’s climate and is committed to creating an environment in which economy. firms and entrepreneurs have opportunities and incentives 2 MESSAGE FROM THE MINISTER OF DEVELOPMENT STRATEGIES AND INTERNATIONAL TRADE There will be challenges. Sri Lanka is competing with several than that of peers and the country lacked clear vision with regional counterparts to attract this investment. Furthermore regards to investment climate as well as strategic direction to in 2017 Sri Lanka’s ranking on the overall Ease of Doing guide reform priorities. With committed implementation and Business index was 110. Jumping 40 places ahead in the a strong collaborative spirit from our stakeholders this reform index is an ambitious, but achievable undertaking provided plan will help Sri Lanka significantly improve the climate that strong, concerted and well sequenced actions are taken for existing and potential investors by 2020. You are each a to bring these reforms to completion. GoSL is not limiting its critical part of this effort. commitment to improving the business environment focusing on the areas covered in the Doing Business report but wishes to go beyond this to provide opportunities for the people of Sri Hon. Malik Samarawickrama Lanka to better their prospects. Minister of Development Strategies and International Trade On 23rd May 2017, the Investment Climate Roadmap was granted Cabinet approval. It is a significant step forward. It Ministry of Development Strategies is important to remember, however, that investment climate & International Trade reform is a continuous process and that the Roadmap is a Sri Lanka living document. However, it does not cover all areas of the investment climate that are challenging to enterprises. Therefore, it is essential to maintain a continuous dialogue to involve the active participation of the private sector in identifying the most significant barriers for doing business. In this context, we encourage our stakeholders to engage with us on identifying additional areas for reform that can be incorporated into the process. Just a few weeks ago, on June 01st 2017, the Doing Business report closed its reporting cycle for the upcoming Doing Business 2018 report—to be published in October—so that chapter is behind us. Today, it serves us no good to look backwards. We are instead looking at the future. The Doing Business 2019 report, which has a deadline of June 01st, 2018 for reforms to be implemented and in force, is our target. This event marks the beginning of a new chapter in GoSL’s efforts towards improving the investment climate focused towards enhancing the ability of the country to attract, retain and integrate Foreign Direct Investments. It is important to note that the investment climate in Sri Lanka compares unfavorably to that of other economies including regional counterparts. Even though Sri Lanka has implemented some reforms in recent years, the pace of reforms have been slower A Roadmap to Improve the Investment Climate in Sri Lanka 3 ROADMAP: IMPROVING THE INVESTMENT CLIMATE IN SRI LANKA Objectives: The Government of Sri Lanka (GoSL), has articulated a Sri Lanka Doing Business Ranking roadmap for investment climate reforms in the areas covered 2012 2013 2014 2015 2016 2017 by the World Bank Group (WBG) Doing Business (DB) report 140 with technical assistance from the WBG. The roadmap 120 highlights recommended actions to be undertaken, defines 100 associated responsibilities, and provides recommendations 80 on the organizational setup to coordinate and monitor the 60 reform process. 40 20 Background 0 The Government of Sri Lanka (GoSL) has recognized the need Source: Doing Business Report to foster private sector growth and export-orientation of the economy as a key element to attaining the overarching objective of becoming an upper-middle-income economy. In recognition of these challenges, the Honorable Prime Minister—in his policy statement made at the Parliament on Shortcomings in the investment climate have limited the the 27th of October 2016—set the objective to improve the growth potential of established firms, while creating strong investment climate in the economy, and to have Sri Lanka incentives for informality - which in turn has stunted private reach the top 70 economies globally on the Ease of Doing sector growth and poses a drag on competitiveness of the Sri Business Index. This objective, while ambitious, is achievable, Lankan economy. provided that strong, concerted and well sequenced actions are taken to bring investment climate reforms to completion. While some efforts have been undertaken in the past to improve the investment climate, these have been insufficient Going forward, achieving these results will require addressing and lacked coordination and strategic prioritization. Moreover, a number of issues in the institutional setup for coordination while investment climate obstacles are often well identified, and collaboration among different line ministries and agencies, there have been significant shortcomings in articulating a and setting up strong mechanisms for accountability including reform agenda and implementing reforms. detailed implementation plans with measurable goals which are monitored. Accordingly, global indicators including the Doing Business Index, reflect a lack of improvement in several areas of the A first set of organizational arrangements have been made investment climate in Sri Lanka. While Sri Lanka’s ranking on to facilitate inter-agency coordination. Task Forces (TF’s) the overall ease of Doing Business index dropped one position consisting of key focal points from the public and private from 109 in DB 2016 to 110 in DB 2017, this is mostly due sectors have been established. These are responsible for to other economies having improved, dropping Sri Lanka’s developing and implementing detailed reform action plans relative position in the ranking. and bringing in expertise where needed. Each TF has been appointed a head, responsible for coordinating that TF’s action plan across the multiple members. This roadmap outlines a set of steps for the achievement of successful programmatic investment climate reforms across areas of the business environment measured by Doing Business. 4 KEY ACTIVITIES AND TIMELINES FEBRUARY 2017 MARCH 2017 APRIL/ MAY 2017 óóProposed Roadmap for óóRoadmap for Investment óóRoadmap approved by investment climate; Climate presented to Cabinet, and appointment Cabinet Committee on of Task Forces and their óóTraining of Task Forces Economic Management; Heads; on Doing Business methodology and good óóCompleted the óóCabinet approval of Action practices; preparation of Action Plans Plans by Task Forces with óóEstablishment of the óóCommenced WB assistance Investment Climate implementation of Secretariat at MODSIT, Action Plans (April 2017 with WB assistance; onwards). óóInitiated the Preparation of Action Plans JUNE 2017 JULY 2017 ONWARDS óóImplementation of Action óóCommunication of Cabinet Plans decision to public; óóContinue implementation of Action Plans A Roadmap to Improve the Investment Climate in Sri Lanka 5 Indicative timeline for roadmap implementation 1. Establishment of the Investment Climate Secretariat at MODSIT – with WB assistance (February 2017) 2. Training of Task Forces on DB methodology and good practices (February 2017) 3. Preparation of action plans by Task Forces with WB assistance (January to March 2017) 4. Roadmap for Investment Climate finalized and presented to Cabinet (May 2017) 5. Roadmap approved by Cabinet – including appointment of Cabinet Committee on Economic Management as the overseeing body of the reform program, and official appointment of Task Forces and Leading Agencies (May 2017) 6. Implementation of Action Plans (May 2017 onwards) 7. Communication of Cabinet decision on Investment Climate roadmap to public (July 2017) 6 ACTIVITY 1: ORGANIZATIONAL SETUP TO COORDINATE INVESTMENT CLIMATE REFORMS The first proposed action towards achieving the goals of agency level. The most successful technical committees have improving the investment climate in Sri Lanka is the setup representatives from all key agencies involved in a particular of an effective organizational system to coordinate the area, as well as knowledgeable members of the private implementation of the reforms across the 20+ government sector. A dedicated team within the Ministry of Development agencies involved in the process. Strategies and International Trade (MODSIT) has been designated to act as a secretariat, taking responsibility and Regulatory reforms often span a wide range of areas and leading coordination of the overall reform efforts on a day- require the involvement of multiple agencies. Successful to-day basis and escalating challenges that the Task Forces reformers establish reform processes that are inclusive— cannot overcome to the oversight committee. including all relevant public agencies and private sector representatives—and create clear mechanisms to ensure A number of key functions and responsibilities have been coordination and information flows across all parties involved. identified to facilitate the coordination and implementation of Many establish high-level oversight committees that work to the investment climate program (see Table 1). prioritize the reform agenda and maintain reform momentum. Technical working groups then lead implementation at the Table 1: Functions and Responsibilities for Investment Climate Reforms Level Features Responsibilities / Terms of Reference Cabinet Committee óó Relevant ministers for investment óó Determine overall priorities on Economic climate reform agenda óó Setting Key Performance Indicators (KPIs) Management (CCEM) óó Direct periodic reporting to the Prime óó Unblocking implementation obstacles/delays Minister (e.g. monthly, every 3 months) Ministry of óó Technical staff óó Day-to-day oversight of reform program across all areas Development óó Direct reporting line to the CCEM óó Monitoring of reform road-map and KPIs Strategies and International Trade - óó Liaise between technical level Task óó Ensure agenda setting, minutes, follow-up items, Investment Climate Forces and CCEM timelines Secretariat (ICS) óó Escalate key issues to the CCEM for óó Escalating implementation issues of concern to the CCEM action Task Forces (TF) óó Key stakeholders from public agencies óó Develop and implement detailed action plans bringing involved in the related reforms (e.g. focal in expertise where needed (e.g. legal assessments, One task force for each points of relevant line ministries) proposals for legal amendments, IT assessments, area covered by Doing budget proposals) Business óó Private sector; professional experts (lawyers, IT, accountants, architects, óó Develop timelines and milestones; clarify etc.) responsibilities óó Frequent structured meetings set by óó Implement reform actions at each relevant agency Head of Task Force (e.g. bi-monthly or accountable for achieving results as outlined in their monthly) action plan A Roadmap to Improve the Investment Climate in Sri Lanka 7 Figure 1: Organizational Setup to Coordinate the Investment Climate Reform Program Prime Minister Cabinet Committee on Economic Quarterly progress review Management (CCEM) óóMinisterial Level óóUnblocks Implementation Obstacles Ministry of Development Strategies and International Trade -Investment Climate Secretariat(ICS) óóDay to Day oversight óóEscalates implementation issues to CSC Head of the Head of the Task Force Head of the Head of the Task Force on Starting on Dealing with Task Force on Task Force on a Business Construction Permits Registering Property Getting Credit óó Calls and chairs TF óó Calls and chairs TF óó Calls and chairs TF óó Calls and chairs TF meeting meeting meeting meeting óó Reviews progress and óó Reviews progress and óó Reviews progress and óó Reviews progress and assigns duties assigns duties assigns duties assigns duties Head of the Head of the Head of the Head of the Task Force on Protecting Task Force on Task Force on Task Force on Minority Investors Trading Across Borders Enforcing Contracts Resolving Insolvency óó Calls and chairs TF óó Calls and chairs TF óó Calls and chairs TF óó Calls and chairs TF meeting meeting meeting meeting óó Reviews progress and óó Reviews progress and óó Reviews progress and óó Reviews progress and assigns duties assigns duties assigns duties assigns duties 8 ACTIVITY 1: ORGANIZATIONAL SETUP TO COORDINATE IC REFORMS 1. Cabinet Committee on Economic Management 2. Ministry of Development Strategies and (CCEM) International Trade - Investment Climate The CCEM is responsible for monitoring progress against the Secretariat (ICS) agreed-upon targets of the Action Plans, and serves as an The Investment Climate Secretariat (ICS) is responsible for unblocking mechanism for implementation obstacles that coordinating the day-to-day activities of the reform effort, are escalated upwards from the TFs. The CCEM, through the monitoring the progress, and communicating relevant Investment Climate Secretariat, will call for regular meetings information to the CCEM. The ICS is responsible for ensuring (e.g. once a month) to monitor the progress of each TF. The the substance and quality of presentations and accuracy of Secretariat will ensure that outstanding issues are escalated data before dissemination to the CCEM. The ICS staff also act to the CCEM as they arise. The CCEM’s role is strategic, not as rapporteurs for each of the Task Force teams. tactical or involved in day-to-day implementation. Terms of Reference for the ICS have been prepared and are attached as an Annex. 3. Proposed Membership, Roles and Responsibilities of the Task Forces 1. Head of Task Force A Head of Task Force has been appointed for each Task Force as follows: Task Force Thematic Area Head 1 óóStarting a Business óóDepartment of Registrar of Companies, Registrar General, Mr. D N R Siriwardena 2 óóDealing with Construction Permits óóUrban Development Authority, Director General, Mr. Sumedha Ratnayake 3 óóRegistering Property óóSurvey Department of Sri Lanka, Surveyor General, Mr. P M P Udayakantha 4 óóGetting Credit óóCredit Information Bureau, Chairman, Mr. P Samarasiri 5 óóProtecting Minority Investors óóSecurities and Exchange Commission of Sri Lanka, Director General, Mr. Vajira Wijegunawardene 6 óóTrading Across Borders óóNational Trade Facilitation Committee, Director General of Customs, Mr. Chulananda Perera 7 óóEnforcing Contracts óóMinistry of Justice of Sri Lanka, Secretary, Mr. Padmasiri Jayamanna 8 óóResolving Insolvency óóMinistry of Finance, Senior Legal Advisor, Mr. Kolitha Dharmawardhana A Roadmap to Improve the Investment Climate in Sri Lanka 9 Functions of the Head of Task Force: Private Sector: óóCall for and lead meetings of the Task Forces on a frequent a. Characteristics: basis (e.g. bi-monthly or monthly) óóRepresentatives of diverse voices of business community óóLead the development and implementation of Action Plans (regarding sector, size and national/international) óóHold members accountable for their agreed-upon actions b. Functions: óóEngage with TF members and others across agencies, óóProvide user-perspective to reform process (as users of hierarchies and sectors public service delivery) óóMake decisions when warranted óóParticipate in establishing action plans for reform óóEscalate issues and problems with TF progress to the óóProvide feedback on implementation CCEM through the IC Secretariat óóConnect to business community in socializing the changes 2. Task Force Members Technical Experts: The head of each of the represented institutions have a. Characteristics: appointed a representative to actively participate as Task óóTechnical expertise in specific areas (e.g. legal, ICT, etc.) Force Member. óóKnowledge of global best practice and how to adapt it to Annex B includes agencies and individuals appointed as Task local circumstances Force Members. b. Functions: Public Sector: óóParticipate in development of action plan a. Characteristics: óóProvide technical input and global best practices to óóPart of public entity with a clear stake in the reform planning and implementation óóIndividual with role and motivation linked to reform óóIndividual who has time and authorizing environment to do the work b. Functions: óóProvide viewpoint of the public sector entity óóParticipate in action plans and their implementation for reform óóBroaden stakeholder engagement and connect to actors beyond TF as needed 10 ACTIVITY 2: TRAINING OF TASK FORCES ON DB METHODOLOGY AND GOOD PRACTICES Prior to launching the development of action plans to improve the investment climate in areas covered by the Doing Business report, it is important for each of the task force members to be well-versed and immersed in the topics at hand. The WBG has facilitated training sessions to task forces on Doing Business methodology. The training consists of learning about the indicator’s methodology, rationale, explanation of Sri Lanka’s results in that indicator, presentation of good practices, and examples of reforms undertaken by other countries in that topic. ACTIVITY 3: DEVELOPMENT OF ACTION PLANS FOR EACH TASK FORCE With assistance from the WBG, the Task Forces have developed comprehensive Action Plans outlining the list of specific measurable actions, responsible entities, timelines, targets, and issues/challenges in order to implement the proposed reforms and achieve results. Action Plans for all topics were completed in March 2017. These specific action plans help in ensuring the flow of information across the different levels of the reform structure to ensure progress is monitored, bottlenecks are addressed, and timely decisions are made. Each action plan is intended to be a dynamic, ‘living’ document that can be updated as needed to accommodate additional reform priorities, or to fine-tune and amend existing actions when needed. ACTIVITY 4: VALIDATION OF ACTION PLANS BY CABINET Each Action Plan developed by the TF’s was presented and validated by Cabinet on May 23, 2017. Each TF is now accountable for its implementation. A Roadmap to Improve the Investment Climate in Sri Lanka 11 ACTIVITY 5: MONITORING OF IMPLEMENTATION BY THE CABINET COMMITTEE ON ECONOMIC MANAGEMENT (CCEM) Following the approval of the Action Plans by Cabinet, the TFs will be responsible for their implementation. The CCEM will monitor progress against the agreed-upon targets of the Action Plans, and serve as an unblocking mechanism for implementation obstacles that are escalated upwards from the TFs. The CCEM, through the ICS, will call for periodic meetings (e.g. once a month) to monitor the progress of each TF. The ICS will ensure that outstanding issues are escalated to the CCEM as they arise. Being composed of high-level government, the CCEM will be the unblocking mechanism and decision-maker on key actions encountering implementation challenges. 12 ANNEX A: TERMS OF REFERENCE FOR THE INVESTMENT CLIMATE SECRETARIAT Terms of Reference Ministry of Development Strategies and International Members of the ICS will be expected to: Trade - Investment Climate Secretariat (ICS) óóParticipate consistently in TF and CCEM meetings and The Investment Climate Secretariat (ICS) is responsible for other events related to the IC reform; planning, coordinating, and providing administrative support óóHave an appropriate level of knowledge on the Action Plans to the Cabinet Committee on Economic Management (CCEM) for each task force; and Task Forces (TF), and facilitating the overall process of IC reforms. óóPlay the role of overall process facilitators, strengthening results orientation and collaboration within TFs and Its primary functions will include: support conflict resolution as needed; óóImplementing the instructions of the CCEM; óóEnable TFs and CCEM to meet the agreed-upon schedules óóArranging agendas and briefing materials, minutes and of the various activities. decision documents and providing logistical support for CCEM and TF meetings; Reporting: The ICS will report to the CCEM through the Ministry of óóEstablishing and maintaining a record of CCEM and TF Development Strategies and International Trade (MODSIT). meetings and correspondence. The ICS will have no decision-making or policy-making powers. óóFacilitating the exchange of knowledge and information among the CCEM and TFs; Qualifications for members: Qualifications may include: strong neutral figure vis-à-vis the óóMonitor progress of TF reform action plans against agreed- government entities and the private sector; strong facilitator upon targets and timelines. of diverse groups; results orientation; project management óóMonitor discussion of issues raised at TF meetings, experience; relevant academic credential; experience in implementation of potential solutions and escalate business, government, law or related profession in country implementation obstacles and issues up to the CCEM as and/or abroad; private sector management experience; needed; demonstrated entrepreneurial spirit; knowledge of business óóAssist TF’s in finding information on specific topics environment reform programs, public-private dialogue (seeking development partner and/or government support processes and related communications programs. for technical inputs when needed); óóAct as a resource center and facilitator for TF and CCEM initiatives; óóFacilitate the involvement of the larger public in the process, through the use of media and events as appropriate. A Roadmap to Improve the Investment Climate in Sri Lanka 13 ANNEX B: TASK FORCE COMPOSITION AND ACTION PLANS 1. Starting a Business Agency Position Name Responsibility Department of Registrar of Registrar General Mr. D N R Siriwardena Head of Task Force Companies Inland Revenue Department Commissioner General Mr. Ivan Dissanayake TF member Department of Labour Commissioner General of Labour Mr. R P A Wimalaweera TF Member Employees’ Provident Fund, Superintendent, Employees’ Provident Mrs. Malkanthi Bandara TF member Central Bank of Sri Lanka Fund Information and Communication Managing Director Mr. Muhunthan Canagey TF member Technology Agency (ICTA) Department of Registrar of Registrar of Companies Mr. Heshan Mathugamage TF member Companies Department of Registrar of Registrar of Companies Ms. Shyama Harshanie TF member Companies Inland Revenue Department Senior Commissioner Mrs. S Karunarathna TF member Inland Revenue Department Commissioner Mrs. S M Wickramarachchi TF member Department of Labour Deputy Commissioner Mr. B Vasanthan TF member Department of Labour Deputy Commissioner Mr. Lahiru Wijepala TF member Employee’s Provident Fund, Senior Assistant Superintendent Mrs. Lasantha Siriwardana TF member Central Bank of Sri Lanka ICTA Project Manager: e-services Mr. Kamal Liyanage TF member ICTA Project Manager Mr. Champika Gunarathna TF member 14 ANNEX B: TASK FORCE COMPOSITION AND ACTION PLANS 2. Dealing with Construction Permits Agency Position Name Responsibility Urban Development Authority Director General Mr. (Eng.) Sumedha Head of the Task Ratnayake Force Ministry of Provincial Councils Secretary Mr. H T Kamal Pathmasiri TF Member and Local Government Colombo Municipal Council Municipal Commissioner Mr. V K Anura TF Member (CMC) Colombo Municipal Council Deputy Municipal Commissioner Mrs. Thamara TF Member Mallawaarachchi National Water Supply and General Manager Mr. D U Sumanasekara TF Member Drainage Board City Planning Division, CMC Director-City Planning Ms. Priyantha Peiris TF Member Fire Services Department, CMC Fire Officer Mr. P N R Fernando TF Member Assessor’s Department, CMC Municipal Assessor Mr. Wasantha Adikari TF Member Drainage Department, CMC Director, Drainage Mr. M I M Salim TF Member National Construction Chairman Mr. Athula Galagoda TF Member Association of Sri Lanka ICTA Senior Project Manager Ms. Thusha Mukunthan TF Member ICTA Programme Specialist Mr. Bandula Ranathunga TF Member A Roadmap to Improve the Investment Climate in Sri Lanka 15 3. Registering Property Agency Position Name Responsibility Survey Department of Sri Lanka Surveyor General Mr. P M P Udayakantha Head of Task Force Ministry of Land Secretary Dr. I H K Mahanama TF Member Divisional Secretariat, Colombo Divisional Secretary Mr. Amal J S S Edirisooriya TF Member Provincial Department of Commissioner Revenue Mr. G A N Jayantha TF Member Revenue Colombo Municipal Council Deputy Municipal Commissioner Mrs. Thamara TF Member Mallawaarachchi Survey Department Deputy Survey General Mr. B H B Cyril Shantha TF Member Registrar Generals’ Department Senior Deputy Registrar General Mr. R R Dayananda TF Member Registrar Generals’ Department Senior Deputy Registrar General Mr. W B Sandiligama TF Member City Planning Division, CMC Director-City Planning Ms. Priyantha Peiris TF Member Colombo Municipal Council Municipal Assessor Mrs. Wasantha Adikari TF Member Ministry of Land Asst. Secretary Ms. Piumi Attygalle TF Member Survey Department Senior Superintendent of Surveys Mr. K R Sarath TF Member Western Province Revenue Senior Assessor Mr. P C Simithraarchchi TF Member Department Department of Valuation Regional Valuer Mr. L J K D Silva TF Member Colombo Municipal Council Assessing Inspector Mr. W N R Tissera TF Member City Planning Civil Engineer Mr. Anuja Mendis TF Member ICTA Project manager Mr. Chinthaka Ranasinghe TF Member ICTA Project Assistant Ms. Shihari Gunaratne TF Member 16 ANNEX B: TASK FORCE COMPOSITION AND ACTION PLANS 4. Getting Credit Agency Position Name Responsibility Credit Information Bureau Chairman Mr. P Samarasiri Head of Task Force Credit information Bureau Deputy General Manager Mr. Janaka Lakmal TF Member Commercial Bank of Sri Lanka Managing director Mr. Jegan Durairatnam TF Member Bank of Ceylon General manager Mr. D M Gunasekera TF Member Dept. of Motor Traffic Commissioner General of Mr. A H K Jegath Chandrasiri TF Member Motor Traffic Department of Registrar of Registrar General Mr. D N R Siriwardhana TF Member Companies 5. Protecting Minority Investors Agency Position Name Responsibility Securities and Exchange Director General Mr. Vajira Wijegunawardene, Head of Task Force Commission of Sri Lanka (Chairperson) Securities and Exchange Director Corporate Affairs Dr. Harshana Suriyapperuma TF Member Commission of Sri Lanka Department of Registrar of Registrar General Mr. D N R Siriwardena TF Member Companies Ministry of Finance Senior Legal Advisor Mr. Kolitha Dharmawardena TF Member Private Sector Representation TBD (bringing in perspective of TBC TF Member minority and majority investors) A Roadmap to Improve the Investment Climate in Sri Lanka 17 6. Trading Across Borders Members of the NTFC Agency Position Name Responsibility Sri Lanka Customs Director General Mr. Chulananda Perera Chairman Department of Commerce Director General Ms. Sonali Wijeratne Co- Chair Department of Trade and Director General Mr. K A Vimalenthirarajah Member Investment Policy Imports & Exports Controller’s Controller General Ms. Nimalka Dias Member Department Department of Exchange Control Controller Exchange Mrs. Y Fernando Member Department of Health Services Director General Dr. J M W Jayasundara Bandara Member Department of Agriculture Director General Dr. Rohan Wijekoon Member Sri Lanka Standards Institute Director General Mr. Gamini Dharmawardhaha Member National Intellectual Property Director General Mrs. G R Ranawaka Member Office Sri Lanka Ports Authority Chairman Mr. Parakrama Dissanayake Member Airport and Aviation Services Chairman Mr. K V P Ranjith De Silva Member Sri Lanka Ltd Sri Lanka Export Development Chairman Ms. Indira Malwatta Member Board Ceylon Chamber of Commerce CEO Dr. Dhara Wijethilaka Member 18 ANNEX B: TASK FORCE COMPOSITION AND ACTION PLANS 7. Enforcing Contracts Agency Position Name Responsibility Ministry of Justice of Sri Lanka Secretary Mr. Padmasiri Jayamanna (Chairperson) Head of Task Force Ministry of Industry and Secretary Mr. Chinthaka Lokuhetti TF Member Commerce Ministry of Justice of Sri Lanka Addl. Secretary Ms. Piyumanthi Pieris TF Member Board of Investments (BOI) Chairman Mr. Upul Jayasuriya TF Member Attorney General’s Department TBD TBC TF Member Colombo Commercial High Court Judge TBD TF Member Department of Legal Draftsman Legal Draftsman Ms. Deepani Kumarajeewa TF Member Ministry of Finance Senior Legal Advisor Mr. Kolitha Dharmawardena TF Member Judicial Services Commission TBD TBC TF Member 8. Resolving Insolvency Agency Position Name Responsibility Ministry of Finance Senior Legal Advisor Mr. Kolitha Dharmawardhana Head of Task Force Ministry of Justice of Sri Lanka Addl. Secretary Ms. Piyumanthi Pieris TF Member Colombo Commercial High Court Judge TBD TF Member Department of Registrar of Registrar of Companies Mr. D N R Siriwardana TF Member Companies Ceylon Chamber of Commerce CEO Dr. Dhara Wijethilaka TF Member Private Sector Insolvency Attorney at Law Dr. Niranjan Abeyratne TF Member Practitioner Sri Lanka Bankers Association Secretary General Mr. Upali De Silva TF Member Institute of Chartered President Mr. Lasantha Wickramasinghe TF Member Accountants A Roadmap to Improve the Investment Climate in Sri Lanka 19 ACTION PLAN FOR IMPROVING THE REGULATORY ENVIRONMENT FOR STARTING A BUSINESS What is measured by the Starting a Business index and why it is important? The Starting a Business Index measures all procedures officially The complexity of business registration has greatly improved required, or commonly done in practice, for an entrepreneur in recent years, but remains a challenge for businesses in to start up and formally operate an industrial or commercial Sri Lanka. According to the Entrepreneurship Database20, in business, as well as the time and cost to complete these 2016, 51 businesses were registered for every 1,000 working- procedures and the paid-in minimum capital requirement. age adults in the country. Business registration is relatively complex and costly, with 7 procedures (compared to a regional These procedures include obtaining all necessary licenses average of 8.1) and regulatory costs equivalent to 12.2% of and permits and completing any required notifications, income per capita (below the regional average of 13.4%). verifications or inscriptions for the company and employees However, the number of days required to start a business is with relevant authorities. The ranking of economies on the relatively low (9, compared to the regional average of 15.4), ease of starting a business is determined by sorting their and Sri Lanka does not require a paid-in minimal capital to distance to frontier scores for starting a business. These start a limited liability company. Overall, Sri Lanka ranks 74th scores are the simple average of the distance to frontier in the Starting a Business indicator, out of 190 economies in scores for each of the component indicators. The distance to the 2017 Doing Business ranking. frontier measure illustrates the distance of an economy to the “frontier,” which is derived from the most efficient practice or A 2012 study21 in Sri Lanka offered firms incentives to highest score achieved on each indicator. formalize. One treatment group was provided information about the costs and benefits of, and procedures for, registering Economies with the most efficient registration systems use their companies for tax purposes. They were also reimbursed simplified and standardized laws and documents, operate a for costs associated with registration. Other treatment single electronic interface between the user and authorities, groups were also provided the same, but in addition offered a a central database with interoperability between agencies payment ranging from Rs. 10,000 to Rs. 40,000. The authors involved, and single company ID. In Canada, UK, Malaysia found limited interest in registration by informal businesses, or Singapore, for example, an integrated IT system links the most of which continued to operate at a small or micro scale databases of relevant agencies (such as company registry, after registration. However, over half the firms that failed tax administration, social security system, and statistics to formalize had stopped after encountering issues in land institute). The entrepreneur submits information and ownership; this suggests that reforms in business registration payment electronically through a single form online, and the procedures could be most effective when combined with other company is automatically registered with all agencies. Legal regulatory reforms such as land registration. formalities for company registration are embedded into the electronic system and if all requirements are met and the payment is received, the system automatically processes the information and issues the registration certificate instantly. Companies are issued a single ID number, which is used across agencies. This facilitates compliance checks throughout the life of the company and reduces the administrative burden of 20 http://www.doingbusiness.org/data/exploretopics/entrepreneurship 21 de Mel, Suresh, McKenzie, David & Woodruff, Christopher, 2013. “The submitting information multiple times with different forms to Demand for, and Consequences of, Formalization among Informal Firms several agencies. in Sri Lanka,” American Economic Journal: Applied Economics, American Economic Association, vol. 5(2), pages 122-50, April 20 ACTION PLAN FOR IMPROVING THE REGULATORY ENVIRONMENT FOR STARTING A BUSINESS Doing Business 2017 Indicator Sri Lanka South Asia Average OECD (High Income) Procedures (number) 7 8.1 4.8 Time (days) 9 15.4 8.3 Cost (% of income per capita) 12.2 13.4 3.1 Paid-in Min. capital (% of income per capita) 0 0.2 9.2 Source: Ease of Doing Business Report, 2017 In recent years, the GoSL has made progress in simplifying business easier by eliminating the procedure to notify the the business registration process. In 2012, a new electronic Registrar of Companies about the payment of stamp duty system was introduced for registering for the Employees for the initial issuance of shares. There are also ongoing Provident Fund (EPF) and Employees Trust Fund (ETF). Earlier, governmental efforts to expedite company registration and the 2007 Companies Act made a number of simplifications name reservation, and remove the requirement for public to the business registration process, including eliminating notice of incorporation. Together, these steps have the some notification requirements, switching to a flat company potential to improve the ease of starting a business for Sri registration fee and rendering optional the common seal Lankan entrepreneurs. and the use of notaries. In 2016, Sri Lanka made starting a Members of the Task Force on Starting a Business Agency Position Name Responsibility Department of Registrar of Registrar General Mr. D N R Siriwardena Head of Task Force Companies Inland Revenue Department Commissioner General Mr. Ivan Dissanayake TF member Department of Labour Commissioner General of Labour Mr. R P A Wimalaweera TF Member Employees’ Provident Fund, Superintendent, Employees’ Provident Mrs. Malkanthi Bandara TF member Central Bank of Sri Lanka Fund Information and Communication Managing Director Mr. Muhunthan Canagey TF member Technology Agency (ICTA) Department of Registrar of Registrar of Companies Mr. Heshan Mathugamage TF member Companies Department of Registrar of Registrar of Companies Ms. Shyama Harshanie TF member Companies Inland Revenue Department Senior Commissioner Mrs. S Karunarathna TF member Inland Revenue Department Commissioner Mrs. S M Wickramarachchi TF member A Roadmap to Improve the Investment Climate in Sri Lanka 21 Agency Position Name Responsibility Department of Labour Deputy Commissioner Mr. B Vasanthan TF member Department of Labour Deputy Commissioner Mr. Lahiru Wijepala TF member Employee’s Provident Fund, Senior Assistant Superintendent Mrs. Lasantha Siriwardana TF member Central Bank of Sri Lanka ICTA Project Manager: e-services Mr. Kamal Liyanage TF member ICTA Project Manager Mr. Champika Gunarathna TF member An action plan has been developed by the task force’s The action plan for reforms for the “Starting a Business members, and which outlines clear recommended actions Indicator” consists of legal, institutional and automation for reforms, specific timelines and milestones for each (computerization, digitization of records; enhanced data reform activity and identifies the responsible agencies. The exchanged among agencies and common identification Department of Registrar of Companies is the overall leading number) actions. agency for this task force and is responsible for allocating the reform activity to each member as per the plan and is formally accountable for results. 22 ACTION PLAN FOR IMPROVING THE REGULATORY ENVIRONMENT FOR STARTING A BUSINESS Action Plan: Starting a Business # Recommendations Actions Responsible agency 2017 Feb Mar Apr May Jun Jul Aug Sep Short-term i.e. within 3 months Long-term, i.e 6 months 9 months Regulatory Reforms Discuss amendments to the ROC, Secretary Companies Act to simplify the to be consulted with Ministry of Industry completion requirements related to having start date: 1 the Company Law and Commerce; in date: mid an external company secretary immediate Advisory Comitteee consultation with April (recommend and draft amendment Members of the CLAC of the 221 CA) Approve and implement amendments to the Companies Act to eliminate Task Force 1 to elect RG ROC, Secretary MoIC the requirement for a public notice to follow-up with the and MODSIT (currently Start date: 2 of incorporation in the Gazette and PM’s Office, AG and the the draft is with the immediate newspaper to reduce time and cost Parliament PM’s Office) to start a business by at least 3 days, one step and LKR 7000 Approve the scope Implement a one-stop shop (OSS) of MOU on OSS roles that allows new companies to and responsibilietes RoC, EPF, ICTA in Sign the register with the multiple entities between RoC, ICTA and Start date: 3 consulation with Labor MOU: mid- involved in company registration to MoLabor 2. Sign the immediate Department August reduce the time and cost to start a MoU - signatures by business the RG, Dept of Labor and MD, ICTA Introduce a Single Identification for companies to be identifiable RoC, EPF, ICTA in Start date: end date: 4 across databases at the different Part of the MoU above consulation with Labor immediate mid-August government entities to reduce the Department time and cost to start a business ICT Reforms Prepare TOR for ICTA (in consultation completion start date: appointed ICTA Project with CR, Inland date: mid- immediate Manager Revenue) March Improve Project Management / Prepare Institutional ICTA (in consultation completion Monitor vendor activities/ Acceptance start date: 5 Agreements (MOUs) - with CR, Inland date: mid- of deliverables/ Sustainability/ immediate Data Exchange Revenue) March Service Level Agreements ICTA (in consultation completion Prepare consolidate start date: with CR, Inland date: mid- projet plan immediate Revenue) March completion Procure Company for start date: ICTA/RoC date: mid- Digitization immediate April Perform Digitization Start date: ICTA/RoC Phase 1 -Computarization of RoC, Process immediate 6 Digitization of records Start date: immediate; Data Integrity Analysis ICTA/RoC completion date: early March Review information ICTA/RoC in consulation Start date: end date: requirements for TIN / with Inland Revenue immediate mid-August VAT/EFA requirements and Labor Force Data Exchange with Inland Revenue Develop mechanism 7 Department and Labor Department for sharing overlapping ICTA/RoC in consulation Start date: information directly with Inland Revenue immediate with TIN/ VAT/EFA and Labor Force registrations A Roadmap to Improve the Investment Climate in Sri Lanka 23 2018 2019 Oct Nov Dec Jan Feb Mar April May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 12 months completion date mid February 2018 Completion of the OSS end date: mid- November end date: mid- November 24 ACTION PLAN FOR IMPROVING THE REGULATORY ENVIRONMENT FOR STARTING A BUSINESS # Recommendations Actions Responsible agency 2017 Feb Mar Apr May Jun Jul Aug Sep Short-term i.e. within 3 months Long-term, i.e 6 months 9 months Review/refine Vendor’s Phase 2-Computarization of TOR, Integrate Vendor’s ICTA/Roc in consulation Start date: 8 RoC, New Workflow Software Project Plan with TF-ICT with Private sector immediate Implementation Project Manager Automatic exchange of data from RoC, Inland ICTA in consultation Revenue and Labor with the Inland Revenue Department for better and Labor department Phase 3-Implementation of Data search and data integrity 9 Exchange Allow for users to know ROC in consultation status of the process with the IR and LD online ICTA (in consultation Map all existing with the ROC, Inland identifiers Revenue) and labor department) Examine feasibility of ICTA (in consultation using TIN between RoC with the ROC, Inland and Inland Revenue Revenue) and labor and NID between Roc Phase 4 -Introduce a common department) 10 and Labor business identification number. ICTA (in consultation Convert all existing with the ROC, Inland identifiers into agreed Revenue) and labor format department) ICTA (in consultation Identify and implement with the ROC, Inland necessary back-end Revenue) and labor system changes department) Examine feasibility of common RoC, IRD, Labor Within Phase 2 application form for all registrations Sign agreements between all agencies Date of Start date: allowing for common RoC, IRD, Labor completion: immediate application form to be mid-August deployed Conduct streamlining and automation at all RoC, IRD, Labor in Introduce a single platform for agencies to automate consulation with Private Within Phase 2 business registration by integrating back-end workflows Sector 11 the incorporation process with the related with registration registration to (1) all taxes, the (2) Integrate common Labor Department application form with RoC, IRD, Labor in systems at each consulation with Private Within Phase 2 agency to allow for Sector automatic submission within each agency Determine and deploy ROC in consultation effective online Within Phase 2 with the IR and LD payment gateway Launch system with ROC in consultation effective outreach to Within Phase 2 with the IR and LD users A Roadmap to Improve the Investment Climate in Sri Lanka 25 2018 2019 Oct Nov Dec Jan Feb Mar April May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 12 months completion date: between November 2017- August 2018 start date to be determined after completion of phase 2 start date to be determined 6 months completion of phase 2 tbd after phase 2 is completed tbd after phase 2 is completed tbd after phase 2 is completed 26 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN DEALING WITH CONSTRUCTION PERMITS Reforms that make the regulation of construction more Efficient building permitting systems share key features. efficient and transparent can help reduce corruption and Clear building codes written with a consultative process are at informality. Well-designed regulatory regimes also encourage the core of well-designed construction permitting systems, construction companies to go through formal channels, and countries like Canada and New Zealand are increasingly and ensure compliance with important standards. Good steering towards performance-based codes.23 Germany, regulations, combined with sound enforcement mechanisms, Singapore and Mauritius have incorporated risk-management ensure safety standards that protect the public while making tools to streamline the issuing of permits and optimize the the permitting process efficient, transparent and affordable effectiveness of inspections. Up-to-date land use and for both building authorities and the private professionals who zoning plans improve transparency and predictability for use it. A study shows that long delays to obtain permits could developers.24 Establishing sound licensing mechanisms for lead to higher transaction costs and fewer transactions.20 practitioners, in addition to well-functioning liability regimes Construction permitting reforms can streamline transactions and compulsory insurance systems, have become pivotal in for construction firms, and lead to significant payoffs for order to introduce more efficient regulatory systems. Many local communities. In 2005, a PriceWaterhouseCoopers study countries are outsourcing building control procedures to the found that accelerating permit processes in the United States private sector. could permanently increase government revenues.21 As for the impact of building permit reforms on new income generation, The Government of Sri Lanka recognizes the importance of every 10 jobs directly related to a construction project is improvements in construction permitting, and has actively associated with another 8 jobs created locally.22 These impacts pursued reforms in recent years. In 2014, the Doing Business yield not only additional income for the community, but also report noted the elimination of a requirement to obtain tax additional investments and tax revenues for the Government. clearance for construction permits, and the reduction of Beyond economic returns and the increased attraction of building fees. In 2015, GoSL significantly decreased the time investment, the most important benefit of building permit needed to obtain a building permit by implementing a group reforms is to protect public safety. assessment for permit applications, replacing an earlier system where applicants needed to give individual reports to officers from separate departments. In addition, GoSL ordered a review of application procedures, and is attempting 20 Sonia Hamman, “Housing matters, Volume 1,” Policy Research Working to let applicants save time by processing more applications Paper 6876, 2014. In particular, the paper mentions that “Mayer in parallel (rather than in sequence). In the longer term, GoSL and Somerville’s (2000) study of U.S. regulations estimates that a is working to develop an IT-based system for processing metropolitan area with a 4.5-month delay in approval and two different types of growth-control restrictions would have about 45 percent less permits, as well as a one-stop shop issuing both development construction than a metropolitan area with a 1.5-month delay and no permits and certificates of conformity. growth management policy.” 21 For a single building project, accelerating permit processes provides a temporary acceleration of property tax collections. For a representative series of projects, the study shows that these revenue increases could 23 Performance-based codes provide more flexibility and support reach 16% over a period of 5 years. “Economic Impact of Accelerating innovation by focusing on outcomes to be achieved rather than Permit Processes on Local Development and Government Revenues” prescribing how the building must be constructed. The use of PriceWaterhouseCoopers, December 2005. performance-based codes, however, requires a higher level of technical 22 PricewaterhouseCoopers. 2005. “Economic Impact of Accelerating competence to enforce than do other approaches. Permit Processes on Local Development and Government Revenues.” 24 World Bank. 2013. “Urbanization beyond Municipal Boundaries: Report prepared for the American Institute of Architects, Washington, Nurturing Metropolitan Economies and Connecting Peri-Urban Areas in DC. India.” Directions in Development. Washington, DC: World Bank, p. 44. A Roadmap to Improve the Investment Climate in Sri Lanka 27 The Doing Business Dealing with Construction Permits average (16.4 procedures and 196.4 days), though somewhat indicator measures the ease with which builders can comply longer than the OECD average (12.1 procedures and 152.1 with the licensing and permitting requirements, and obtain days). However, the permitting process is relatively inexpensive utility connections for constructing a new commercial in Sri Lanka, with fees among the lowest in the World (Distance warehouse. In 2017, Sri Lanka ranks 88th globally out of to Frontier equal to 69.31 out of 100). Sri Lanka would improve 190 economies. Obtaining a construction permit takes 13 its performance by focusing on measures to reduce the steps procedures and 115 days; this is better than the South Asia and time required to obtain the permits to build a warehouse. Doing Business 2015 Indicator Sri Lanka South Asia Average OECD (High Income) Procedures (number) 13 16.4 12.1 Duration (days) 115 196.4 152.1 Cost (% warehouse value) 0.4 16.7 1.6 Building Quality Control Index (0-15) 5.5 8.7 11.3 Source: 2017 Doing Business report Members of the Task Force for Dealing with Construction Permits Agency Position Name Responsibility Urban Development Authority Director General Mr. (Eng.) Sumedha Head of the Task Ratnayake Force Ministry of Provincial Councils Secretary Mr. H T Kamal Pathmasiri TF Member and Local Government Colombo Municipal Council (CMC) Municipal Commissioner Mr. V K Anura TF Member Colombo Municipal Council Deputy Municipal Commissioner Mrs. Thamara TF Member Mallawaarachchi National Water Supply and General Manager Mr. D U Sumanasekara TF Member Drainage Board City Planning Division, CMC Director-City Planning Ms. Priyantha Peiris TF Member Fire Services Department, CMC Fire Officer Mr. P N R Fernando TF Member Assessor’s Department, CMC Municipal Assessor Mr. Wasantha Adikari TF Member Drainage Department, CMC Director, Drainage Mr. M I M Salim TF Member National Construction Chairman Mr. Athula Galagoda TF Member Association of Sri Lanka ICTA Senior Project Manager Ms. Thusha Mukunthan TF Member ICTA Programme Specialist Mr. Bandula Ranathunga TF Member 28 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN DEALING WITH CONSTRUCTION PERMITS Action Plan: Dealing with Construction Permits Items Actions Responsible agency Type of reform ranked by Mar Apr May Jun priority Short-term i.e. within 3 Long months -term, Assess threshold for UDA/CMC building permit approvals in 1 UDA General Colombo Complete and publish list of all clearances and relevant e-local government 2 ICTA, CMC building laws and regulations application Finalize hiring consultant to finalize e-local government e-local government 3 ICTA, CMC implementation application Finalize electronic mapping of land plots in Colombo. Including e-local government 4 ICTA, CMC required clearances per plot application Complete implementation plan to automatize records, work 5 UDA Process related flow and applications Complete and publish list of all clearances and relevant 6 UDA Process related building laws and regulations Develop a plan to complete electronic mapping of land plots in Cross-cutting and 7 CMC Colombo. Including ownership information. urban e-local government 8 Full implementation of e-local government application in CMC ICTA, CMC application Share and compare common features for a risk classification 9 UDA, CMC, Water Board Process related framework Complete training sessions for CMC officials for the e-local government 10 ICTA, CMC implementation of the e-local government application application Review current risk classification for approval/supervision by 11 UDA, CMC, Water Board Process related agency Implementation of automatization of records, work flow and 12 UDA Process related applications Complete communications campaign for the implementation e-local government 13 ICTA, CMC of e-local government application application Develop and implement service standards and accountability e-local government 14 CMC measures application Develop and implement service standards and accountability Cross-cutting and 15 UDA measures governance Cross-cutting and 16 Update development plans for Colombo UDA urban Pilot building approval/supervision process using risk 17 UDA, CMC, Water Board Process related classification Ministry of Megapolis, e-local government 18 Develop interface with relevant agencies Ministry of Local application Governments Ministry of Public Consider implementing for construction professionals to carry Administration and a liability insurance to cover most claims that they would Cross-cutting and 19 Management, Institute encounter as designers, project supervising engineers or as governance of Architects, Institute of contractors in private construction projects. Engineers Complete building approval/supervision process using risk 20 UDA, CMC, Water Board Process related classification A Roadmap to Improve the Investment Climate in Sri Lanka 29 2017 2018 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec i.e. 6 months 9 months 12 months 30 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN REGISTERING PROPERTY The existence of strong property rights is crucial for can map out the varying requirements of their cities and supporting investment, productivity and growth.20 Research strategically plan the provision of services and infrastructure suggests that property owners with secure ownership are in the areas of each city where they are most needed.23 Doing Business 2017 Indicator Sri Lanka South Asia Average OECD (High Income) Procedures (number) 9 6.6 4.7 Time (days) 51 110.7 22.4 Cost (% of property value) 5.1 6.9 4.2 Quality of the Land Administration Index (0-30) 3.5 7.8 22.7 more likely to invest in private enterprises and transfer land to The Doing Business Registering Property indicator records more efficient users. Furthermore, the ability to easily access the full sequence of procedures, time and cost necessary for authoritative information on land ownership may reduce the a business to transfer title of a land and a building to another transaction cost in financial markets, making it easier to use business so that the buyer will be in a position to use the property as collateral.21 property for expanding its business, as collateral in taking new loans, or to sell to another business. Sri Lanka ranks 155th Land registries, together with cadasters that identify the globally in this indicator and 4th in the South Asia region. location of a property, are institutions used around the world Sri Lanka is outperformed by Bhutan, Nepal and India. In Sri to map, prove and secure property rights. These institutions Lanka, an entrepreneur has to spend over 51 days to transfer are part of the land information system of an economy. With a property. land and buildings accounting for between half and three- quarters of the wealth in most economies, having an up-to- In 2012, a new computerized system and increase in staff date land information system matters.22 The benefits of land at the Land Registry helped speed the registration of deeds. registration go beyond the private sector. For governments, Currently, the Registrar General’s Department is digitizing having reliable, up-to-date information in cadasters and property registration records, by scanning titles and entering land registries is essential to correctly assess and collect tax data from the scanned records. revenues. With up-to-date land information, governments 20 Claessens, Stijn and Luc Laeven, Financial Development, Property Rights, and Growth, Journal of Finance, 58 (6): 2401–36, 2003. 21 Simon Johnson, John McMillan, and Christopher Woodruff, Property Rights and Finance, The American Economic Review, Volume 92, Issue 5, 23 Property information held in cadasters and land registries is part of Pages 1335-1356, December 2002. the land information available to governments. Land information also 22 World Bank. 1989. World Development Report 1989. New York: Oxford includes other geographic, environmental and socioeconomic data University Press. related to land that are useful for urban planning and development. A Roadmap to Improve the Investment Climate in Sri Lanka 31 Members of the Task Force for Registering Property Agency Position Name Responsibility Survey Department of Sri Lanka Surveyor General Mr. P M P Udayakantha Head of Task Force Ministry of Land Secretary Dr. I H K Mahanama TF Member Divisional Secretariat, Colombo Divisional Secretary Mr. Amal J S S Edirisooriya TF Member Provincial Department of Commissioner Revenue Mr. G A N Jayantha TF Member Revenue Colombo Municipal Council Deputy Municipal Commissioner Mrs. Thamara TF Member Mallawaarachchi Survey Department Deputy Survey General Mr. B H B Cyril Shantha TF Member Registrar Generals’ Department Senior Deputy Registrar General Mr. R R Dayananda TF Member Registrar Generals’ Department Senior Deputy Registrar General Mr. W B Sandiligama TF Member City Planning Division, CMC Director-City Planning Ms. Priyantha Peiris TF Member Colombo Municipal Council Municipal Assessor Mrs. Wasantha Adikari TF Member Ministry of Land Asst. Secretary Ms. Piumi Attygalle TF Member Survey Department Senior Superintendent of Surveys Mr. K R Sarath TF Member Western Province Revenue Senior Assessor Mr. P C Simithraarchchi TF Member Department Department of Valuation Regional Valuer Mr. L J K D Silva TF Member Colombo Municipal Council Assessing Inspector Mr. W N R Tissera TF Member City Planning Civil Engineer Mr. Anuja Mendis TF Member ICTA Project manager Mr. Chinthaka Ranasinghe TF Member ICTA Project Assistant Ms. Shihari Gunaratne TF Member Action Plan for Reforms under the Registering Property Index The Registrar General’s Department is the overall leading items also propose the computerization and linking of data agency for the task force. held in the Registrar General’s and Survey Departments and making this data accessible on the internet. Action is The action plan for “Registering Property” consists of a set proposed to simplify the preparation and attestation of deeds, of 20 action items. These action items address the delays the payment of stamp duty and the submission of information experienced by buyers in obtaining data from CMC that to the land registry. The Task Force has not yet prioritized and confirms that municipal fees and taxes have been paid and finalized the timeline of the actions. that the building and street line has been defined. The action 32 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN REGISTERING PROPERTY 2017 Outcomes Indicators Feb Mar Apr May Jun Jul Aug Procedures (No) 9 Time (Days) 51 Costs Quality Timeline indicated by TF Timeline/comments indicated by Ops Team # Actions / Tasks Lead Team Develop and implement service standards to provide certificates of 1 CMC ICTA ownership and building street-line certificates (<5 days) 1.1 Conduct operational study 1.2 Develop standards 1.3 Implement the standards of <5 days Implement a special expedition fee to expedite issuing of certificates of Proposal Proposal 2 CMC ICTA ownership and building street-line prepared submited 2.1 Prepare a Proposal 2.2 Submit the Proposal to the TF 2.3 Develop the System 2.4 Implement the System MOU between ICTA, CMC Online web Technical Develop and implement a system to update the CMC assessment register RGD & CMC 3 RGD & Survey based system Committee based on information supplied by the land registry to share Data Department implemented established signed 3.1 Set up a Technical Committee to prepare TOR 3.2 Officialize Agreement between RGD & CMC to share data 3.3 Design the System 3.4 Process Procurement for Implementing the System 3.5 Implement the System 3.6 Conduct modifications to the eLand to provide access for CMC assessment 3.7 Provide Awareness Sessions for the Users of System 3.8 Provide Data to CMC RGD Complete the digitalisation of the land registers in RGD and provide access ICTA & Ministry 4 RGD to these records online through the eLand system of Lands 4.1 Develop Infrastructure of 6 land registries to commence online services 4.2 Digitize 9 land registries that have scanned data 4.3 Digitize 5 land registries in the Western Province 4.4 Develop DMA System 4.5 Start providing services using scanned data Graphic Develop a process to link land register and cadastre data electronically, Survey and non 5 validate the data and make it available through Electronic Government RGD & ICTA Department graphic data Portal or Geo Portal (and prepare a plan to scale-up the process) combined 5.1 Develop a process to link land register and cadastre data electronically 5.2 Validate the data 5.3 Make data available 5.4 Prepare a plan to scale-up the process A Roadmap to Improve the Investment Climate in Sri Lanka 33 2018 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 8 2 2 26 26 5 Standards Standards developed implemented System System developed implemented Logging Vendor’s Data System provided for Contract provided to developed the users of signed CMC CMC Land registries Land Services using in the Western DMA System registries scanned data Province developed digitalized provided digitalized 34 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN REGISTERING PROPERTY # Actions / Tasks Lead Team 2017 Feb Mar Apr May Jun Jul Aug Make eLand and cadastre available online to government agencies, Survey 6 municipalities, lawyers, notaries, surveyors, real estate developers, brokers RGD & ICTA Department and others who subscribe to the service 6.1 Prepare regulations and disseminate instructions for private surveyors to Survey 7 connect surveys to the national coordinate system and lodge plans with Department Survey Department in a digital format 7.1 Prepare and finalise drafting regulations 7.2 Submit draft regulations to the legal draftsman 7.3 Get approval of regulations by parliament Survey 8 Complete the procurement and installation of a national CORS system. Department 8.1 Process procurement of a national CORS system 8.2 Complete acquiring instruments 8.3 Complete establishing monuments 8.4 Install a national CORS system 2nd draft Title Ministry of TBD submitted 9 Expedite the amendment of the Registeration of Title Act Settlements Lands by TF to the legal Department draftsman 9.1 Prepare the 2nd draft amendment of the Registeration of Title Act 9.2 Submit the 2nd draft to the legal draftsman 9.3 Prepare submission to the Parliament 9.4 Submit the amendment of the Registeration of Title Act to the Parliament RGD, Survey Department, Develop and process a valuation system (real estate market indices, Department ICTA & Western TBD 10 valuation zoning maps, look-up tables, guidelines etc.) to support the stamp of Valuation Province by TF duty level validation Revenue Department 10.1 Develop a system for valuation 10.2 Implement the system for valuation Western Develop and implement system to support electronic payment of stamp Province TBD 11 ICTA duty on the occasion of the transaction settlement Revenue by TF Department 11.1 Develop the system 11.2 Implement the system Computerise ownership and building and street line records and develop a TBD 12 CMC ICTA system to provide online access to this information by TF 12.1 Develop a system to provide online access 12.2 Implement the system to provide online access A Roadmap to Improve the Investment Climate in Sri Lanka 35 2018 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cadastre data available in digital format Private Existing Awareness Technical Technical surveyors plans programmes programmes insturctions insturctions integrated studyied developed prepared approved to the public system National Instruments Monuments CORS system acquired established established Draft Title Act submited to the Parliament System for System for valuation valuation developed implemented System to System to support support electronic electronic payment of payment of stamp duty stamp duty developed implemented System System to provide to provide online online access access implemented developed 36 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN REGISTERING PROPERTY # Actions / Tasks Lead Team 2017 Feb Mar Apr May Jun Jul Aug Ministry Develop standard deed forms and amend the Notaries Ordinance and of Public TBD 13 Registration of Documents Ordinance to permit adoption of standardised RGD Administration by TF forms and digital submission of documents and Home Affairs Ministry of Public Merge the separate legal steps (deed preparation, notarization) to a single TBD 14 RGD Administration step in the property transaction by TF and Home Affairs Ministry of Public Administration Develop and test a system for notaries to submit deeds electronically and TBD 15 RGD and Home simultaneously update eLand provisionally for validation by RGD by TF Affairs, ICTA & Ministry of Lands Develop and implement system for Notaries to send a notice electronically TBD 16 CMC ICTA to CMC of a change in ownership for automatic updating of CMC records by TF Ministry of Develop a process and prepare a plan for scanning the deeds in the Land Lands and TBD 17 RGD Registry (for eLand) Parlimentary by TF Reforms Ministry of Lands and TBD 18 Implement the plan to scan deeds and input data in eLand RGD Parlimentary by TF Reforms A Roadmap to Improve the Investment Climate in Sri Lanka 37 2018 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 38 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN GETTING CREDIT Doing Business covers two aspects of the regulation that In 2013, Sri Lanka strengthened its transactions system by affect the availability of credit: the depth of credit information establishing an electronic, searchable, collateral registry and and the strength of the legal rights of borrowers and lenders. issuing regulations for its operations. The first aspect, measured by the depth of credit information index, includes the coverage, scope and quality of credit A. Credit Information information available through credit registries and credit A credit reporting system is an integral part of a well-functioning bureaus. The second, measured by the strength of legal rights credit market. Credit reporting systems help satisfy lenders’ index, evaluates the degree to which collateral and bankruptcy need for accurate, credible information that reduces the risk laws protect the rights of borrowers and lenders. In Doing of lending and the cost of loan losses by providing a reliable Business 2017, Sri Lanka ranked 118th overall on the Getting indication of whether an applicant will repay a loan. Lack of Credit indicator among the 190 countries measured by the credit information makes checking borrowers’ credit history report, and 4th in the South Asia region. an onerous and uncertain process, which raises transaction costs for banks and, ultimately, increases the cost of credit to Reforms have been ongoing in access to both credit information borrowers. Loans are made based on personal connections, and secured transactions. Sri Lanka enacted legislation that not necessarily the likelihood of repayment. allowed its credit bureau to collect and distribute data from utility providers and retailers, and it defined the regulations for Research suggests that bank profitability is higher and bank dispute settlements and consumer protection. More recently risk is lower in countries where lenders share borrowers’ in 2009, Sri Lanka improved access to credit information information through credit bureaus and registries.20 Well- through a consolidation of systems at the Credit Information functioning credit reporting systems can help reduce Bureau of Sri Lanka (CRIB), allowing all shareholder lending adverse selection and moral hazard, and contribute to both institutions to submit credit data (with no minimum threshold an expansion of credit and a reduction in lending costs by for the loans to be reported to the database), and also set up an facilitating the adoption of lending technologies based on online system for banks to share credit information, collecting credit scoring models. The development of credit registries data on all loans from financial institutions and distributing and bureaus is particularly important for smaller firms, historical credit information covering a longer period. For its given the more severe problems of information opacity and secured transactions regime, the 2009 Secured Transactions asymmetry in these cases. Act introduced positive changes such as enabling for the first time, the use of a searchable electronic registry system. Sri Lanka scores 6 out of 8 on the depth of credit information Although different types of movable assets (tangible and index. intangible) have been allowed to be used as collateral under this new regime, the number of registrations over past four years has been low: only 5,614. This is due to the STA of 2009 not providing effective legal consequences to the registration of a secured transaction with the STR. In particular, there is 20 Joel Houston, Chen Lin, Ping Lin, and Yue Ma, 2010. “Creditor rights, no priority attached to such registration resulting in the new information sharing, and bank risk taking,” Journal of Financial regime not being extensively used yet. Economics, Volume 96, Issue 3, Pages 485–512, June. A Roadmap to Improve the Investment Climate in Sri Lanka 39 Doing Business 2017 Indicator Sri Lanka South Asia Average OECD (High Income) Depth of credit information index (0-8) 6.0 3.9 6.5 Credit registry coverage (% of adults) 0.0 4.2 12.1 Credit bureau coverage (% of adults) 57.2 14 67.1 According to the Doing Business database, as of May 2017, loan default, credit to the private sector as a percentage Sri Lanka’s credit bureau covered 7,555,732 million individuals of gross domestic product (GDP) averages 60% compared and over 368,224 firms. with only 30% to 32% on average for countries without these creditor protections. B. Legal Rights of Creditors and Borrowers in Secured Transactions óóDecreasing the cost of credit: In industrial countries, borrowers with collateral get nine times the level of credit This section focuses on secured transactions and creditor’s given their cash flow compared to borrowers without rights. In many developing countries, small and medium collateral. They also benefit from longer repayment periods enterprises do not have access to land to use as collateral. (11 times longer) and significantly lower interest rates However, they have moveable assets—such as machinery, (50% lower).20 inventory, accounts receivables, and equipment. The legal and institutional framework plays an important role in facilitating óóIncreased access to finance: Research found that in the use of such movable assets as collateral. Having to give countries with registries for movable collaterals, the up the possession of the asset to a creditor would disable number of firms with access to finance increased on the debtor from using the asset and depending on the asset, average by 8%. These countries also showed lower interest this could hamper the business’s productivity and ability to rates and extension in loan maturity. The increase was even operate. As a result, it is important to develop a legal system stronger for small firms, which often find it more difficult that would allow businesses to use all their moveable assets than bigger firms to access credit due to lack of fixed as collateral to secure loans without having to give up assets to be used as collateral.21 possession of those assets. This in turn may increase firms’ likelihood of accessing credit and improve the terms of the credit. Doing Business 2015 Indicator Sri Lanka South Asia Average OECD (High Income) Strength of Legal Rights Index (0-12) 2 4.6 6 An improved legal framework for collateral could 20 Investment Climate Advisory Services, Secured Transactions Systems contribute to: and Collateral Registries, World Bank Group, January 2010. óóIncreasing the level of credit: In countries where security 21 Love, Inessa, María Soledad Martínez Pería and Sandeep Singh, 2013. interests over collateral are enforceable against third- “Collateral Registries for Movable Assets. Does Their Introduction Spur Firms’ Access to Bank Finance? Policy Research Working Paper n. 6477, parties based ona predictable priority system in cases of The World Bank, June. 40 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN GETTING CREDIT Members of the Task Forces for Getting Credit Agency Position Name Responsibility Credit Information Bureau Chairman Mr. P Samarasiri Head of Task Force Credit information Bureau Deputy General Manager Mr. Janaka Lakmal TF Member Commercial Bank of Sri Lanka Managing Director Mr. Jegan Durairatnam TF Member Bank of Ceylon General Manager Mr. D M Gunasekera TF Member Dept. of Motor Traffic Commissioner General of Mr. A H K Jegath Chandrasiri TF Member Motor Traffic Department of Registrar of Registrar General Mr. D N R Siriwardena TF Member Companies Action Plan: Getting Credit All of the recommended action in the action plan pertain to the enactment of the Secured Transactions Registry Law. Items Actions Responsible agency ranked by Feb Mar Apr priority Short-term i.e. within 3 months Observations for consequential amendments received from relevant ministries and incorporated. Additionally AG has provided feedback on the draft STR Act. Pending actions towards enactment of STR draft law 1 LD incorporate any changes requested and sends the drafted Act to the A.G for approval LD 2 A.G to approve the finalised draft and submit to line Ministry AG Ministry of National Policies 3 Submission of the Act to the Cabinet for approval with Sub-Committee approval and Economic Affairs Estimated maximum 4 Translation of the Act by LD LD required time 5 Gazetting of the bill by the Parliament Parliament Comments from public obtained and if no objections proceed to next step or directly 6 Parliament discussed in parliament 7 Consideration by the Select Committee of the Ministry in Parliament Parliament 8 Order paper of Parliament has the document Parliament 9 Tabling of the bill in the Parliament and passing of the bill Parliament A Roadmap to Improve the Investment Climate in Sri Lanka 41 2017 2018 May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Long-term, i.e 6 9 months 12 months months 42 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN PROTECTING MINORITY INVESTORS Corporate governance is first and foremost an act of legislation may allow company owners and directors to enter balancing. The immediate interests of three parties are into transactions that are lawful and involve no fraud or deceit, involved: company directors and managers, shareholders, and but that nevertheless are unfair to minority shareholders. The public authorities. In an ideal setting, the seemingly contrary existence of disclosure, director liability and shareholder suit interests of one party become beneficial in the long run to provisions that prevent such unfair transactions is of concern that of another. For instance, empowering shareholders by both to foreign and domestic shareholders, and would help granting more control over sensitive and/or major transactions companies in Sri Lanka to raise capital. reduces the risk on their investment and may allow directors and managers to more easily raise the capital needed to grow, On an index range of 0-10, Sri Lanka scores 6.3 for the overall innovate, diversify and compete. Similarly, eliminating undue Strength of Minority Investor Protection index. Globally, regulatory requirements or clarifying and merging existing in 2017, Sri Lanka ranks 42nd on the strength of minority ones may seem to be at first a loss of oversight for public investor protection and 3rd among 7 economies in the South authorities yet lead to increased job creation and tax revenues Asia region. Compared to the global best performance, the further down the road. Without investor protections, equity economy scores 63.33 percentage points (out of 100) on the markets fail to develop and banks become the only source “Distance to Frontier” measure. Sri Lanka is relatively weak on of finance. Economies that have dynamic capital markets the Extent of Shareholder Rights Index (scoring 6 out of 10.5). tend to effectively protect investors. In these economies There have been ongoing reforms in this area over the last investors receive financial information they can trust, they years. In 2012, Sri Lanka strengthened investor protections participate in major decisions of the company, and directors by requiring greater corporate disclosure in cases of are accountable for their managerial decisions. If the laws do transactions between interested parties. More recently, not provide such protections, investors may be reluctant to the Securities Exchange Commission (SEC) issued a invest, unless they become controlling shareholders. Doing Business 2017 Indicator Sri Lanka South Asia Average OECD (High Income) Extent of conflict of interest regulation (0-10) 6.7 5.3 6.3 Extent of shareholder governance 6.0 5.3 6.6 Strength of minority investor protection (0-10) 6.3 5.3 6.5 Source: Ease of Doing Business Report, 2017 Doing Business measures the strength of minority shareholder Related Party Transactions Directive (SEC/LEG/13/12/23), protections against directors’ misuse of corporate assets for which would require listed companies to comply with a personal gain through one set of indicators and the strength Code of Best Practices on Related Party Transactions, of shareholders’ rights in corporate governance through including the establishment of a Related Party Transactions another.20 Such protections are important because gaps in Subcommittee;21 these provisions have been voluntary since January 2014, and were made mandatory as of January 2016. 20 The company that is measured by Doing Business ‘Protecting minority investors’ indicators is a publicly traded corporation in the economy’s most important stock exchange. If the number of publicly traded companies listed on that exchange is less than 10, or if there is no stock exchange in the economy, it is assumed that the company is a large 21 Report on the Observance of Standards and Codes Accounting and private corporation with multiple shareholders. Auditing – Sri Lanka, WBG June 2015 A Roadmap to Improve the Investment Climate in Sri Lanka 43 Members of the Task Force on Protecting Minority Investors Agency Position Name Responsibility Securities and Exchange Director General Mr. Vajira Wijegunawardene, Head of Task Force Commission of Sri Lanka (Chairperson) Securities and Exchange Director Corporate Affairs Dr. Harshana Suriyapperuma TF Member Commission of Sri Lanka Department of Registrar of Registrar General Mr. D N R Siriwardena TF Member Companies Ministry of Finance Senior Legal Advisor Mr. Kolitha Dharmawardena TF Member Private Sector Representation TBD (bringing in perspective of TBC TF Member minority and majority investors) 44 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN PROTECTING MINORITY INVESTORS Action Plan: Protecting Minority Investors # Actions Responsible 2017 agency Feb Mar Apr May Jun Jul Short-term i.e. Long-term, i.e 6 within 3 months months Companies Act/ TBD by the task 1 Require shareholders approval of large related party transactions Stock Market force Regulations TBD by the task 2 Increase disclosure of obligations of company directors in case of conflicts of interest Companies Act force Allow access to all corporate documents to a shareholder (or a group) representing 10% of TBD by the task 3 Companies Act the shares of the company force TBD by the task 4 Require shareholders’ approval for new share issuance Companies Act force TBD by the task 5 Provide preemptive rights to company shareholders in case of new share issuance Companies Act force Stock Market TBD by the task 6 Bar CEOs from also serving as Chair of the board of directors. Regulations force Stock Market TBD by the task 7 Require that the compensation of individual managers be disclosed Regulations force TBD by the task 8 Require submission of the shareholder meeting’s notice 21 days in advance Companies Act force Allow a shareholder (or a group) representing 5% of the shares of the company to include TBD by the task 9 Companies Act new items to the agenda of the general shareholders meeting. force A Roadmap to Improve the Investment Climate in Sri Lanka 45 2018 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 9 months 12 months 46 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN TRADING ACROSS BORDERS Trade facilitation for importers and exporters is essential The Doing Business report measures the time, cost, and for participation in the global economy. High performing the number of documents required to export and import a customs and technical control regulations, high quality trade standardized cargo by ocean transportation. In 2017, in Sri infrastructure, and the management of trade barriers all Lanka when trading from Colombo, regulatory expenses are impact the ease of trading among countries. Economies with low, with the cost to import a container (US$ 583) or export a the most efficient trade logistics share common features. container (US$ 424). However, paperwork remains a problem. First, they allow electronic exchange of information with Seven separate documents are required for import or export. customs and other control agencies. The use of electronic Likewise, the time to import (119 hours) and export (130 systems to transferring and processing customs information hours) significantly beats the regional average, but is well has become widespread, and can significantly reduce the above the best-performing countries in the world. For overall regulatory preparation work for trade. Over eighty-eight ease of trading across borders in 2017, Sri Lanka ranks third countries globally allow for the submission of information in the South Asia region, after Bhutan and Nepal, and 90th electronically to customs; increasingly, countries are globally (among 190 economies). Region Time to Cost to Time to Cost to Time to Cost to Time to Cost to export: export: export: export: import: import: import: import: Border Border Documentary Documentary Border Border Documentary Documentary compliance compliance compliance compliance compliance compliance compliance compliance (hours) (USD) (hours) (USD) (hours) (USD) (hours) (USD) East Asia & Pacific 57 401.7 73.3 131.8 71 435.9 70.9 127.8 Europe & Central Asia 28 195 26.9 110.7 25.8 202.3 26.4 90.9 Latin America & Caribbean 63.5 526.6 55.7 110.5 65.5 684.7 83.4 119.6 Middle East & North Africa 64.4 459.6 77.4 261.3 120.6 554.5 101.2 305.1 OECD high income 12.4 149.9 2.6 35.7 9 115.1 4 26.3 South Asia 59.4 376.1 78 182.6 116.1 644.5 106.4 348 introducing electronic single windows that also connect The GoSL has pursued a number of reforms in recent years. In traders to other agencies involved in import and export 2013, an e-payment system was introduced for port services, processes. Traders can electronically file through a single and in 2012 ports began using the ASYCUDA electronic data entry point information to fulfill all import and export management system. This year, the Sri Lanka Ports Authority requirements, and share it with all parties involved in trade, has worked to reduce terminal and port handling time, including customs and other government agencies, banks, through improvements in infrastructure, IT-based systems freight forwarders, and insurance companies, among others. and worker productivity. At the same time, Sri Lanka Customs Second, economies with efficient trading environments use has launched a number of improvements aimed at reducing risk-based assessments which limit physical inspection to customs clearance time. These include opening an Export a small percentage of cargo, and take measures before and Facilitation Center allowing for 24/7 operations, sending SMS after clearance to maximize both efficiency and security. alerts for clearance updates, and updating regulations to allow for advance delivery of cargo manifest information, A Roadmap to Improve the Investment Climate in Sri Lanka 47 used to selectively target higher-risk shipments. Other reforms include the formation of the National Trade Facilitation Committee to facilitate trade and logistics reforms, and the upgrading of Sri Lanka’s ports and port administration infrastructure. Members of the NTFC Agency Position Name Responsibility Sri Lanka Customs Director General Mr. Chulananda Perera Chairman Department of Commerce Director General Ms. Sonali Wijeratne – Co- Chair Department of Trade and Director General Mr. K A Vimalenthirarajah Member Investment Policy Imports & Exports Controller’s Controller General Ms. Nimalka Dias Member Department Department of Exchange Control Controller Exchange Mrs. Y Fernando Member Department of Health Services Director General Dr. J M W Jayasundara Bandara Member Department of Agriculture Director General Dr. Rohan Wijekoon Member Sri Lanka Standards Institute Director General Mr. Gamini Dharmawardhaha Member National Intellectual Property Director General Mrs. G R Ranawaka Member Office Sri Lanka Ports Authority Chairman Mr. Parakrama Dissanayake Member Airport and Aviation Services Chairman Mr. K V P Ranjith De Silva Member Sri Lanka Ltd Sri Lanka Export Development Chairman Ms. Indira Malwatta Member Board Ceylon Chamber of Commerce CEO Dr. Dhara Wijethilaka Member An action plan has been developed, which includes members to support the prioritization of TFA reforms and recommended set of actions and objectives for reforms for their implementation; refining the Terms of Reference of Trade Facilitation, and designated responsible agencies the Committee; Facilitating dialogue between Customs, for implementation. The WBG is currently providing support Commerce and other agencies working on TFA-related to a selected number of prioritized actions out of these activities; and support Public-Private Dialogue. recommended set of actions which is expected to have a significant impact on reducing trading costs. ii) Implementation of targeted TFA measures. The component will finance the mobilization of a series of subject matter The key areas of WB support include: specialists to provide focused technical assistance and (i) Strengthening the National Trade Facilitation Committee: capacity building support in the following five high priority This will involve technical advice and support to NTFC areas that have significant potential to transform the 48 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN TRADING ACROSS BORDERS Sri Lankan trade facilitation regime while ensuring full óóDevelopment of an overall vision for the LNSW compliance with regulatory requirements. Priority areas óóLegal and Regulatory framework for electronic include: transactions óóLegal review óóGovernance and Operational Model options and óóDevelopment of a Collaborative Border Management considerations policy óóRevenue model and Fee Structure for the operation of óóDevelopment of a risk management policy the NSW óóEstablishing a non-tariff measures working group in the óóTechnical and Functional Architecture and NTFC specifications iii) Implementing a Trade Information Portal. The goal of this óóService Level Agreements for participating Agencies component is to collect, analyze, format and upload to a óóBusiness Process Reengineering, Change Management website all the data required to populate initially the Sri and Communications strategy Lanka Trade Information Portal which will aggregate and óóDesign of a Capacity Building strategy and plan for the integrate all of the trade related information, including that operating entity, participating Agencies and Traders available on individual ministries’ and agencies’ websites, in an easily accessible manner. The work associated with preparation of the Blueprint will be It is envisaged that this component will comprise two carried out in partnership with the NTFC and the Customs main Phases, namely: Phase 1: Planning and Preparation Department, acting as lead agency for the NSW, and with all leading to the development of an Implementation Plan for participating agencies under the overall guidance of the NTFC. the project; Phase 2: Collection of all relevant data and The private sector will be represented in the NTFC and will be information and uploading of information to the website closely consulted as needed in the various clusters of work. so that it is ready for public launch. Action Plan for Reform under the Trading Across iv) National Single Window. In line with international Border topic standards and WTO TFA requirements, the government is This action plan has been developed under the Trade now committed to developing and implementing a National Facilitation component and the National Trade Facilitation Single Window (NSW) system which will allow traders to Committee has been appointed as the Steering Committee submit all import, export and transit information required for the reform program. by all key regulatory agencies via a single electronic gateway instead of submitting essentially the same information numerous times to different government entities many of which still rely heavily on paper based systems. Before moving to the development of the IT systems required, the project will support the development of a NSW Blueprint, comprising the following elements: A Roadmap to Improve the Investment Climate in Sri Lanka 49 Priority Focus Area Recommended Actions Lead Agency 1.1 Establish a single window steering committee with a legal mandate, potentially under the NTFC. 1.2 Prepare a blueprint for ESW implementation that includes a legal action plan, business process model, functional and technical architecture, operational and governance 1 Single Window NTFC model, fee model, capacity-building plan, change management plan, risk management model, procurement plan, and implementation plan. 1.3 Implement an electronic single window based on the plan developed through the blueprint. 2.1. Develop and provide long-term support for a query-based, user-oriented trade information portal that contains all trade-related regulatory information. The decision to develop a national trade information portal has not been made; consequently, the design has not yet been determined or the procedures, roles, and responsibilities of stakeholders defined. Trade Design and implementation of any future national trade enquiry portal should align with 2 Information international best practices. (Background and additional guidance on the trade information NTFC Portal portal principle and benefits can be found in the WBG’s “Developing a Trade Information Portal” webpage. These have been implemented in the Lao People’s Democratic Republic and Lesotho.) 2.2 Undertake a feasibility study to ascertain if the current enquiry points have the capability to adequately provide trade information. 3.1 Establish a risk management/compliance policy and guidelines. 3.2 Eliminate the 100 percent inspection mandate at Customs. 3.3 Include provisions on risk management in any revision or amendment to the Customs Ordinance. MoF, Risk 3 3.4 Conduct a comprehensive training needs assessment in risk management at Customs Customs, Management to enhance capacity to use the full range of data mining and analysis opportunities NTFC available to staff in developing focused profiles. 3.5 Significantly enhance the human resource capacity within the Customs risk management team. 4.1 Develop policy and/or legislation to allow payment of duties, taxes, and fees online and/ or by credit and debit cards. Electronic 4.2  Ensure that legislation for all border regulatory agencies clearly allows for the electronic MoF, NBSL, 4 Payment payment of all fees and charges related to international trade. NTFC 4.3 Amalgamate clearance-related charges into a single payment. 4.4 Accommodate multiple private sector banks in the electronic payment system. 5.1 Develop and implement a coordination mechanism among border agencies and the appropriate elements of the private sector, potentially through a working group under the NTFC on perishable goods. 5.2 Ensure that the proposed amended Customs Ordinance and amendments to other NTFC, Perishable 5 acts and regulations require that priority be given to the examination and release of Customs, Goods perishable shipments. NTFC 5.3 Assess the need of government agencies to establish storage facilities for perishable shipments pending their release. Ideally, develop a strategy based on the analysis of gaps and constraints in the sector. 50 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN TRADING ACROSS BORDERS Priority Focus Area Recommended Actions Lead Agency 6.1 Develop and implement SOPs, instructions, or guidelines for all core Customs business processes, including for users for the following: óóPre-arrival processing óóSeparation of release Standard Customs, 6 Operating óóRisk management NBR, NTFC Procedures óóPerformance of PCA óóAuthorized operators óóClearance of expedited shipments óóPerishable goods 7.1 Review the need for multiple registrations across numerous agencies. This would require automation and electronic links between agencies to enable data sharing. This may also require legal amendments. 7.2 Identify and develop MOUs and SOPs for key activities that require interagency coordination, such as joint inspections, dealing with rejected and dangerous goods, and Agency working hours. 7 NTFC, MoF Coordination 7.3 Enable delegation of roles on a legal basis for agencies carrying out the same or similar tasks that result in additional costs to businesses. 7.4 Resolve the legal ambiguity over acceptance of document copies across all border agencies. 7.5 In the medium term, consider developing a coordinated border management strategy or policy that incorporates the above elements. 8.1 Review all aspects of the availability, legal provisions, procedures, publication, and Laboratory 8 accreditation of laboratory testing for imports and exports, with a particular focus on the NTFC Testing provisions for appeals and second tests. 9.1 Implement a legal requirement to mandate a statutory period for consultation with stakeholders and dissemination of information on any changes prior their entry into force. 9.2 Undertake a sensitization program to ensure the business community has a greater Consultation understanding of the benefits of the process. 9 and External 9.3 Enhance the business community’s awareness and understanding of the scheme and MoF Communication their need to be compliant with the criteria, including those related to supply chain security. This can be undertaken through proactive publicity campaigns and information sessions. 9.4 Develop a communications strategy to ensure the business community is aware of the advance ruling process and the benefits it provides. 10.1 Review the issues that are creating staff turnover in PCA, and introduce measures to encourage retention and development of staff. 10.2  Include the provisions on PCA in any revision or amendment to the Customs Ordinance, 10 Audit Customs in particular to address all kinds of audits. 10.3 Provide enhanced training in audit skills, including in the analysis of electronic accounting systems. Provide IT tools to staff. A Roadmap to Improve the Investment Climate in Sri Lanka 51 Priority Focus Area Recommended Actions Lead Agency 11.1 Assess need and feasibility of an administrative appeal procedure with respect to decisions of border agencies other than Customs. NTFC, 11 Appeals 11.2  Ensure there is a legal basis for Customs appeals in line with international best practice— Customs within the agency, through an independent tribunal, and through judicial review. 12.1 Conduct a gap analysis on the implementation of the other international standards, International conventions, and frameworks to which Sri Lanka has acceded (for example, the IPPC, 12 NTFC Standards the OIE, and Codex Alimentarius). Gap analysis should identify legal, institutional, facility, training, and other resource gaps. 13.1 Revise the Customs law with a modern piece of legislation. The new law will require subsidiary regulations. 13.2 Implement a legal requirement for a specified grace period between the passage of laws, regulations, and policies and their entry into force. Publish new or amended laws and regulations of general application as early as possible before their entry into force. 13.3 Abolish the current reward schemes and/or replace them with others that are compliant MoF, Miscellaneous 13 with the TFA requirement Customs, Legal 13.4 Ensure all government agencies have appropriate legislation in place authorizing the NTFC detention of cargo. 13.5 Include the provisions of the Authorized Operators article in any revision or amendment to the Customs Ordinance. 13.6 Enable, through law or regulation, the requirement to review documents and formalities on a regular and periodic basis. Pre-arrival 14.1 Formulate legal provisions to address pre-arrival processing 14 Customs Processing 15.1 Review all fees to ensure compliance with WTO standards; that is, limited to cost 15 Fees NTFC recovery and not ad valorem. Eliminate any fees that are no longer necessary. 16.1 Establish a legal mandate for the NTFC. 16 NTFC 16.2  Review the current structure, membership, and terms of reference of the NTFC in line MoF with recommended actions in the report. 17.1 Review the penalty system to be in line with TFA obligations and best practice. There are Customs, 17 Penalties implications for overall institutional reform. NTFC 18.1 Develop a formal government requirement to conduct time release studies on a MoF scheduled basis. 18.2 Develop the internal capacity to conduct and analyze time studies NTFC 18.3 Investigate other ways to establish the value for duty of imported used vehicles that are consistent with the TFA and the WTO Valuation Agreement. Once a methodology MoF is agreed upon and officers trained in its use, the PSI report should not be used for Customs valuation purposes 18 Other 18.4 Clarify and streamline the de minimis concession to be simple, transparent, and fair to Customs the private sector and easy to apply for Customs. 18.5 Create a port action plan to deal with issues of ingress and egress, dwell time, system NTFC, SLPA redundancy, and operational efficiency. 18.6 Assess and extend ASYCUDAWorld functionality to enable detention notices, pre-arrival Customs goods declarations, and submission of supporting documents. 18.7 Implement ASYCUDAWorld at the airport. Customs 52 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN ENFORCING CONTRACTS Research in various countries around the world suggests on the CCHC has been rather positive and lawyers met that, in the absence of efficient courts, firms make fewer by the mission confirmed that it had provided a much- investments and business transactions while informal needed improvement to the timeliness and predictability of transactions become more attractive. A study of 27 economies commercial cases. However, they also stated that in the last found that the informal sector’s share in overall economic 12 months CCHC has now also begun to experience backlogs activity decreased with better contract enforcement quality, and unexpected delays. evaluated by a country-wide measure of rule of law, as well as by the firm’s perception of the fairness of courts.20 The Judicial Service Commission (JSC) and the Ministry of Improvements in court efficiency are associated with a lower Justice (MoJ) handle the management of the courts, with share of the informal sector in the overall economic activity, the JSC handling most issues such as the appointment, increased investor confidence and with increased bank promotion, transfer and dismissal of judges, and the MoJ financing of firms for new investment.21 For example, reforms handling the budgeting and asset management. in other areas, such as creditors’ rights, can increase bank Doing Business measures the efficiency (number of lending only if contracts can be enforced before the courts.22 procedures, time and cost) of the judicial system in resolving Sri Lanka’s performance a standardized commercial dispute before the Colombo District Court. Sri Lanka ranks 163rd globally on the efficiency Sri Lanka’s three-tiered court system includes the Supreme of its courts, outperformed by the Maldives, Bhutan, Pakistan Court and Court of Appeals, High Courts, first instance District and Nepal in the South Asia region. However, with 1,318 days Court (the court measured by Doing Business) and Magistrate to resolve a commercial dispute. The private sector generally Courts, and Labor Tribunals. In the 1990’s Provincial High uses commercial courts as a last resort, citing extreme delays; Courts were established, including the Colombo Commercial even the setting of a court date can take five months or more. High Court (CCHC) which has 3 benches. Overall, feedback Doing Business 2017 Indicator Sri Lanka South Asia Average OECD (High Income) Time (days) 1.318 1098.5 553 Cost (% of claim) 22.8 30.6 21.3 Quality of Judicial Processes index (0-18) 7.5 6.5 11 Source: Doing Business 2017 20 Dabla-Norris and Inchauste Comboni 2008. The Doing Business reports do not note any recent reforms 21 Among other papers, see G.B. Ramello and S. Voigt, 2012. “The in the Enforcing Contracts topic area. However, the GoSL economics of efficiency and the judicial system,” International Review recognizes the importance of improving its commercial court of Law and Economics; Mehnaz Safavian and Siddharth Sharma, 2007. system, and is currently working on a number of reforms. “When Do Creditor Rights Work?” World Bank Policy Research Working Paper No. 4296; John Ahlquist and Aseem Prakash, 2010. “FDI and the Proposed amendments to the Civil Procedure Code on Judicial costs of contract enforcement in developing countries,” Policy Sciences, Case Management would support pre-trial procedures, Springer, vol. 43(2), pages 181-200, June; Inessa Love, 2011. “Settling removing opportunities for court delays. The GoSL has Out of Court: How Effective is Alternative Dispute Resolution,” Viewpoint Note No. 329, The World Bank Group, October. also explored the implementation of IT-based systems for 22 Safavian and Sharma 2007. improving court efficiency, including conducting workshops A Roadmap to Improve the Investment Climate in Sri Lanka 53 on Malaysia’s case management systems, and piloting systems for electronic filing and management at a few District courts (not yet at the CCHC). Members of the Task Force on Enforcing Contracts Agency Position Name Responsibility Ministry of Justice of Sri Lanka Secretary Mr. Padmasiri Jayamanna (Chairperson) Head of Task Force Ministry of Industry and Secretary Mr. Chinthaka Lokuhetti TF Member Commerce Ministry of Justice of Sri Lanka Addl. Secretary Ms. Piyumanthi Pieris TF Member Board of Investments (BOI) Chairman Mr. Upul Jayasuriya TF Member Attorney General’s Department TBD TBC TF Member Colombo Commercial High Court Judge TBD TF Member Department of Legal Draftsman Legal Draftsman Ms. Deepani Kumarajeewa TF Member Ministry of Finance Senior Legal Advisor Mr. Kolitha Dharmawardena TF Member Judicial Services Commission TBD TBC TF Member 54 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN ENFORCING CONTRACTS Action Plan: Enforcing Contracts Items Actions Responsible agency ranked by Feb Mar Apr May Jun Jul priority Short-term i.e. within 3 Long-term, i.e 6 months months Conduct an assessment of how commercial cases are processed at the courts from Ministry of Justice Completion filing through final enforcement and review the procedural framework for handling Start date: 1 (MoJ to coordinate date: 30 commercial cases to identify and address underlying causes of delays. Also review the immediate JSC involvement) July processes in place at enforcement stage to identify if any problems exist. Develop comprehensive and verifiable court statistics to assist in the identification Ministry of Justice Completion of causes for delays in commercial cases and to measure improvements when Start date: 2 (MoJ to coordinate date: 30 innovations are introduced and ensure that statistics are made available to public in immediate JSC involvement) July an easily accessible manner (e.g. JSC website) Develop and introduce electronic case management system at courts including 11 Ministry of Justice e-filing, e-service of process Introduce performance management reports for courts available from JSC showing key indicators once electronic case management has been established. Reports TBD, dependent on the 12 Ministry of Justice should show: (a) clearance rate; (b) length of cases; (c) age of pending cases; (d) item 11 above ability to report on status of single case (on anonymized basis?) Promote awareness of the new electronic case management tools through TBD, dependent on the 13 training events and seminars. Once the new system is functional, take stock of its Ministry of Justice item 11 above implementation and identify opportunities to improved it and increase its uptake; Examine Civil Procedures to consider where improvements can be made to current 3 Ministry of Justice procedures including but not limited to: Start date: immediate; a) new Pre-Trial hearing to be amended to include setting of dispute length and completion hearing days and use of a standardized case management form; date: before March Completion Start date: b) introduction of stricter time standards in Civil Procedures; date: 30 immediate July c) updates to cost tables and increased authority for judges so that costs order may Start date: be used to encourage settlement and deter vexatious behavior by litigants; immediate (d) introduction of fast track with time limited process for non-complex commercial TBD cases e) use of affidavit evidence instead of examination in chief as prima facie position in Start date: all cases except where judge deems examination in chief necessary; immediate Ministry of Justice Introduce case management practices to address delays caused by adjournments (Taskforce to raise Completion Start date: 4 including (a) increased authority for judges to reject adjournments and/or a limit on proposed change date: 30 immediate number of adjournments especially in fast track cases; to Chief Justice in July bilateral meeting) (b) authority for judges to require interim court costs payments from parties if they wish to adjourn Ministry of Justice Ensure judges, court staff and lawyers are made aware that training is provided (MoJ to coordinate 5 through Judge’s Institute both on new procedures and best practice in case TBD, depending on action 4 Judges Institute management involvement) Publish PDF copies of all judgments for commercial cases (initially in language of 6 judgment but develop plan to translate all non-English judgments to English and Ministry of Justice Start date: immediate eventually English judgments to National Languages) A Roadmap to Improve the Investment Climate in Sri Lanka 55 2017 2018 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 9 months 12 months Start date: after completion of actions 1 & 2; completion date: August 2018 Completion: 30 November Completion date: mid August Completion date: between end of August 2017 and early January 2018 56 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN ENFORCING CONTRACTS Items Actions Responsible agency ranked by Feb Mar Apr May Jun Jul priority Short-term i.e. within 3 Long-term, i.e 6 months months start date: immediate; Introduce electronic payments for court fees and production of receipts (by developing 7 Ministry of Justice completion date: before new courts portal under government e-Payments system) end of April Assess the availability of funding and establishment of process for distribution of start date: immediate; 8 recording equipment (and training if necessary) to all court stenographers so as to Ministry of Justice completion date: before remove delays in record of proceedings being produced end of April Ministry of Justice Assess the availability of funding for judicial clerk/research assistant programme (Taskforce to raise start date: immediate; 9 (based on current plan for Supreme Court) for the Court of Appeal, all High Courts and proposed change completion date: before selected District Courts) to Chief Justice in end of April bilateral meeting) Ministry of Justice Assess the availability of funding for increased administrative support to courts (MoJ to coordinate Start date: 10 and registries (hiring extra court clerical staff and providing training to reduce with Non-judicial immediate administrative workload of judges) Training Institute) Strengthen efforts to promote arbitration - provide training (a) to High Court judges (a) Ministry of 14 on interaction of arbitration and courts (b) to current domestic arbitrators on TBD Justice (b) MODSIT arbitration best practice Strengthen efforts to promote commercial mediation - provide training for 15 commercial mediators (to be determined if mediators should legal or non-legal Ministry of Justice TBD professionals) A Roadmap to Improve the Investment Climate in Sri Lanka 57 2017 2018 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 9 months 12 months Completion date: between mid August and mid November (6-9 months) 58 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN RESOLVING INSOLVENCY In economies where insolvency regimes are effective, two definitions: (1) the business is unable to pay its debts as creditors are more likely to lend, both in higher volumes these become due; or (2) the business has more liabilities and at lower rates. A balanced insolvency system may also than assets. The second component of the indicator is a legal promote economic efficiency by providing a framework for index, the Strength of Insolvency Framework index, which the rehabilitation of viable companies (preserving jobs and measures the consistency of certain key aspects of insolvency enterprise value) and the swift liquidation of unviable ones legislation with international best practice. According to the (freeing up capital and assets in the latter cases to be put 2017 Doing Business report, Sri Lanka ranks 75th globally in to better use elsewhere). By facilitating the efficient business the Resolving Insolvency indicator (out of 190 economies), exit and liquidation of nonviable companies, an insolvency and first regionally (out of the 7 South Asian economies). Sri framework supports the efficient reallocation of resources Lanka earned a Distance to Frontier score of 46.73 percentage across the economy.20 points (out of 100), meaning that its average performance across all the Resolving Insolvency measures was around less than half that of the global best. Doing Business 2017 Indicator Sri Lanka South Asia Average OECD (High Income) Time (years) 1.7 2.6 1.7 Cost (% of estate) 10 9.9 9.1 Strength of insolvency framework index (0-16) 7 4.5 12.1 Recovery rate (cents on the dollar) 46.2 32.6 73.0 Outcome (0 as piecemeal sale and 1 as 0 0 1 going concern) Source: Doing Business 2017 The Resolving Insolvency indicator consists of two The first component of the Resolving Insolvency indicator components. The first component measures the time, cost, uses a hypothetical insolvency proceeding as a case study, in and recovery rate of insolvency proceedings for domestic order to evaluate the efficiency of an economy’s insolvency companies. The indicator does not capture situations where framework. Under this methodology, resolving insolvency a business owner voluntarily winds up a company but, rather, takes 1.7 years in Sri Lanka, and costs one tenth of the where businesses become legally “insolvent” under one of estate’s value; in many OECD economies, cases are resolved faster, and at a lower cost. Furthermore, 46 economies allow 20 See Djankov, Simeon. 2009. “Bankruptcy Regimes during Financial for companies facing insolvency to emerge from proceedings Distress.” Mimeo, World Bank Group; Funchal, Bruno. 2008. “The Effects as a going concern, allowing for a greater potential recovery of of the 2005 Bankruptcy Reform in Brazil.” Economics Letters, 101: value. In Sri Lanka, the insolvent company’s assets are typically 84–86; Klapper, Leora 2011. “Saving Viable Businesses.” Viewpoint 328, September 2011, The World Bank Group; Visaria, Sujata. 2009. sold piecemeal, though a current private sector initiative aims “Legal Reform and Loan Repayment: The Microeconomic Impact of to change this through an amendment to the Companies Act. Debt Recovery Tribunals in India.” American Economic Journal: Applied Overall, Doing Business measures an estimated recovery rate Economics, 1(3): 59-81. A Roadmap to Improve the Investment Climate in Sri Lanka 59 of 46.2 cents on the dollar; in Finland, secured creditors can recover an estimated 90.3 cents on the dollar (the highest rate recorded by Doing Business). The 2017 Doing Business report added a second component to the Resolving Insolvency indicator, the Strength of Insolvency Framework index, which measures the quality of an economy’s insolvency practices. Sri Lanka scores a 7.0 out of a potential 16.0 points, as its insolvency framework does not meet international best practices in the four areas covered under the index (commencement of proceedings, management of debtors’ assets, reorganization of proceedings, and creditor participation). Members of the Task Force on Resolving Insolvency Agency Position Name Responsibility Ministry of Finance Senior Legal Advisor Mr. Kolitha Dharmawardhana Head of Task Force Ministry of Justice of Sri Lanka Addl. Secretary Ms. Piyumanthi Pieris TF Member Colombo Commercial High Court Judge TBD TF Member Department of Registrar of Registrar of Companies Mr. D N R Siriwardana TF Member Companies Ceylon Chamber of Commerce CEO Dr. Dhara Wijethilaka TF Member Private Sector Insolvency Attorney at Law Dr. Niranjan Abeyratne TF Member Practitioner Sri Lanka Bankers Association Secretary General Mr. Upali De Silva TF Member Institute of Chartered President Mr. Lasantha Wickramasinghe TF Member Accountants 60 ACTION PLAN FOR IMPROVING SRI LANKA’S REGULATORY ENVIRONMENT IN RESOLVING INSOLVENCY Proposed Action: Resolving Insolvency # Recommendations Actions Responsible 2017 agency Feb Mar Apr May Jun Jul Aug Sep Oct Long-term, i.e. 6 Short-term i.e. within 3 months 9 months months Procure and examine 2007 proposed reforms to Companies Act BRIPSAL & WBG to completion start date: 1 introducing creditor-led administration (including review for contact Julius and N/A date: end immediate whether it contains proposals below) Creasy April Letters to be completion Taskforce to be expanded to include a) banks/bank organizations start date: 2 written to potential MODSIT date: end b) accountancy firm and c) judicial representatives immediate members April Carry out analysis and consultation with stakeholders in relation to introduction of new Companies Act chapter allowing administration and court supervised restructuring which includes following features: (a) creditor petitioning for administration (b) stay on enforcement of security for period where viability of Start date: Ministry of 3 business assessed (c) continuation of contracts for supply of immediate Finance goods and services to insolvent company allowed (d) priority given to post-insolvency lending in accordance with restructuring (e) pari passu position of all creditors in restructuring guaranteed (f) legislative recognition of intercreditor arrangements for classes of creditors (g) information rights of creditors Carry out analysis and consultation with stakeholders in relation to amendment to liquidation under Companies Act to provide for: (a) introduction of creditor approval (or pre-approval) for liquidation (b) introducing a legislative right to information Ministry of Start date: 4 from liquidators to creditors (c) enhancement of the duties and Finance immediate obligations of liquidators and rights of creditors to complain to court about liquidator conduct (d) examination of role of Official Receiver and consideration of how office can be made effective (e) examine how directors duties can be effectively enforced Ministry of Examine needs and develop training and capacity building for 5 Justice/ judges responsible for insolvency related matters JSC Establish professional requirements for insolvency practitioners (“IP”s) and develop training curriculum for IPs to become qualified (consider current plans of Chartered Accountants to Ministry of 6 develop curriculum with assistance of UK Institute of Chartered Finance Accountants, potential use of UK Joint Insolvency Examination Board curriculum and/or qualification) Ministry of 7 Explore establishing a specialized framework for SME insolvency Finance Ministry of 8 Explore possibility of updating personal insolvency law TBD Finance A Roadmap to Improve the Investment Climate in Sri Lanka 61 2018 2019 Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 12 months completion date mid February 2018 completion date mid February 2018 Start Completion date: end date: September September 2018 2019 Start Completion date: end date: September September 2018 2019 Start Completion date: end date: September September 2018 2019 62 NOTES A Roadmap to Improve the Investment Climate in Sri Lanka 63 Designed & produced by Printed by Karunaratne & Sons (Pvt) Ltd