82966 Economy Profile: Sri Lanka Doing Business 2014 Sri Lanka 2 © 2013 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 15 14 13 12 A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Cover design: The Word Express Doing Business 2014 Sri Lanka 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 33 Registering property .................................................................................................................. 40 Getting credit .............................................................................................................................. 49 Protecting investors ................................................................................................................... 56 Paying taxes ................................................................................................................................ 65 Trading across borders .............................................................................................................. 72 Enforcing contracts .................................................................................................................... 80 Resolving insolvency .................................................................................................................. 90 Employing workers .................................................................................................................... 95 Data notes ................................................................................................................................. 102 Resources on the Doing Business website ............................................................................ 108 Doing Business 2014 Sri Lanka 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2012). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and employing workers. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 189 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 47 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 25 in East Asia and the Pacific, 25 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 20 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2014 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for Sri Lanka. To allow useful comparison, it business regulatory reforms. The data, along with also provides data for other selected economies information on ordering Doing Business 2014, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2013 (except for http://www.doingbusiness.org. Doing Business 2014 Sri Lanka 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: South Asia business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Lower middle income medium-size businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of Population: 20,328,000 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 2,920 percentile rankings on each of the 10 topics included in the index in Doing Business 2014: starting a business, DB2014 rank: 85 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2013 rank: 83* investors, paying taxes, trading across borders, Change in rank: -2 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the DB 2014 DTF: 61.83 percentile rankings on its component indicators (see the data notes for more details). The employing workers DB 2013 DTF: 60.87 indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented Change in DTF: 0.93 in this year’s economy profile. The aggregate ranking on the ease of doing business * DB2013 ranking shown is not last year’s published benchmarks each economy’s performance on the ranking but a comparable ranking for DB2013 that indicators against that of all other economies in the captures the effects of such factors as data Doing Business sample (figure 1.1). While this ranking corrections and the addition of 4 economies (Libya, tells much about the business environment in an Myanmar, San Marino and South Sudan) to the economy, it does not tell the whole story. The ranking on sample this year. See the data notes for sources and the ease of doing business, and the underlying definitions. indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2014 Sri Lanka 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2014 Sri Lanka 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy’s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How Sri Lanka and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2014 Sri Lanka 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Sri Lanka ranks on Doing Business topics Source: Doing Business database. Doing Business 2014 Sri Lanka 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far on average an Yearly movements in rankings can provide some indication economy is from the best performance achieved by any of changes in an economy’s regulatory environment for economy on each Doing Business indicator since 2005, firms, but they are always relative. except for the getting electricity indicators, which were introduced in 2009. Moreover, year-to-year changes in the overall rankings do not reflect how the business regulatory environment in an Comparing the measure for an economy at 2 points in economy has changed over time—or how it has changed time allows users to assess how much the economy’s in different areas. To aid in assessing such changes, regulatory environment as measured by Doing Business has changed over time—how far it has moved toward (or away from) the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.4). Figure 1.4 How far has Sri Lanka come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005, except for the getting electricity indicators, which were introduced in 2009. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the first 9 indicator sets shown in the figure and does not include getting electricity. Data on the overall distance to frontier including getting electricity is available at http://www.doingbusiness.org/data/distance-to-frontier. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2014 Sri Lanka 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist — numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Sri Lanka Best performer globally Bangladesh DB2014 Sri Lanka DB2014 Sri Lanka DB2013 Maldives DB2014 Pakistan DB2014 Bhutan DB2014 Indicator Nepal DB2014 India DB2014 DB2014 Starting a Business 54 47 74 86 179 71 97 105 New Zealand (1) (rank) Procedures (number) 6 6 7 8 12 5 7 10 New Zealand (1)* Time (days) 8.0 8.0 10.5 32.0 27.0 9.0 17.0 21.0 New Zealand (0.5) Cost (% of income per 20.5 21.3 19.9 5.0 47.3 6.2 34.6 10.4 Slovenia (0.0) capita) Paid-in Min. Capital (% 0.0 0.0 0.0 0.0 124.4 2.3 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 108 116 93 132 182 18 105 109 China (1) (rank) Hong Kong SAR, Procedures (number) 17 18 11 22 35 8 13 11 China (6) Time (days) 186.0 203.0 201.0 150.0 168.0 174.0 115.0 222.0 Singapore (26.0) Doing Business 2014 Sri Lanka 11 Best performer globally Bangladesh DB2014 Sri Lanka DB2014 Sri Lanka DB2013 Maldives DB2014 Pakistan DB2014 Bhutan DB2014 Indicator Nepal DB2014 India DB2014 DB2014 Cost (% of income per 18.4 33.7 110.3 77.6 2,640.4 8.6 512.7 190.4 Qatar (1.1) capita) Getting Electricity 91 107 189 91 111 131 98 175 Iceland (1) (rank) Procedures (number) 4 4 9 5 7 6 5 6 10 Economies (3)* Time (days) 110 132 404 82 67 108 70 206 Germany (17) Cost (% of income per 1,076.6 1,257.5 4,483.4 693.2 230.7 398.1 1,380.8 1,600.9 Japan (0.0) capita) Registering Property 145 136 177 86 92 161 24 125 Georgia (1) (rank) Procedures (number) 8 8 8 3 5 6 3 6 4 Economies (1)* Time (days) 52.0 52.0 245.0 92.0 44.0 57.0 5.0 50.0 New Zealand (1.0)* Cost (% of property 5.1 5.1 6.7 5.0 7.0 16.2 4.8 7.7 5 Economies (0.0)* value) Getting Credit (rank) 73 71 86 109 28 109 55 73 Malaysia (1)* Strength of legal rights 5 5 7 3 8 4 8 6 10 Economies (10)* index (0-10) Depth of credit 5 5 2 5 5 4 3 4 31 Economies (6)* information index (0-6) Public registry coverage 0.0 0.0 0.8 15.6 0.0 17.5 0.0 8.0 Portugal (100.0)* (% of adults) Private bureau 39.0 33.6 0.0 0.0 19.8 0.0 0.7 2.1 22 Economies (100.0)* coverage (% of adults) Protecting Investors 52 51 22 147 34 80 80 34 New Zealand (1) (rank) Extent of disclosure 6 6 6 4 7 0 6 6 10 Economies (10)* Doing Business 2014 Sri Lanka 12 Best performer globally Bangladesh DB2014 Sri Lanka DB2014 Sri Lanka DB2013 Maldives DB2014 Pakistan DB2014 Bhutan DB2014 Indicator Nepal DB2014 India DB2014 DB2014 index (0-10) Extent of director 5 5 7 3 4 8 1 6 Cambodia (10) liability index (0-10) Ease of shareholder 7 7 7 4 8 8 9 7 3 Economies (10)* suits index (0-10) Strength of investor 6.0 6.0 6.7 3.7 6.3 5.3 5.3 6.3 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 171 175 100 104 158 115 126 166 (1) Payments (number per Hong Kong SAR, 58 61 20 19 33 30 34 47 year) China (3)* United Arab Emirates Time (hours per year) 210 254 302 274 243 413 326 577 (12) Trading Across Borders 51 54 130 172 132 138 177 91 Singapore (1) (rank) Documents to export 5 5 6 9 9 7 11 8 Ireland (2)* (number) Time to export (days) 20 20 25 38 16 21 42 21 5 Economies (6)* Cost to export (US$ per 595 595 1,075 2,230 1,170 1,625 2,295 660 Malaysia (450) container) Documents to import 7 7 8 12 11 9 11 8 Ireland (2)* (number) Time to import (days) 17 19 35 38 20 22 39 18 Singapore (4) Cost to import (US$ per 775 775 1,470 2,330 1,250 1,610 2,400 725 Singapore (440) container) Enforcing Contracts 135 136 185 37 186 90 139 158 Luxembourg (1) (rank) Doing Business 2014 Sri Lanka 13 Best performer globally Bangladesh DB2014 Sri Lanka DB2014 Sri Lanka DB2013 Maldives DB2014 Pakistan DB2014 Bhutan DB2014 Indicator Nepal DB2014 India DB2014 DB2014 Time (days) 1,318 1,318 1,442 225 1,420 665 910 976 Singapore (150) Cost (% of claim) 22.8 22.8 66.8 0.1 39.6 16.5 26.8 23.8 Bhutan (0.1) Procedures (number) 40 40 41 47 46 41 39 46 Singapore (21)* Resolving Insolvency 59 51 119 189 121 40 125 71 Japan (1) (rank) no Time (years) 1.7 1.7 4.0 4.3 1.5 5.0 2.8 Ireland (0.4) practice no Cost (% of estate) 10 10 8 9 4 9 4 Norway (1) practice Outcome (0 as no piecemeal sale and 1 as 0 0 0 0 0 0 0 practice going concern) Recovery rate (cents on 41.9 43.9 25.8 0.0 25.6 50.4 24.5 37.7 Japan (92.8) the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 Sri Lanka 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day (2 business in an economy by recording all procedures cannot start on the same day). procedures officially required or commonly done in Procedures that can be fully completed practice by an entrepreneur to start up and online are an exception to this rule. formally operate an industrial or commercial Procedure completed once final document is business—as well as the time and cost required to received complete these procedures. It also records the paid-in minimum capital that companies must No prior contact with officials deposit before registration (or within 3 months). Cost required to complete each procedure The ranking on the ease of starting a business is (% of income per capita) the simple average of the percentile rankings on the 4 component indicators: procedures, time, cost Official costs only, no bribes and paid-in minimum capital requirement. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Has a start-up capital of 10 times income per  Is a limited liability company, located in the capita. largest business city and is 100% domestically  Has a turnover of at least 100 times income per owned. capita.  Has between 10 and 50 employees.  Does not qualify for any special benefits.  Conducts general commercial or industrial  Does not own real estate. activities. Doing Business 2014 Sri Lanka 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Sri Lanka? costs 20.5% of income per capita and requires paid-in According to data collected by Doing Business, starting minimum capital of 0.0% of income per capita (figure a business there requires 6 procedures, takes 8.0 days, 2.1). Figure 2.1 What it takes to start a business in Sri Lanka Paid-in minimum capital (% of income per capita): 0.0 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Sri Lanka 16 STARTING A BUSINESS Globally, Sri Lanka stands at 54 in the ranking of 189 regional average ranking provide other useful economies on the ease of starting a business (figure information for assessing how easy it is for an 2.2). The rankings for comparator economies and the entrepreneur in Sri Lanka to start a business. Figure 2.2 How Sri Lanka and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2014 Sri Lanka 17 STARTING A BUSINESS What are the changes over time? The benchmarks provided by the economies that over 2.3) can help show what is possible in making it easier time have had the best performance regionally or to start a business. And changes in regional averages globally on the procedures, time, cost or paid-in can show where Sri Lanka is keeping up—and where it minimum capital required to start a business (figure is falling behind. Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2014 Sri Lanka 18 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety economies globally have no paid-in minimum capital requirement. DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Sri Lanka 19 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Sri Lanka (table 2.1)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.1 How has Sri Lanka made starting a business easier—or not? By Doing Business report year DB year Reform Sri Lanka adopted a new Companies Act simplifying business DB2009 start-up. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. Sri Lanka made starting a business easier by computerizing DB2013 and expediting the process of obtaining a registration number for the Employees Provident Fund and Employees Trust Fund. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Sri Lanka 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Sri Lanka is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Colombo firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Private Limited Liability Company professionals and the study of laws, regulations and Paid in Minimum Capital Requirement: None publicly available information on business entry in that economy. Following is a detailed summary of Start-up Capital: 10 times GNI per capita those procedures, along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Sri Lanka—and the time and cost Time to No. Procedure Cost to complete complete Reserve a unique company name Searching for a unique company name can be done online via the LKR 1,000 + 12% 1 website of the Department of the Registrar of Companies. The company 2 days VAT name reservation is valid for 3 months. The company secretary signs a consent According to Article 221(1) of the Companies Act (no7 of 2007), every company shall have a secretary. There is no specific The Company Secretary must be hired before incorporation because one of the requirements to incorporate is a consent form that the fee schedule for Company Secretary must sign saying he/she will be the secretary for the company newly formed company. secretaries. The fees 2 1 day vary from firm to There is no specific fee schedule. The fees vary from firm to firm, and firm, and is are generally based on a quarterly retainer. The quarterly charges in the generally based on region vary between of USD$ 100 - 150 for private companies but some a quarterly retainer firms may charge up to USD 1000 annual fee for acting as a Company Secretary. Register at the Department of the Registrar of Companies LKR 15,000 as the registration fee for A company may draft or adopt the standard set of articles of 2 days Form 1 and LKR 3 association in Table A of the Companies Act of Sri Lanka. Professional 1,000 for each of charges are higher for drafting new articles of association than for Forms 18 and 19 adopting the standard articles. and the articles of Doing Business 2014 Sri Lanka 21 Time to No. Procedure Cost to complete complete association + 12% The articles of association must be submitted in duplicate to the VAT Department of the Registrar of Companies with the balance of documents for incorporation. No prior approval from the Registrar General is required for the articles of association. According to the new Companies Act, notaries are no longer required to witness the signing of the articles of association. A flat fee of LKR 15,000 as the registration fee for Form 1, and LKR 1,000+ 12% VAT is charged of the other two forms 18 and 19 and the articles of association. The certificate of incorporation will be received in about 3 days. Under the new Companies Act, it is no longer required to confirm the principal directors and the situation of the registered office of the company within 14 days of incorporation. Moreover, the common seal was rendered optional. Public Notice of Incorporation According to Section 9 of the Companies Act No. 7 of 2007, public notice must be given within a month of the incorporation of a company. The notice of incorporation specifying the name of the company, registration number, date of incorporation, and address of the registered office should be published in the government gazette and in any daily newspaper in three languages: English, Sinhala and 4 Tamil. The proof of publication should then be filed with the Registrar 3 days LKR 7,000 of Companies. The newspaper publications once handed over with the payment which depends on the size of the notice, will appear within 3-4 days. The publication in the gazette will appear within 2 weeks of submitting the request with the payment. The Registrar of Companies accepts a copy of the receipt issued by the Government Printer as proof of publication. * Register with the tax authorities and obtain a Tax Identification Number (TIN) The applicant or an authorized representative of the applicant must be physically present at the Inland Revenue Department to pick up and complete the application for a TIN number. The taxpayer identification 1 day 5 number (TIN) and the VAT registration number (temporary) can be (simultaneous with no charge obtained in a day. To obtain permanent VAT registration, the applicant procedure 4) must submit documents proving turnover of LKR 2,500,000 per quarter or LKR 12,000,000 per year. This is done along with income tax registration. The procedure takes 1–3 days. Doing Business 2014 Sri Lanka 22 Time to No. Procedure Cost to complete complete * Register with the Department of Labor and obtain the EPF number Companies must register with the Department of Labor to obtain the Employees Provident Fund (EPF) registration number. The fund is a government-owned and maintained by the Central Bank. No separate registration is required to register with the Employees Trust Fund (ETF). 1 day ETF uses the same EPF number for their monthly contributions. (simultaneous with no charge 6 Companies must also pay gratuities to employees that have been procedure 4) employed for more than 5 years. The gratuity provisions do not apply to companies that have fewer than 15 employees. There is no pension scheme for private sector employees. Businesses that engage in activities of a dangerous nature should obtain special Factories Ordinance checkups. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Sri Lanka 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Submitting all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a land telephone line cost for a business in the construction industry to Registering the warehouse after its obtain all the necessary approvals to build a completion (if required for use as collateral or warehouse in the economy’s largest business city, for transfer of the warehouse) connect it to basic utilities and register the Time required to complete each procedure property so that it can be used as collateral or (calendar days) transferred to another entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day. percentile rankings on its component indicators: Procedures that can be fully completed online procedures, time and cost. are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final Doing Business uses several assumptions about the document is received business and the warehouse, including the utility connections. No prior contact with officials The business: Cost required to complete each procedure (% of income per capita)  Is a limited liability company operating in Official costs only, no bribes the construction business and located in the largest business city.  Will be connected to water, sewerage (sewage system, septic tank or their  Is domestically owned and operated. equivalent) and a fixed telephone line. The  Has 60 builders and other employees. connection to each utility network will be 10 The warehouse: meters (32 feet, 10 inches) long.  Is a new construction (there was no  Will be used for general storage, such as of previous construction on the land). books or stationery (not for goods requiring special conditions).  Has complete architectural and technical plans prepared by a licensed architect or  Will take 30 weeks to construct (excluding all engineer. delays due to administrative and regulatory requirements). Doing Business 2014 Sri Lanka 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to permits there requires 17 procedures, takes 186.0 days build a warehouse in Sri Lanka? According to data and costs 18.4% of income per capita (figure 3.1). collected by Doing Business, dealing with construction Figure 3.1 What it takes to comply with formalities to build a warehouse in Sri Lanka Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Sri Lanka 25 DEALING WITH CONSTRUCTION PERMITS Globally, Sri Lanka stands at 108 in the ranking of 189 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Sri Lanka to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Sri Lanka and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2014 Sri Lanka 26 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to deal with time have had the best performance regionally or construction permits. And changes in regional globally on the procedures, time or cost required to averages can show where Sri Lanka is keeping up—and deal with construction permits (figure 3.3) help show where it is falling behind. Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2014 Sri Lanka 27 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Sri Lanka 28 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Sri Lanka (table 3.1)? Construction is one of them. In an effort to ensure Table 3.1 How has Sri Lanka made dealing with construction permits easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. Sri Lanka made the process of dealing with construction DB2010 permits more difficult by increasing some fees and adding a procedure. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Sri Lanka made dealing with construction permits easier by DB2014 eliminating the requirement to obtain a tax clearance and by reducing building permit fees. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Sri Lanka 29 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Sri Lanka are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : Colombo information collected from experts in construction licensing, including architects, civil engineers, Estimated construction lawyers, construction firms, utility LKR 5,000,000 Warehouse Value : service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and that apply to a company and structure matching cost, are summarized below. the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Sri Lanka —and the time and cost Time to No. Procedure Cost to complete complete Submit development permit application to Municipal Council of Colombo (CMC) 1 1 day no charge Receive on-site inspection from Municipal Council of Colombo (CMC) The applicant normally provides transportation or is responsible for the 1 day no charge 2 cost of a taxi or a trishaw. The cost depends on the location, but does not normally exceed USD 10.00. Receive on-site inspection from fire department and obtain fire safety requirements for proposed building The Fire Department will carry out the inspection when the relevant department of the CMC sends the plan. The officers of the Fire 3 Department will carry out a study of the plan and then may conduct a 14 days LKR 188 fire inspection and issue fire requirements. It takes 10 working days to obtain a fire inspection. The LKR 188.00 is for the application fee, because the inspection itself is carried out at no charge. Obtain development permit (building permit) from Municipal Council of Colombo (CMC) 4 67 days LKR 150 An application for a building permit must be submitted along with five copies of the building plan. The following are the internal steps involved in the issuance of the development permit: Doing Business 2014 Sri Lanka 30 Time to No. Procedure Cost to complete complete • The Water Supply and Drainage Department of the Municipal Council of Colombo (CMC) marks the drainage and water lines on the proposed plan and issues the water and drainage clearance • The Fire Service Department of the CMC issues the fire report with or without conditions • The Building Department of the CMC issues the street line confirmation. An on-site inspection is conducted by an area inspector of the CMC and a report is prepared based on the investigations • The inspector’s report is assessed by a technical staff assistant and then by a planning officer or building engineer, and presented to the Planning Committee with comments and recommendations • The Planning Committee may approve the building plan and grant the development permit with or without conditions • The street/building lines must be demarcated on the ground, before the commencement of construction The building permit application form costs LKR 150.00. If the floor area is more than 3,500 square feet, the application should be certified by an architect and a chartered engineer. The following documents are needed: • A certificate from a qualified civil structural engineer regarding the design, supervision, and structural stability of the proposed development in order to ensure that no damage would be caused to adjoining properties • An insurance policy and a letter of indemnity Request and receive water inspection 5 1 day no charge Obtain water sanction from Water and Drainage Department of the CMC The water sanction must be obtained before installation of permanent fittings. The following documents must be submitted: • The prescribed application form • A copy of the approved building plan 6 • A copy of the development permit 7 days no charge • A copy of any previous water bills, if applicable • Any receipt or notice issued by the local authority, to confirm the assessment number • A receipt of tax payment Doing Business 2014 Sri Lanka 31 Time to No. Procedure Cost to complete complete Request and receive sewage inspection 7 1 day no charge Obtain drainage certificate from Water and Drainage Department of the Municipal Council of Colombo (CMC) The following documents must be submitted to obtain a drainage certificate: • The prescribed application form, signed in duplicate • Six copies of the approved building plan • The water and drainage plans 7 days LKR 21,420 8 • Two copies of the development permit • A copy of the water sanction All applications for drainage certificates must be submitted by a contractor registered with the local authority, and the drainage connection should be carried out by such contractor. Request and receive on-site inspection by area inspector of the planning department of the Municipal Council of Colombo (CMC) to check the conformity of the warehouse to the development permit 1 day no charge 9 Request and receive on-site inspection by fire inspector 10 1 day no charge Obtain certificate of conformity from Municipal Council of Colombo The application to obtain a certificate of conformity must be signed by the owner(s) and a qualified person. The certificate of conformity is issued only under the names of the owners. To obtain a certificate of conformity, an application must be submitted with the following documents: • Drainage certificate • Approved building plan: the building plan should be strictly in 11 compliance with the Building Regulations of the Urban Development 42 days LKR 685 Authority Act • On-site inspection by an area inspector of the Planning Department of the CMC to ensure that construction has been completed according to the approved plan • On-site inspection by a fire inspector. The inspector’s report is then assessed by a technical staff assistant and by a planning officer or building engineer, and presented to the Planning Committee • A certificate approving the mechanical ventilation system • Any other certificates mentioned in the development permit Doing Business 2014 Sri Lanka 32 Time to No. Procedure Cost to complete complete Apply for water connection 12 1 day no charge Receive on-site inspection by inspector from National Water Supply and Drainage Board 13 1 day no charge * Obtain water connection To obtain the water connection, BuildCo must submit an application to the National Water Supply and Drainage Board, Assessment Notice, title deed and ownership certificate. After that, receive an on-site inspection, pay water installation costs, and sign an agreement with the 32 days LKR 31,000 14 board. The company must also obtain a road permit if there is damage to the road in installing the water connection. This permit is issued by the Municipal Council of Colombo. It takes 7 days to obtain, and the costs depend on the damage to the road. Apply for phone connection Documents to be presented: • Company certificate of incorporation 1 day no charge 15 • Billing proof at current location Receive on-site inspection for telephone connection 16 1 day no charge Obtain phone connection To obtain telephone connection, the company must submit an 17 application to Sri Lanka Telecom along with water/sewage billing proof, 7 days LKR 13,773 receive an on-site inspection, and pay telephone installation costs. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Sri Lanka 33 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is to either the low-voltage or the medium-  Is a new construction being connected to voltage distribution network and either overhead electricity for the first time. or underground, whichever is more common in the economy and area where the warehouse is  Has 2 stories, both above ground, with a located. The length of any connection in the total surface of about 1,300.6 square customer’s private domain is negligible. meters (14,000 square feet), and is built on a plot of 929 square meters (10,000 square  Requires crossing of a 10-meter road but all the feet). works are carried out in a public land, so there is no crossing into other people's private property. The electricity connection:  Involves installing one electricity meter. The  Is 150 meters long and is a 3-phase, 4-wire Y, monthly electricity consumption will be 0.07 140-kilovolt-ampere (kVA) (subscribed gigawatt-hour (GWh). The internal electrical capacity) connection. wiring has been completed. Doing Business 2014 Sri Lanka 34 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 110 days and costs 1076.6% of connection in Sri Lanka? According to data collected income per capita (figure 4.1). by Doing Business, getting electricity there requires 4 Figure 4.1 What it takes to obtain an electricity connection in Sri Lanka Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Sri Lanka 35 GETTING ELECTRICITY Globally, Sri Lanka stands at 91 in the ranking of 189 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in Sri 4.2). The rankings for comparator economies and the Lanka to connect a warehouse to electricity. Figure 4.2 How Sri Lanka and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2014 Sri Lanka 36 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in Sri Lanka Best performer in Best performer Indicator Sri Lanka DB2014 Sri Lanka DB2013 South Asia DB2014 globally DB2014 Rank 91 107 Sri Lanka* (91) Iceland (1) Procedures (number) 4 4 Sri Lanka* (4) 10 Economies* (3) Time (days) 110 132 India (67) Germany (17) Cost (% of income per capita) 1,076.6 1,257.5 India (230.7) Japan (0.0) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2014 Sri Lanka 37 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in Sri technical standards, procurement practices and Lanka (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has Sri Lanka made getting electricity easier—or not? By Doing Business report year DB year Reform DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Sri Lanka made getting electricity easier by improving the DB2014 utility’s internal workflow and by reducing the time required to process new applications for connections. Source: Doing Business database. Doing Business 2014 Sri Lanka 38 GETTING ELECTRICITY What are the details? The indicators reported here for Sri Lanka are based on OBTAINING AN ELECTRICITY CONNECTION a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Colombo utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: Ceylon Electricity Board verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Sri Lanka—and the time and cost Time to No. Procedure Cost to complete complete Submit application to Ceylon Electricity Board and await external site inspection An application should be submitted to the City Office of Ceylon Electricity Board, together with the following documents. These documents need not be notarized. (i) A copy of the approved Building Plan; (22) Documentary evidence to establish the street address/assessment number allotted to the property by the Colombo 4 calendar days LKR 2,000.0 1 Municipal Commission (e.g. - Certificate of ownership, Statutory Notice of Assessment for the current year, Non-vesting certificate or a letter issued by the CMC); and (iii) a copy of the certificate of incorporation to identify the customer. CEB visits the site to ascertain the distance from the nearest supply point, and to estimate total cost of the construction works. Ceylon Electricity Board conducts site inspection and provides estimate to customer Utility makes the estimate of total cost of construction works and the refundable security deposit, and conveys these to the customer. Note - 25 calendar days no charge 2 the customer must be ready with the transformer substation room at this stage. The security deposit is refundable upon disconnection of the electricity supply. Doing Business 2014 Sri Lanka 39 Time to No. Procedure Cost to complete complete Request and receive Internal wiring inspection from Colombo Municipal Commission. The request for internal wiring inspection from the Colombo Municipal Commission in person. Applicant has to submit only the building plan 14 calendar days LKR 15,000.0 3 (COC) approved by CMC. This inspection is carried out by a Chartered Electrical Engineer, who is registered with the City Office of CEB. Request for the inspection could be made by phone. Customer signs supply contract with Ceylon Electricity Board, and Ceylon Electricity Board conducts external connection works, installs the meter and electricity starts flowing Once the estimate is paid, the utility applies for the road excavation permit from the Colombo Municipal Council/Road Development Authority. Labor costs are charged by the RDA/CMC for reinstatement of excavation. Construction cost is essentially for construction of sub- station. This amount has to be submitted to the CEB. Approved building plan from CMC is sufficient from applicant's side. But 67 calendar days LKR 3,921,337.6 4 CEB has to get approval from following institutes (before cable laying);- Presidential Security Division; Traffic Police; Sri Lanka Police; Colombo Municipal Council. All the material needed for the external connection is provided by the CEB. Meter is installed by the Construction Unit of the CEB and at the same time the connection is provided by the Area Unit of the CEB. Prior to the connection, the applicant should enter into an Agreement with the CEB for supply of electricity. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2014 Sri Lanka 40 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day. time and cost. Procedures that can be fully completed online are an exception to this rule. To make the data comparable across economies, Procedure considered completed once final several assumptions about the parties to the document is received transaction, the property and the procedures are used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure (% of property value)  Are limited liability companies, 100% domestically and privately owned. Official costs only, no bribes  Are located in the economy’s largest No value added or capital gains taxes included business city. and no rezoning is required.  Have 50 employees each, all of whom are  Has no mortgages attached and has been nationals. under the same ownership for the past 10  Perform general commercial activities. years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story  Has a value of 50 times income per capita. warehouse of 929 square meters (10,000 The sale price equals the value. square feet). The warehouse is in good  Is registered in the land registry or cada- condition and complies with all safety stre, or both, and is free of title disputes. standards, building codes and legal requirements. There is no heating system. The  Is located in a periurban commercial zone, property will be transferred in its entirety. Doing Business 2014 Sri Lanka 41 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 52.0 days and costs 5.1% of the Sri Lanka? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 8 Figure 5.1 What it takes to register property in Sri Lanka Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2014 Sri Lanka 42 REGISTERING PROPERTY Globally, Sri Lanka stands at 145 in the ranking of 189 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Sri Lanka to transfer property. Figure 5.2 How Sri Lanka and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2014 Sri Lanka 43 REGISTERING PROPERTY What are the changes over time? The benchmarks provided by the economies that over what is possible in making it easier to register time have had the best performance regionally or property. And changes in regional averages can show globally on the procedures, time or cost required to where Sri Lanka is keeping up—and where it is falling complete a property transfer (figure 5.3) help show behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2014 Sri Lanka 44 REGISTERING PROPERTY Cost (% of property value) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. For more information on “no practice” marks, see the data notes. Source: Doing Business database. Doing Business 2014 Sri Lanka 45 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Sri Lanka (table 5.1)? Table 5.1 How has Sri Lanka made registering property easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. Sri Lanka made registering property faster by introducing an DB2013 electronic system at the Land Registry in Colombo. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Sri Lanka 46 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property City: Colombo lawyers, notaries and property registries. These procedures are those that apply to a transaction Property Value: LKR 18,291,265 matching the standard assumptions used by Doing Business in collecting the data (see the section in The procedures, along with the associated time and this chapter on what the indicators cover). cost, are summarized below. Summary of procedures for registering property in Sri Lanka—and the time and cost Time to No. Procedure Cost to complete complete * A title search must be carried out at the relevant Land Registry On receipt of the last title deed and plan from the seller, a title search has to be carried out at the relevant Land Registry. A lawyer/notary engaged by the purchaser has to recommend the title. Good title has to be established for the past 35 years. All deeds and plans have to be checked. If prior deeds are not available with the seller the notary will have to check duplicates of deeds at the Land Registry. If plans are not available, the relevant surveyors would have to be contacted and obtain duplicates of the plans. Other checks must be carried out as well by the lawyer (notary) at the local authority. Confirmation from the lawyer (notary) should be obtained that the title to the property is clear. On confirmation that the title to the property is clear, step 2 will apply; if not title insurance is recommended, and the 4 days next step would be to obtain a policy of title Insurance (procedure 1a). (simultaneous LKR 500 1 with procedures If title insurance is recommended in procedure 1 due to a defect in title, 2, 3 and 4) then the next step would be to obtain a Buyer's Policy of Title Insurance to cover defects. This step is optional and contingent to the result of step 1. If the policy is needed, the time necessary to obtain this title will depend on the time taken by the title insurance company to evaluate the title, make a decision to issue or not to issue the title insurance policy and the cost will depend on the premium payable. Usually title insurance is recommended for the following reasons: • Prior deeds and documentation not being available and further if the registers at the land registry cannot be traced for 35 years (if the books are damaged). • If there are any discrepancies in the title deeds and plans. • If the present owner had owned an undivided share of a larger land, and had sub-divided it without the consent of the other parties or without a Deed of Partition or Partition Plan. Doing Business 2014 Sri Lanka 47 Time to No. Procedure Cost to complete complete * Seller needs to obtain the building and street line certificate from the Municipality 14 days The seller obtains the following document from the Municipality: (simultaneous 2 1. The building and street line certificate LKR 330 with procedures 1, 3 and 4) * Seller needs to obtain certificate of non-vesting and certificate of ownership stating that the seller is the owner of the land and premises from the Municipality The seller obtains the following documents from the Municipality (from a 16 days different counter than the building and street line certificate in (simultaneous 3 LKR 598.50 procedure 2): with procedures 1. Certificate of non-vesting 1, 2 and 4) 2. Certificate of ownership stating that the seller is the owner of the land and premises * Obtain an updated survey plan of the property 14 days Obtaining a new updated plan of the land and the building is advisable (simultaneous About 0.1% of 4 to ensure that the boundaries on the ground have not changed or if the with procedures property value survey plan is old. 1, 2 and 3) Transfer deed is signed in favor of the buyer The following document with regard to the Selling company must be presented to the buyer’s lawyer/notary for the deed of transfer to be signed in favor of the buyer: The documents are as follows: 1% of purchase 1. Articles of Association of the company price (Lawyer’s 5 2 days 2. Certificate of incorporation of the seller fees) + LKR 500 3. Resolution authorizing the sale of land. If the purchase-sale is a major additional cost transaction as defined by section 185 of Companies Act No. 7 of 2007, such a transaction should require the shareholders sanction as well. The buyer needs to pass a resolution to purchase the property. On receipt of the above documents the deed of transfer in favor of the purchaser can be signed. Lawyer’s fees are paid by the buyer and will depend on the lawyer (usually 1% of purchase price). Doing Business 2014 Sri Lanka 48 Time to No. Procedure Cost to complete complete Payment of stamp duty at a nominated bank Stamp duty After execution of the deed of transfer stamp duty will have to be paid payable as follows within 7 days to a nominated state bank in favor of the Revenue 3% on the First Rs. 6 1 day Commissioner of the relevent Provincial Council in which the land is 100 000 situated. 4% on the Balance Deed is sent for registration to the relevant land registry After payment of stamp duty, the deed duly attested by the notary, will have to be sent for registration to the relevant Land Registry. The deed is registered and returned to the notary from the Land Registry within 3 days after receiving the Day Book. Notaries are involved with searching, preparing title report and attestation, as well as paying stamp duty. The 15 days LKR 100 7 details of the registered deeds are published in the Land Registry website (www.Rgd.gov.lk) and notice boards are available at the Land Registry office. Computerized system and greater number of staff are ensuring faster registration of deeds. Name of the buyer must be registered at the Municipality and the certificate of ownership is obtained The name of the new company will have to be registered as the new owner at the Colombo Municipal Council. An abstract of Title form should be duly filled by a Notary Public and should be submitted to the 8 relevent Local Authority together with a Pedigree, a cerificate and a 16 days LKR 944.19 covering letter prepared by the Notary. Thereafter the name of the new owner will be regsitered in the Assessment regsiters and the Certificate of Ownership will be issued giving the present owner's name. * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2014 Sri Lanka 49 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s Strength of legal rights index (0–10) financial history (positive or negative)—valuable Rights of borrowers and lenders through information to consider when assessing risk. And collateral laws they permit borrowers to establish a good credit Protection of secured creditors’ rights through history that will allow easier access to credit. Sound bankruptcy laws collateral laws enable businesses to use their assets, especially movable property, as security to generate Depth of credit information index (0–6) capital—while strong creditors’ rights have been Scope and accessibility of credit information associated with higher ratios of private sector credit distributed by public credit registries and to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the  Has up to 100 employees. secured transactions system, involving a secured  Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and  Is a private, incorporated, limited liability the strength of legal rights index. company.  Has its headquarters and only base of operations in the largest business city. Doing Business 2014 Sri Lanka 50 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Sri Lanka stands at 73 in the ranking of 189 collateral and bankruptcy laws in Sri Lanka facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 5 on the The rankings for comparator economies and the depth of credit information index and a score of 5 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Sri Lanka support lending and scores indicate more credit information and stronger borrowing. legal rights for borrowers and lenders. Figure 6.1 How Sri Lanka and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2014 Sri Lanka 51 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened— well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Sri Lanka support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Sri Lanka over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. .. 71 73 Strength of legal rights 3 3 3 3 4 4 4 4 5 5 index (0-10) Depth of credit 4 4 4 3 5 5 5 5 5 5 information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (% of adults) Private bureau 1.9 2.2 3.1 2.9 8.7 14.3 18.6 29.4 33.6 39.0 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Sri Lanka 52 GETTING CREDIT One way to put an economy’s score on the getting shows the number of economies with this score in credit indicators into context is to see where the 2013 as well as the regional average score. Figure 6.3 economy stands in the distribution of scores across shows the same thing for the depth of credit economies. Figure 6.2 highlights the score on the information index. strength of legal rights index for Sri Lanka in 2013 and Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2013 information index (0–6), 2013 Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Source: Doing Business database. Doing Business 2014 Sri Lanka 53 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Sri Lanka (table 6.2)? Table 6.2 How has Sri Lanka made getting credit easier—or not? By Doing Business report year DB year Reform Sri Lanka’s private credit bureau set up an online system for banks to update information and obtain credit reports. With it, the bureau started collecting all loans from financial institutions, contributing to a three fold increase in coverage. Sri Lanka also started distributing more historical credit DB2009 information: 2 years of defaults’ information and 5 years of positive information. In addition, Under Sri Lanka’s new Companies Act, whiche came into force in May 2007, secured creditors claims are no longer frozen when the company goes into liquidation. Creditor’s rights are therefore positively strengthened as there are no delays in retrieving their monies. Sri Lanka has strengthened access to credit information with a new system consolidation process at the private credit bureau allowing credit data to be submitted by all shareholder DB2010 lending institutions (numbering 92) without any reporting threshhold. The volume of registry data has grown by 10 fold compared to the same period in 2007. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. Sri Lanka strengthened its secured transactions system by DB2013 establishing an electronic, searchable collateral registry and issuing regulations for its operation. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Sri Lanka 54 GETTING CREDIT What are the details? The getting credit indicators reported here for Sri The data on the legal rights of borrowers and lenders Lanka are based on detailed information collected in are gathered through a survey of financial lawyers and that economy. The data on credit information sharing verified through analysis of laws and regulations as are collected through a survey of a credit registry well as public sources of information on collateral and and/or credit bureau (if one exists). To construct the bankruptcy laws. For the strength of legal rights index, depth of credit information index, a score of 1 is a score of 1 is assigned for each of 8 aspects related to assigned for each of 6 features of the credit registry or legal rights in collateral law and 2 aspects in credit bureau (see summary of scoring below). bankruptcy law. Summary of scoring for the getting credit indicators in Sri Lanka OECD high income Indicator Sri Lanka South Asia average average Strength of legal rights index (0-10) 5 6 7 Depth of credit information index (0-6) 5 4 5 Public registry coverage (% of adults) 0.0 10.5 42.9 Private bureau coverage (% of adults) 39.0 15.4 73.9 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no credit registry or credit bureau. Regional averages for the credit registry coverage exclude economies with no credit registry. Regional averages for the credit bureau coverage exclude economies with no credit bureau. Strength of legal rights index (0–10) Index score: 5 Can any business use movable assets as collateral while keeping possession of the assets; and Yes any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of No movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically No to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement No include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Doing Business 2014 Sri Lanka 55 Strength of legal rights index (0–10) Index score: 5 Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor No defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is No liquidated? Are secured creditors either not subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure, or does the law provide secured Yes creditors with grounds for relief from an automatic stay or/and sets a time limit to it? Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Depth of credit information index (0–6) Credit bureau Credit registry Index score: 5 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? Yes No 1 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as No No 0 financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect Yes No 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 168,500 0 Number of individuals 5,117,245 0 Source: Doing Business database. Doing Business 2014 Sri Lanka 56 PROTECTING INVESTORS Protecting investors matters for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not protect minority shareholders, investors may be reluctant to provide funding to companies through Extent of disclosure index (0–10) the purchase of shares unless they become the Approval process for related-party controlling shareholders. Effective regulations define transactions related-party transactions precisely, promote clear Disclosure requirements in case of related- and efficient disclosure requirements, require party transactions shareholder participation in major decisions of the company and set detailed standards of accountability Extent of director liability index (0–10) for company insiders. Ability of minority shareholders to file a direct or derivative lawsuit What do the indicators cover? Ability of minority shareholders to hold Doing Business measures the strength of minority interested parties and members of the shareholder protections against directors’ use of approving body liable for prejudicial related- corporate assets for personal gain—or self-dealing. party transactions The indicators distinguish 3 dimensions of investor protections: transparency of related-party Available legal remedies (damages, repayment of profits, fines, imprisonment and rescission transactions (extent of disclosure index), liability for of the transaction) self-dealing (extent of director liability index) and minority shareholders’ access to evidence before and Ease of shareholder suits index (0–10) during trial (ease of shareholder suits index). The Access to internal corporate documents ranking on the strength of investor protection index is (directly or through a government inspector) the simple average of the percentile rankings on these 3 indices. To make the data comparable across Documents and information available during trial economies, a case study uses several assumptions about the business and the transaction. Strength of investor protection index (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of  Is a publicly traded corporation listed on the shareholder suits indices economy’s most important stock exchange (or at least a large private company with multiple shareholders). the company purchase used trucks from another company he owns.  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of  The price is higher than the going price for used Buyer where permitted, even if this is not trucks, but the transaction goes forward. specifically required by law.  All required approvals are obtained, and all The transaction involves the following details: required disclosures made, though the transaction is prejudicial to Buyer.  Mr. James, a director and the majority shareholder of the company, proposes that  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2014 Sri Lanka 57 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections against self- index (figure 7.1). While the indicator does not dealing in Sri Lanka? The economy has a score of 6.0 measure all aspects related to the protection of on the strength of investor protection index, with a minority investors, a higher ranking does indicate that higher score indicating stronger protections (see the an economy’s regulations offer stronger investor summary of scoring at the end of this chapter for protections against self-dealing in the areas measured. details). Globally, Sri Lanka stands at 52 in the ranking of 189 economies on the strength of investor protection Figure 7.1 How Sri Lanka and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2014 Sri Lanka 58 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how ranking on the strength of investor protection index well regulations in Sri Lanka protect minority investors over time shows whether the economy is slipping today, data over time show whether the protections behind other economies in investor protections—or have been strengthened (table 7.1). And the global surpassing them. Table 7.1 The strength of investor protections in Sri Lanka over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 DB2014 Rank .. .. .. .. .. .. .. 51 52 Extent of disclosure 4 4 4 4 4 4 6 6 6 index (0-10) Extent of director 5 5 5 5 5 5 5 5 5 liability index (0-10) Ease of shareholder 7 7 7 7 7 7 7 7 7 suits index (0-10) Strength of investor protection index (0- 5.3 5.3 5.3 5.3 5.3 5.3 6.0 6.0 6.0 10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Sri Lanka 59 PROTECTING INVESTORS One way to put an economy’s scores on the protecting shows the number of economies with this score in investors indicators into context is to see where the 2013 as well as the regional average score. Figure 7.3 economy stands in the distribution of scores across applies to the extent of director liability index, and economies. Figure 7.2 highlights the score on the figure 7.4 to the ease of shareholder suits index. extent of disclosure index for Sri Lanka in 2013 and Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on the extent of Number of economies with each score on the extent of director liability index (0–10), 2013 disclosure index (0–10), 2013 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2014 Sri Lanka 60 PROTECTING INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Number of economies with each score on the ease of shareholder suits index (0–10), 2013 Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2014 Sri Lanka 61 PROTECTING INVESTORS The scores recorded over time for Sri Lanka on the changes over time in the regional average score on strength of investor protection index may also be this index. revealing (figure 7.5). Equally interesting may be the Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the protections. Source: Doing Business database. Doing Business 2014 Sri Lanka 62 PROTECTING INVESTORS Economies with the strongest protections of minority reasonable time. As a result, reforms to strengthen investors from self-dealing require detailed disclosure investor protections may move ahead on different and define clear duties for directors. They also have fronts—such as through new or amended company well-functioning courts and up-to-date procedural laws, securities regulations or civil procedure rules. rules that give minority shareholders the means to What investor protection reforms has Doing Business prove their case and obtain a judgment within a recorded in Sri Lanka (table 7.2)? Table 7.2 How has Sri Lanka strengthened investor protections—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. Sri Lanka strengthened investor protections by requiring DB2012 greater corporate disclosure in case of transactions between interested parties. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Sri Lanka 63 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for ease of shareholder suits indices, scores are assigned Sri Lanka are based on detailed information collected to each based on a range of conditions relating to through a survey of corporate and securities lawyers disclosure, director liability and shareholder suits in a about securities regulations, company laws and court standard case study transaction (see the data notes at rules of evidence and procedure. To construct the the end of this chapter). The summary below shows extent of disclosure, extent of director liability and the details underlying the scores for Sri Lanka. Summary of scoring for the protecting investors indicators in Sri Lanka South Asia OECD high income Indicator Sri Lanka average average Extent of disclosure index (0-10) 6 5 7 Extent of director liability index (0-10) 5 4 5 Ease of shareholder suits index (0-10) 7 6 7 Strength of investor protection index (0-10) 6.0 5.1 6.2 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Score Score description Extent of disclosure index (0-10) 6 What corporate body provides legally sufficient Shareholders meeting and Mr. James 1 approval for the transaction? is allowed to vote Whether disclosure of the conflict of interest by Mr. Existence of a conflict without any 1 James to the board of directors is required? specifics Whether immediate disclosure of the transaction to Disclosure on the transaction and Mr. 2 the public and/or shareholders is required? James' conflict of interest Whether disclosure of the transaction in published Disclosure on the transaction and Mr. 2 periodic filings (annual reports) is required? James' conflict of interest Whether an external body must review the terms of 0 No the transaction before it takes place? Extent of director liability index (0-10) 5 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 1 Yes causes to the company? Whether shareholders can hold Mr. James liable for Liable for negligence or influencing the damage that the Buyer-Seller transaction causes 1 the approval of the transaction to the company? Whether shareholders can hold members of the approving body liable for the damage that the Buyer- 1 Liable for negligence Seller transaction causes to the company? Doing Business 2014 Sri Lanka 64 Score Score description Possible when the transaction is Whether a court can void the transaction upon a 1 oppressive or prejudicial to minority successful claim by a shareholder plaintiff? shareholders Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 1 Yes the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 0 No shareholder plaintiff? Whether fines and imprisonment can be applied 0 No against Mr. James? Ease of shareholder suits index (0-10) 7 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 0 No filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 0 No transaction? Whether the plaintiff can obtain any documents from Any information that may lead to the 4 the defendant and witnesses during trial? discovery of relevant information Whether the plaintiff can request categories of documents from the defendant without identifying 0 No specific ones? Whether the plaintiff can directly question the 2 Yes, without approval from the judge defendant and witnesses during trial? Whether the level of proof required for civil suits is 1 Yes lower than that of criminal cases? Strength of investor protection index (0-10) 6.0 Source: Doing Business database. Doing Business 2014 Sri Lanka 65 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2012 (number per year adjusted for Doing Business data, in economies where it is more electronic and joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 1 Profit or corporate income tax being applied to the total tax rate. To make the data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2011. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. labor taxes and contributions paid by the  Taxes and mandatory contributions are company. measured at all levels of government.  A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 25.5%. Doing Business 2014 Sri Lanka 66 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Sri Lanka stands at 171 in the ranking of 189 taxes in Sri Lanka—and how much do firms pay in economies on the ease of paying taxes (figure 8.1). The taxes? On average, firms make 58 tax payments a year, rankings for comparator economies and the regional spend 210 hours a year filing, preparing and paying average ranking provide other useful information for taxes and pay total taxes amounting to 55.1% of profit assessing the tax compliance burden for businesses in (see the summary at the end of this chapter for Sri Lanka. details). Figure 8.1 How Sri Lanka and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2014 Sri Lanka 67 PAYING TAXES What are the changes over time? The benchmarks provided by the economies that over show what is possible in easing the administrative time have had the best performance regionally or burden of tax compliance. And changes in regional globally on the number of payments or the time averages can show where Sri Lanka is keeping up—and required to prepare and file taxes (figure 8.2) help where it is falling behind. Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2014 Sri Lanka 68 PAYING TAXES Total tax rate (% of profit) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.5% applied in DB2014, the total tax rate is set at 25.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2014 Sri Lanka 69 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Sri Lanka (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Sri Lanka made paying taxes easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. Sri Lanka made paying taxes less costly for businesses by abolishing the turnover tax and social security contribution and DB2012 by reducing corporate income tax, value added tax and national building tax rates. DB2013 No reform as measured by Doing Business. Sri Lanka made paying taxes easier for companies by DB2014 introducing an electronic filing system for social security contributions. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Sri Lanka 70 PAYING TAXES What are the details? The indicators reported here for Sri Lanka are LOCATION OF STANDARDIZED COMPANY based on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the data (see City: Colombo the section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company completed The taxes and contributions paid are listed in the during the year. Respondents are asked how much summary below, along with the associated number of in taxes and mandatory contributions the business payments, time and tax rate. must pay and what the process is for doing so. Summary of tax rates and administrative burden in Sri Lanka OECD high income Indicator Sri Lanka South Asia average average Payments (number per year) 58 33 12 Time (hours per year) 210 328 175 Profit tax (%) 1.0 16.8 16.1 Labor tax and contributions (%) 16.9 9.0 23.1 Other taxes (%) 37.2 14.8 2.0 Total tax rate (% profit) 55.1 40.6 41.3 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Nation Building Tax 12 0 2% turnover 35.4 Social security contribution gross 12 51 12% 13.5 (EPF) salaries gross Employees Trust Fund 12 0 3% 3.4 salaries Doing Business 2014 Sri Lanka 71 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate annual Property tax 1 0 35% property 1.7 value 28% and a number of taxable Corporate income tax 5 16 reduced 1 profit rates (i.a. 10%) interest included in Tax on interest 0 withheld 0 10% 0.3 income other taxes varies from Municipal business tax 1 0 LKR 250 to 0.1 LKR 5,000 fixed fee depending Vehicle tax 1 0 LKR 1,000 0 on vehicle type included in the small Fuel tax 1 0 0 price of amount fuel value not Value added tax (VAT) 12 142 12% 0 addition included various small Stamp duty 1 0 0 rates amount Totals 58 210 55.1 Source: Doing Business database. Doing Business 2014 Sri Lanka 72 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business: military items.  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy’s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy’s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include Doing Business 2014 Sri Lanka 73 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Sri Lanka? Globally, Sri Lanka stands at 51 in the ranking of 189 According to data collected by Doing Business, economies on the ease of trading across borders exporting a standard container of goods requires 5 (figure 9.1). The rankings for comparator economies documents, takes 20 days and costs $595. Importing and the regional average ranking provide other useful the same container of goods requires 7 documents, information for assessing how easy it is for a business takes 17 days and costs $775 (see the summary of in Sri Lanka to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Sri Lanka and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2014 Sri Lanka 74 TRADING ACROSS BORDERS What are the changes over time? The benchmarks provided by the economies that over possible in making it easier to trade across borders. time have had the best performance regionally or And changes in regional averages can show where Sri globally on the documents, time or cost required to Lanka is keeping up—and where it is falling behind. export or import (figure 9.2) help show what is Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2014 Sri Lanka 75 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2014 Sri Lanka 76 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB201 3 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Sri Lanka 77 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Sri Lanka (table 9.1)? risk-based inspections and electronic data interchange Table 9.1 How has Sri Lanka made trading across borders easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. Sri Lanka reduced the time to export by implementing the DB2013 ASYCUDA World electronic data interchange system. Sri Lanka made trading across borders easier by introducing DB2014 an electronic payment system for port services. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Sri Lanka 78 TRADING ACROSS BORDERS What are the details? The indicators reported here for Sri Lanka are LOCATION OF STANDARDIZED COMPANY based on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this chapter on what City: Colombo the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each procedure is The procedural requirements, and the associated time collected from local freight forwarders, shipping and cost, for exporting and importing a standard lines, customs brokers, port officials and banks. shipment of goods are listed in the summary below, along with the required documents. Summary of procedures and documents for trading across borders in Sri Lanka OECD high income Indicator Sri Lanka South Asia average average Documents to export (number) 5 8 4 Time to export (days) 20 33 11 Cost to export (US$ per container) 595 1,787 1,070 Documents to import (number) 7 10 4 Time to import (days) 17 34 10 Cost to import (US$ per container) 775 1,968 1,090 Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 12 135 Customs clearance and technical control 2 160 Ports and terminal handling 3 185 Inland transportation and handling 3 115 Totals 20 595 Procedures to import Time (days) Cost (US$) Documents preparation 11 190 Doing Business 2014 Sri Lanka 79 Procedures to import Time (days) Cost (US$) Customs clearance and technical control 2 285 Ports and terminal handling 2 185 Inland transportation and handling 2 115 Totals 17 775 Documents to export Documents to import Bill of Lading Bill of Lading Commercial invoice Certificate of origin Customs export declaration (CUSDEC) Commercial invoice Packing list Customs import declaration (CUSDEC) Shipping note (pre-advice form) Delivery order Source: Doing Business database. Letter of Credit Packing list Doing Business 2014 Sri Lanka 80 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent Procedures to enforce a contract through courts encourage new business relationships the courts (number) because businesses know they can rely on the courts if a new customer fails to pay. Speedy trials Steps to file and serve the case are essential for small enterprises, which may lack Steps for trial and judgment the resources to stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment Time required to complete procedures What do the indicators cover? (calendar days) Doing Business measures the efficiency of the Time to file and serve the case judicial system in resolving a commercial dispute before local courts. Following the step-by-step Time for trial and obtaining judgment evolution of a standardized case study, it collects Time to enforce the judgment data relating to the time, cost and procedural complexity of resolving a commercial lawsuit. The Cost required to complete procedures (% of ranking on the ease of enforcing contracts is the claim) simple average of the percentile rankings on its Average attorney fees component indicators: procedures, time and cost. Court costs The dispute in the case study involves the breach Enforcement costs of a sales contract between 2 domestic businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city.  The dispute on the quality of the goods requires an expert opinion.  The buyer orders custom-made goods, then fails to pay.  The judge decides in favor of the seller; there is no appeal.  The seller sues the buyer before a competent court.  The seller enforces the judgment through a public sale of the buyer’s movable assets.  The value of the claim is 200% of income per capita.  The seller requests a pretrial attachment to secure the claim. Doing Business 2014 Sri Lanka 81 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Sri Lanka stands at 135 in the ranking of 189 dispute through the courts in Sri Lanka? According to economies on the ease of enforcing contracts (figure data collected by Doing Business, contract enforcement 10.1). The rankings for comparator economies and the takes 1318 days, costs 22.8% of the value of the claim regional average ranking provide other useful and requires 40 procedures (see the summary at the benchmarks for assessing the efficiency of contract end of this chapter for details). enforcement in Sri Lanka. Figure 10.1 How Sri Lanka and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2014 Sri Lanka 82 ENFORCING CONTRACTS What are the changes over time? The benchmarks provided by the economies that over help show what is possible in improving the efficiency time have had the best performance regionally or of contract enforcement. And changes in regional globally on the number of steps, time or cost required averages can show where Sri Lanka is keeping up—and to enforce a contract through the courts (figure 10.2) where it is falling behind. Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2014 Sri Lanka 83 ENFORCING CONTRACTS Procedures (number) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. Source: Doing Business database. Doing Business 2014 Sri Lanka 84 ENFORCING CONTRACTS Economies in all regions have improved contract often work on reducing backlogs by introducing enforcement in recent years. A judiciary can be periodic reviews to clear inactive cases from the docket improved in different ways. Higher-income economies and by making procedures faster. What reforms tend to look for ways to enhance efficiency by making it easier (or more difficult) to enforce contracts introducing new technology. Lower-income economies has Doing Business recorded in Sri Lanka (table 10.1)? Table 10.1 How has Sri Lanka made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Sri Lanka 85 ENFORCING CONTRACTS What are the details? The indicators reported here for Sri Lanka are COURT NAME based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this City: Colombo chapter on what the indicators cover). These procedures, and the time and cost of completing Claim Value LCU: 620228 them, are identified through study of the codes of civil procedure and other court regulations, as well Court Name: Colombo District Court as through surveys completed by local litigation lawyers (and, in a quarter of the economies The procedures for resolving a commercial lawsuit, and covered by Doing Business, by judges as well). the associated time and cost, are listed in the summary below. Summary of procedures for enforcing a contract in Sri Lanka—and the time and cost OECD high income Indicator Sri Lanka South Asia average average Time (days) 1,318 1,075 529 Filing and service 62 Trial and judgment 1,000 Enforcement of judgment 256 Cost (% of claim) 22.8 27.7 21.0 Attorney cost (% of claim) 20.2 Court cost (% of claim) 1.1 Enforcement Cost (% of claim) 1.5 Procedures (number) 40 43 31 Number of procedures (without bonus points) 41 Specialized commercial courts -1 Total number of procedures (including bonus 40 points) Note: In cases where an economy’s regional classification is “OECD high income,” regional averages above are only displayed once. Doing Business 2014 Sri Lanka 86 ENFORCING CONTRACTS No. Procedure Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. A third person formally notifies Defendant: A person other than the Plaintiff or his lawyer, such as a notary 2 public, formally notifies Defendant of Plaintiff’s request for payment. 3 Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to represent him before the court. Plaintiff’s filing of summons and complaint: Plaintiff files his summons and complaint with the court, orally * or in writing. * Plaintiff’s payment of court fees: Plaintiff pays court duties, stamp duties, or any other type of court fee. Registration of court case: The court administration registers the lawsuit or court case. This includes 4 assigning a reference number to the lawsuit or court case. Court scrutiny of summons and complaint: A judge examines Plaintiff's summons and complaint for 5 formal requirements. Judge admits summons and complaint: After verifying the formal requirements, the judge decides to * admit Plaintiff’s summons and complaint. Plaintiff’s request for service: Plaintiff makes a written request to the court that process be served on 6 Defendant. 7 Court order for service: Upon Plaintiff’s request, judge orders process be served on Defendant. Delivery of summons and complaint to person authorized to perform service of process on Defendant: 8 The judge or a court officer delivers the summons to a summoning office, officer, or authorized person (including Plaintiff), for service of process on Defendant. Arrangements for physical delivery of summons and complaint: Plaintiff takes whatever steps are * necessary to arrange for physical service of process on Defendant, such as instructing a court officer or a (private) bailiff. Mailing of summons and complaint: Court or process server, including (private) bailiff, mails summons * and complaint to Defendant. First attempt at physical delivery: A first attempt to physically deliver summons and complaint to 9 Defendant is successful in the majority of cases. Second attempt at physical delivery: If a first attempt was not successful, a second attempt to physically 10 deliver the summons and complaint to Defendant is required by law or standard practice. Application for substituted service: Because physical delivery is not successful in the majority of cases, 11 Plaintiff applies for substituted service. Substituted service can include, but is not limited to, service by publication in newspapers or affixing of a notice in court or on public bul Doing Business 2014 Sri Lanka 87 No. Procedure Court order regarding substituted service: The judge in a court order defines acceptable means for 12 substituted service. Substituted service: Substituted service is accomplished by publication in newspapers, by affixing a notice 13 in court or on public bulletin boards, etc. * Proof of service: Plaintiff submits proof of service to court. Trial and judgment: Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his defense or answer on the merits of the case. Defendant's written answer may or may not 14 include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Deadline for Plaintiff to answer Defendant's defense or answer: Judge sets the deadline by which Plaintiff 15 will be allowed to answer Defendant's defense or answer. Plaintiff’s written response to Defendant's defense or answer: Plaintiff responds to Defendant’s defense or 16 answer with a written pleading. Plaintiff's answer may or may not include a witness statements or expert (witness) statements. Framing of issues: Plaintiff and Defendant assist the court in framing issues on which evidence is to be 17 presented. Request for interlocutory order: Defendant raises preliminary issues, such as jurisdiction, statute of * limitation, etc. Court’s issuance of interlocutory order: Court decides the preliminary issues the Defendant raised by * issuing an interlocutory order. Plaintiff’s appeal of court's interlocutory order: Plaintiff appeals the court's interlocutory order, which 18 suspends the court proceedings. 19 Request for oral hearing or trial: Plaintiff applies for the date(s) for the oral hearing or trial. * Setting of date(s) for oral hearing or trial: The judge sets the date(s) for the oral hearing or trial. * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court. (see assumption 6-a) Adjournments: Court proceedings are delayed because one or both parties request and obtain an 20 adjournment to prepare for the oral hearing or trial. Trial (prevalent in common law): The parties argue the merits of the case at (an) oral session(s) before the 21 court. Witnesses and expert witnesses are questioned and cross-examined during trial. Adjournments: Court proceedings are delayed because one or both parties request and obtain an 22 adjournment during the oral hearing or trial, resulting in an additional or later trial or hearing date. Order for submission of final arguments: The judge sets the deadline for the submission of final factual 23 and legal arguments. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. Doing Business 2014 Sri Lanka 88 No. Procedure 24 Judgment date: The judge sets a date for delivery of the judgment. 25 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 26 Writing of judgment: The judge produces a written copy of the judgment. Registration of judgment: The court office registers the judgment after receiving a written copy of the 27 judgment. 28 Plaintiff's receipt of a copy of written judgment: Plaintiff receives a copy of the written judgment. Appeal period: By law, Defendant has the opportunity to appeal the judgment during a period specified in 29 the law. Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Reimbursement by Defendant of Plaintiff's court fees: The judgment obliges Defendant to reimburse 30 Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff’s hiring of lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented * by a lawyer during the enforcement of judgment phase. Plaintiff's approaching of court enforcement officer or (private) bailiff to enforce the judgment: To enforce 31 the judgment, Plaintiff approaches a court enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff’s request for enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). Plaintiff’s advancement of enforcement fees: Plaintiff pays the fees related to the enforcement of the 32 judgment. Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 33 judgment. Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer * or a (private) bailiff. Identification of Defendant's assets for attachment by court official or Defendant: Judge, a court 34 enforcement officer, a (private) bailiff or the Defendant himself identifies Defendant's movable assets for attachment. Contestation of selection of assets identified for attachment: The party, Plaintiff or Defendant, who was 35 not involved in the designation of the assets to be attached, contests the selection of assets for attachment. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 36 assets). Report on execution of attachment: A court enforcement officer or private process server delivers a report 37 on the attachment of Defendant's movable goods to the judge. Enforcement disputes before court: The enforcement of the judgment is delayed because Defendant 38 opposes aspects of the enforcement process before the judge. Doing Business 2014 Sri Lanka 89 No. Procedure Call for public auction: The judge calls a public auction by, for example, advertising or publication in the 39 newspapers. 40 Sale through public auction: The Defendant’s movable property is sold at pu blic auction. 41 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2014 Sri Lanka 90 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Outcome well as public information on bankruptcy systems. Whether business continues operating as a The ranking on the ease of resolving insolvency is going concern or business assets are sold based on the recovery rate, which is recorded as piecemeal cents on the dollar recouped by creditors through Recovery rate for creditors (cents on the reorganization, liquidation or debt enforcement dollar) (foreclosure) proceedings. The recovery rate is a Measures the cents on the dollar recovered function of time, cost and other factors, such as by creditors lending rate and the likelihood of the company continuing to operate. Present value of debt recovered To make the data comparable across economies, Official costs of the insolvency proceedings Doing Business uses several assumptions about the are deducted business and the case. It assumes that the Depreciation of furniture is taken into company: account  Is a domestically owned, limited liability Outcome for the business (survival or not) company operating a hotel. affects the maximum value that can be recovered  Operates in the economy’s largest business city.  Has 201 employees, 1 main secured  Has a higher value as a going concern—and creditor and 50 unsecured creditors. the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2014 Sri Lanka 91 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses piecemeal sale. The average recovery rate is 41.9 cents characterize the top-performing economies. How on the dollar. efficient are insolvency proceedings in Sri Lanka? Globally, Sri Lanka stands at 59 in the ranking of 189 According to data collected by Doing Business, economies on the ease of resolving insolvency (figure resolving insolvency takes 1.7 years on average and 11.1). The rankings for comparator economies and the costs 10% of the debtor’s estate, with the most likely regional average ranking provide other useful outcome being that the company will be sold as benchmarks for assessing the efficiency of insolvency proceedings in Sri Lanka. Figure 11.1 How Sri Lanka and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2014 Sri Lanka 92 RESOLVING INSOLVENCY What are the changes over time? The benchmarks provided by the economies that over possible in improving the efficiency of insolvency time have had the best performance regionally or proceedings. And changes in regional averages can globally on the time or cost of insolvency proceedings show where Sri Lanka is keeping up—and where it is or on the recovery rate (figure 11.2) help show what is falling behind. Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2014 Sri Lanka 93 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: DB2013 rankings shown are not last year’s published rankings but comparable rankings for DB2013 that capture the effects of such factors as data corrections and the addition of 4 economies (Libya, Myanmar, San Marino and South Sudan) to the sample this year. “No practice” indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for “no practice” economies is 0. Regional averages on time and cost exclude economies with a “no practice” mark. Source: Doing Business database. Doing Business 2014 Sri Lanka 94 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Sri Lanka (table 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How has Sri Lanka made resolving insolvency easier—or not? By Doing Business report year DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2014 Sri Lanka 95 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of employing workers methodology proposed by the employment, specifically as it affects the hiring and consultative group are available on the Doing Business redundancy of workers and the rigidity of working website (http://www.doingbusiness.org). The data on hours. Over the period from 2007 to 2011 employing workers are based on a detailed survey of improvements were made to align the methodology employment regulations that is completed by local for the employing workers indicators with the letter lawyers and public officials. Employment laws and and spirit of the International Labour Organization regulations as well as secondary sources are reviewed (ILO) conventions. Only 4 of the 188 ILO conventions to ensure accuracy. cover areas measured by Doing Business: employee To make the data comparable across economies, termination, weekend work, holiday with pay and night several assumptions about the worker and the work. The Doing Business methodology is fully business are used. consistent with these 4 conventions. The ILO conventions covering areas related to the Employing The worker: Workers indicators do not include the ILO core labor  Earns a salary plus benefits equal to the standards—8 conventions covering the right to economy’s average wage during the entire collective bargaining, the elimination of forced labor, period of his employment. the abolition of child labor and equitable treatment in  Has a pay period that is the most common for workers in the economy. employment practices.  Is a lawful citizen who belongs to the same race and religion as the majority of the Between 2009 and 2011 the World Bank Group worked economy’s population. with a consultative group—including labor lawyers,  Resides in the economy’s largest business city. employer and employee representatives, and experts  Is not a member of a labor union, unless from the ILO, OECD, civil society and the private membership is mandatory. sector—to review the employing workers methodology and explore future areas of research. A i The business:  Is a limited liability company. full report with the conclusions of the consultative  Operates in the economy’s largest business group is available at city. http://www.doingbusiness.org/methodology/employin  Is 100% domestically owned. g-workers.  Operates in the manufacturing sector.  Has 60 employees. This year Doing Business continued research collecting  Is subject to collective bargaining agreements additional data on regulations covering the in economies where such agreements cover probationary period for new employees. more than half the manufacturing sector and apply even to firms not party to them. Doing Business 2014 presents the data on the  Abides by every law and regulation but does not grant workers more benefits than employing workers indicators in an annex. The report mandated by law, regulation or (if applicable) does not present rankings of economies on the collective bargaining agreement. employing workers indicators nor include the topic in the aggregate ranking on the ease of doing business. Detailed data collected on labor regulations and the Doing Business 2014 Sri Lanka 96 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by Sri Lanka other things, the minimum wage for a 19-year-old (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2014 Sri Lanka 97 EMPLOYING WORKERS Employment laws are needed to protect workers from past 5 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did Sri Lanka adopt that contracting between employers and workers. Many affected the Doing Business indicators on employing economies that changed their labor regulations in the workers (table 12.1)? Table 12.1 What changes did Sri Lanka make in employing workers in 2013? DB year Reform DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. DB2014 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2014 Sri Lanka 98 EMPLOYING WORKERS What are the details? The data on employing workers reported here for Sri public officials. Employment laws and regulations as Lanka are based on a detailed survey of employment well as secondary sources are reviewed to ensure regulations that is completed by local lawyers and accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy’s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) No limit Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage for a 19-year old worker or an apprentice (US$/month) 38.6 Ratio of minimum wage to value added per worker 0.11 Source: Doing Business database. Doing Business 2014 Sri Lanka 99 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data 8 hours with 1 hour interval for meal Standard workday in manufacturing (hours) or rest 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in production? Maximum working days per week 5.5 Premium for night work (% of hourly pay) in case of continuous 0% operations Premium for work on weekly rest day (% of hourly pay) in case of 50% continuous operations Major restrictions on night work in case of continuous operations? No Major restrictions on weekly holiday in case of continuous operations? Yes Paid annual leave for a worker with 1 year of tenure (in working days) 14.0 Paid annual leave for a worker with 5 years of tenure (in working days) 14.0 Paid annual leave for a worker with 10 years of tenure (in working days) 14.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 14.0 working days) Source: Doing Business database. Doing Business 2014 Sri Lanka 100 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? Yes Third-party approval if 1 worker is dismissed? Yes Third-party notification if 9 workers are dismissed? Yes Third-party approval if 9 workers are dismissed? Yes Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? Yes Priority rules for reemployment? No Source: Doing Business database. Doing Business 2014 Sri Lanka 101 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 4.3 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 4.3 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 4.3 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 10.8 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 54.2 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 97.5 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 54.2 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2014 Sri Lanka 102 DATA NOTES The indicators presented and analyzed in Doing rounds of verification, leading to revisions or Business measure business regulation and the expansions of the information collected. protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of ECONOMY CHARACTERISTICS regulation, such as the number of procedures to start a business or to register and transfer commercial property. Second, they gauge the time and cost to Gross national income per capita achieve a regulatory goal or comply with regulation, such as the time and cost to enforce a contract, go Doing Business 2014 reports 2012 income per capita through bankruptcy or trade across borders. Third, as published in the World Bank’s World Development they measure the extent of legal protections of Indicators 2013. Income is calculated using the Atlas property, for example, the protections of investors method (current U.S. dollars). For cost indicators against looting by company directors or the range of expressed as a percentage of income per capita, assets that can be used as collateral according to 2012 gross national income (GNI) in U.S. dollars is secured transactions laws. Fourth, a set of indicators used as the denominator. GNI data were not documents the tax burden on businesses. Finally, a set available from the World Bank for Afghanistan, The of data covers different aspects of employment Bahamas, Bahrain, Barbados, Brunei Darussalam, regulation. The 11 sets of indicators measured in Djibouti, the Islamic Republic of Iran, Kuwait, Libya, Doing Business were added over time, and the sample Myanmar, New Zealand, Oman, San Marino, the of economies expanded. Syrian Arab Republic, West Bank and Gaza, and the Republic of Yemen. In these cases GDP or GNP per The data for all sets of indicators in Doing Business 2 capita data and growth rates from other sources, 2014 are for June 2013. such as the International Monetary Fund’s World Economic Outlook database and the Economist Intelligence Unit, were used. Methodology Region and income group The Doing Business data are collected in a standardized way. To start, the Doing Business team, Doing Business uses the World Bank regional and with academic advisers, designs a questionnaire. The income group classifications, available at questionnaire uses a simple business case to ensure http://data.worldbank.org/about/country- classifications. The World Bank does not assign comparability across economies and over time—with regional classifications to high-income economies. assumptions about the legal form of the business, its For the purpose of the Doing Business report, high- size, its location and the nature of its operations. income OECD economies are assigned the “regional” Questionnaires are administered to more than 10,200 classification OECD high income. Figures and tables local experts, including lawyers, business consultants, presenting regional averages include economies accountants, freight forwarders, government officials from all income groups (low, lower middle, upper and other professionals routinely administering or middle and high income). advising on legal and regulatory requirements (table Population 21.2). These experts have several rounds of interaction with the Doing Business team, involving conference Doing Business 2014 reports midyear 2012 calls, written correspondence and visits by the team. population statistics as published in World For Doing Business 2014 team members visited 33 Development Indicators 2013. economies to verify data and recruit respondents. The data from questionnaires are subjected to numerous The Doing Business methodology offers several advantages. It is transparent, using factual information about what laws and regulations say and allowing 2 The data for paying taxes refer to January – December 2012. multiple interactions with local respondents to clarify Doing Business 2014 Sri Lanka 103 potential misinterpretations of questions. Having entrepreneurs reported in the World Bank Enterprise representative samples of respondents is not an issue; Surveys or other perception surveys. Doing Business is not a statistical survey, and the texts This year Doing Business completed subnational of the relevant laws and regulations are collected and studies in Colombia, Italy and the city of Hargeisa answers checked for accuracy. The methodology is (Somaliland) and is currently updating indicators in inexpensive and easily replicable, so data can be Egypt, Mexico and Nigeria. Doing Business also collected in a large sample of economies. Because published regional studies for the g7+ and the East standard assumptions are used in the data collection, African Community. The g7+ group is a country- comparisons and benchmarks are valid across owned and country-led global mechanism established economies. Finally, the data not only highlight the in April 2010 to monitor, report and draw attention to extent of specific regulatory obstacles to business but the unique challenges faced by fragile states. The also identify their source and point to what might be member countries included in the report are reformed. Information on the methodology for each Afghanistan, Burundi, the Central African Republic, Doing Business topic can be found on the Doing Chad, the Comoros, the Democratic Republic of Business website at Congo, Côte d’Ivoire, Guinea, Guinea-Bissau, Haiti, http://www.doingbusiness.org/methodology. Liberia, Papua New Guinea, Sierra Leone, the Solomon Islands, South Sudan, Timor-Leste and Togo. Limits to what is measured The subnational studies point to differences in business regulation and its implementation —as well as The Doing Business methodology has 5 limitations that in the pace of regulatory reform—across cities in the should be considered when interpreting the data. First, same economy. For several economies subnational the collected data refer to businesses in the economy’s studies are now periodically updated to measure largest business city (which in some economies differs change over time or to expand geographic coverage from the capital) and may not be representative of to additional cities. This year that is the case for all the regulation in other parts of the economy. To address subnational studies published. this limitation, subnational Doing Business indicators were created (box 21.1). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified Changes in what is measured size—and may not be representative of the regulation The methodology for 2 indicator sets—trading across on other businesses, for example, sole proprietorships. borders and paying taxes—was updated this year. For Third, transactions described in a standardized case trading across borders, documents that are required scenario refer to a specific set of issues and may not purely for purposes of preferential treatment are no represent the full set of issues a business encounters. longer included in the list of documents (for example, Fourth, the measures of time involve an element of a certificate of origin if the use is only to qualify for a judgment by the expert respondents. When sources preferential tariff rate under trade agreements). For indicate different estimates, the time indicators paying taxes, the value of fuel taxes is no longer reported in Doing Business represent the median included in the total tax rate because of the difficulty values of several responses given under the of computing these taxes in a consistent way across all assumptions of the standardized case. economies covered. The fuel tax amounts are in most cases very small, and measuring these amounts is Finally, the methodology assumes that a business has often complicated because they depend on fuel full information on what is required and does not consumption. Fuel taxes continue to be counted in the waste time when completing procedures. In practice, number of payments. completing a procedure may take longer if the business lacks information or is unable to follow up In a change involving several indicator sets, the rule promptly. Alternatively, the business may choose to establishing that each procedure must take at least 1 disregard some burdensome procedures. For both day was removed for procedures that can be fully reasons the time delays reported in Doing Business completed online in just a few hours. This change 2014 would differ from the recollection of affects the time indicator for starting a business, Doing Business 2014 Sri Lanka 104 dealing with construction permits and registering with one another, while the distance to frontier property. For procedures that can be fully completed measure benchmarks economies to the frontier in 3 online, the duration is now set at half a day rather than regulatory practice, measuring the absolute distance to a full day. the best performance on each indicator. Both measures can be used for comparisons over time. The threshold for the total tax rate introduced in 2011 When compared across years, the distance to frontier for the purpose of calculating the ranking on the ease measure shows how much the regulatory environment of paying taxes was updated. All economies with a for local entrepreneurs in each economy has changed total tax rate below the threshold (which is calculated over time in absolute terms, while the ease of doing and adjusted on a yearly basis) receive the same business ranking can show only relative change. ranking on the total tax rate indicator. The threshold is not based on any economic theory of an “optimal tax Ease of doing business rate” that minimizes distortions or maximizes efficiency The ease of doing business index ranks economies in the tax system of an economy overall. Instead, it is from 1 to 189. For each economy the ranking is mainly empirical in nature, set at the lower end of the calculated as the simple average of the percentile distribution of tax rates levied on medium-size rankings on each of the 10 topics included in the index enterprises in the manufacturing sector as observed in Doing Business 2014: starting a business, dealing through the paying taxes indicators. This reduces the with construction permits, getting electricity, bias in the indicators toward economies that do not registering property, getting credit, protecting need to levy significant taxes on companies like the investors, paying taxes, trading across borders, Doing Business standardized case study company enforcing contracts, and resolving insolvency. The because they raise public revenue in other ways—for employing workers indicators are not included in this example, through taxes on foreign companies, through year’s aggregate ease of doing business ranking. taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of Construction of the ease of doing business index the methodology). This year the threshold is 25,5%. Here is one example of how the ease of doing business index is constructed. In Denmark it takes 4 procedures, 5.5 days and 0.2% of annual income per capita in fees Data challenges and revisions to open a business. The minimum capital requirement Most laws and regulations underlying the Doing is 24% of annual income per capita. On these 4 Business data are available on the Doing Business indicators Denmark ranks in the 12th, 11th, 1st and website at http://www.doingbusiness.org. All the 79th percentiles. So on average Denmark ranks in the sample questionnaires and the details underlying the 25th percentile on the ease of starting a business. It indicators are also published on the website. Questions ranks in the 21st percentile on getting credit, 19th on the methodology and challenges to data can be percentile on paying taxes, 27th percentile on submitted through the website’s “Ask a Question” enforcing contracts, 5th percentile on resolving function at http://www.doingbusiness.org. insolvency and so on. Higher rankings indicate simpler regulation and stronger protection of property rights. Ease of doing business and distance to The simple average of Denmark’s percentile rankings frontier on all topics is 17th. When all economies are ordered Doing Business 2014 presents results for 2 aggregate by their average percentile rankings, Denmark stands measures: the aggregate ranking on the ease of doing at 5 in the aggregate ranking on the ease of doing business and the distance to frontier measure. The business. ease of doing business ranking compares economies More complex aggregation methods—such as 3 For getting electricity the rule that each procedure must take a principal components and unobserved components— minimum of 1 day still applies because in practice there are no yield a ranking nearly identical to the simple average cases in which procedures can be fully completed online in less than a day. For example, even though in some cases it is possible to apply for an electricity connection online, additional requirements mean that the process cannot be completed in less than 1 day. Doing Business 2014 Sri Lanka 105 4 used by Doing Business. Thus, Doing Business uses 58 on enforcing contracts, 116 on dealing with the simplest method: weighting all topics equally and, construction permits and 145 on getting electricity. within each topic, giving equal weight to each of the Variation in performance across the indicator sets is topic components. not at all unusual. It reflects differences in the degree If an economy has no laws or regulations covering a of priority that government authorities give to specific area—for example, insolvency—it receives a particular areas of business regulation reform and the “no practice” mark. Similarly, an economy receives a ability of different government agencies to deliver “no practice” or “not possible” mark if regulation exists tangible results in their area of responsibility. but is never used in practice or if a competing Distance to frontier measure regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the A drawback of the ease of doing business ranking is ranking on the relevant indicator. that it can measure the regulatory performance of economies only relative to the performance of others. The ease of doing business index is limited in scope. It It does not provide information on how the absolute does not account for an economy’s proximity to large quality of the regulatory environment is improving markets, the quality of its infrastructure services (other over time. Nor does it provide information on how than services related to trading across borders and large the gaps are between economies at a single getting electricity), the strength of its financial system, point in time. the security of property from theft and looting, macroeconomic conditions or the strength of The distance to frontier measure is designed to underlying institutions. address both shortcomings, complementing the ease of doing business ranking. This measure illustrates the Variability of economies’ rankings across topics distance of an economy to the “frontier,” and the Each indicator set measures a different aspect of the change in the measure over time shows the extent to business regulatory environment. The rankings of an which the economy has closed this gap. The frontier is economy can vary, sometimes significantly, across a score derived from the most efficient practice or indicator sets. The average correlation coefficient highest score achieved on each of the component between the 10 indicator sets included in the indicators in 10 Doing Business indicator sets aggregate ranking is 0.38, and the coefficients (excluding the employing workers indicators) by any between any 2 sets of indicators range from 0.18 economy. In starting a business, for example, Canada (between getting electricity and getting credit) to 0.58 and New Zealand have achieved the highest (between trading across borders and resolving performance on the number of procedures required (1) insolvency and between trading across borders and and on the time (0.5 days), Denmark and Slovenia on getting electricity). These correlations suggest that the cost (0% of income per capita) and Chile, Zambia economies rarely score universally well or universally and 99 other economies on the paid-in minimum badly on the indicators. capital requirement (0% of income per capita) (table 22.2). Consider the example of Canada. It stands at 19 in the aggregate ranking on the ease of doing business. Its Calculating the distance to frontier for each economy ranking is 2 on starting a business, 4 on protecting involves 2 main steps. First, individual indicator scores investors, and 8 on paying taxes. But its ranking is only are normalized to a common unit: except for the total tax rate, each of the 31 component indicators y is rescaled to (max − y)/(max − min), with the minimum 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to value (min) representing the frontier—the highest Do It” (World Bank, Washington, DC, 2005). Principal components performance on that indicator across all economies and unobserved components methods yield a ranking nearly since 2003 or the first year the indicator was collected. 5 identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the For the total tax rate, consistent with the calculation of pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less 5 Even though scores for the distance to frontier are calculated from importance in the context of a specific economy. 2005, data from as early as 2003 are used to define the frontier Doing Business 2014 Sri Lanka 106 the rankings, the frontier is defined as the total tax rate Economies that improved the most across 3 or at the 15th percentile of the overall distribution of more Doing Business topics in 2012/13 total tax rates for all years. Second, for each economy Doing Business 2014 uses a simple method to calculate the scores obtained for individual indicators are which economies improved the most in the ease of aggregated through simple averaging into one doing business. First, it selects the economies that in distance to frontier score, first for each topic and then 2012/13 implemented regulatory reforms making it across all topics. An economy’s distance to frontier is easier to do business in 3 or more of the 10 topics indicated on a scale from 0 to 100, where 0 represents included in this year’s ease of doing business ranking. 6 the lowest performance and 100 the frontier. Twenty-nine economies meet this criterion: Azerbaijan, The maximum (max) and minimum (min) observed Belarus, Burundi, Côte d’Ivoire, Croatia, Djibouti, values are computed for all economies included in the Gabon, Guatemala, Guinea, Italy, Kosovo, Latvia, the Doing Business sample since 2003 and for all years former Yugoslav Republic of Macedonia, Malaysia, (from 2003 to 2013). To mitigate the effects of extreme Mauritius, Mexico, Moldova, Mongolia, Morocco, outliers in the distributions of the rescaled data (very Panama, the Philippines, the Republic of Congo, few economies need 694 days to complete the Romania, the Russian Federation, Rwanda, Sri Lanka, procedures to start a business, but many need 9 days), Ukraine, Uzbekistan and the United Arab Emirates. th the maximum (max) is defined as the 95 percentile of Second, Doing Business sorts these economies on the the pooled data for all economies and all years for increase in their distance to frontier measure from the each indicator. The exceptions are the getting credit, previous year using comparable data. protecting investors and resolving insolvency Selecting the economies that implemented regulatory indicators, whose construction precludes outliers. In reforms in at least 3 topics and improved the most in addition, the cost to export and cost to import for each the distance to frontier measure is intended to year are divided by the GDP deflator, so as to take the highlight economies with ongoing, broadbased reform general price level into account when benchmarking programs. The criterion for identifying the top these absolute-cost indicators across economies with improvers was changed from last year. The different inflation trends. The base year for the deflator improvement in ease of doing business ranking is no is 2013 for all economies. longer used. The improvement in the distance to The difference between an economy’s distance to frontier measure is used instead because under this frontier score in any previous year and its score in measure economies are sorted according to their abs- 2013 illustrates the extent to which the economy has olute improvement instead of relative improvement. closed the gap to the frontier over time. And in any given year the score measures how far an economy is from the highest performance at that time. Take Colombia, which has a score of 70.5 on the distance to frontier measure for 2014. This score indicates that the economy is 29.5 percentage points away from the frontier constructed from the best performances across all economies and all years. Colombia was further from the frontier in 2009, with a score of 66.2. The difference between the scores shows an improvement over time. The distance to frontier measure can also be used for comparisons across economies in the same year, complementing the ease of doing business ranking. For example, Colombia stands at 63 this year in the ease of doing business ranking, while Peru, which is 6 Doing Business reforms making it more difficult to do business are 29.3 percentage points from the frontier, stands at 42. subtracted from the total number of those making it easier to do business. Doing Business 2014 Sri Lanka 108 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2014 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 189 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 189 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 10,200 specialists in 189 economies profiles who participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers Entrepreneurship data underlying Doing Business Data on business density for 139 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and Doing Business iPhone App related policy issues Doing Business at a Glance App presents the full http://www.doingbusiness.org/research/ report, rankings and highlights http://www.doingbusiness.org/specialfeatures/ iphone Doing Business 2014 Sri Lanka 109