Government fails to improve business climate

Despite government's preparation to observe the year 2012-13 as an Investment Year to lure foreign direct investment (FDI), it has failed to create conducive doing business environment as the country has ranked 108th — among the 185 economies — with not a single reform in easing doing business, according to the Doing Business report 2013 published by the World Bank higher score therefore indicates a more efficient business regulatory system.
Earlier last year, the country was ranked 107th on ease of doing business out of 183 economies in Doing Business 2012.
The improvements in the ranking due to reforms will help attract FDI because the prospective investors' decide on the basis of country’s ranking in the annual Doing Business report that covers 11 indicators that are keys to doing business.
The top 10 economies witnessed an average of $50,384 million FDI inflow; weheras the bottom 10 economies have witnessed an average of $1,257 million FDI inflow in 2011, the report said, and proving the claim those economies that provide a good regulatory environment for domestic investors also provides a good one for foreign firms too.
It takes five days to register properties in Nepal, the report revealed. "Similarly, some 0.47 per cent of the adults — borrowers — are covered by credit registries or bureau," according to the report that has highlighted Nepal as a country that needs the most — some 11 — documents for exports.
Nepal ranks 105th in starting business that takes 29 days with seven procedures to follow costing 33 per cent of income per capita.
"It takes 97 days to deal with construction permits in Nepal with 13 procedures and 115 days that costs 654.6 per cent of income per capita," it said. "Nepal has improved in getting electricity ranking from last year's 99 to 96, but takes 70 days with five procedures that costs 1,762.8 per cent of income per capita," adds the ease of doing business report in Nepal that witnessed no regulatory reforms, however.
Worldwide, 108 economies implemented 201 regulatory reforms in 2011-12 making it easier to do business as measured by Doing Business, according to the 10thh edition of Doing Business that has ‘Smarter Regulations for Small and Medium-Size Enterprises’ theme. Economies that rank high on the ease of doing business tend to combine efficient regulatory processes with strong legal institutions that protect property and investor Rights Through indicators benchmarking 185 economies, Doing Business measures and tracks changes in the regulations applying to domestic small and medium size companies in 11 areas in their life cycle.
This year’s aggregate ranking on the ease of doing business is based on indicator sets that measure and benchmark regulations affecting 10 areas from starting a business to dealing with construction permits, getting electricity, registering property, Getting credit, protecting investors, paying taxes, trading across borders, and enforcing Contracts to resolving insolvency.
Doing Business also documents regulations on employing workers, which are not included in this year’s aggregate ranking or in the count of reforms. The economies that rank highest on the ease of doing business are not those where there is no regulation—but those where governments have managed to create rules that facilitate interactions in the marketplace without needlessly hindering the development of the private sector. In essence, Doing Business is about SMART business regulations — Streamlined, Meaningful, Adaptable, Relevant, Transparent — not necessarily fewer regulations.

South Asian ranking
Sri Lank — 81
Maldives — 95
Pakistan — 107
Nepal — 108
Bangladesh — 129
India — 132
Bhutan — 148
Afghanistan — 168
(Source: Doing Business 2013 report)

Compliance burden fuels tax evasion trend

Due to increasing trend of robbing government coffer by ‘some business people’, the honest entrepreneurs feel ashamed as common people put them all in a basket and create negative perception of the private sector.
Post-1990 movement, the private sector has come forward very actively and in many sectors led alone, without government’s support, but post-2007 movement, the private sector has been in news more all for the wrong reasons. “It’s a trend,” according to finance secretary Krishnahari Baskota, “though such act will not benefit them in a long run.”
The revenue administration has brought some 1,700 more firms under its radar, without completion of its 518 firms’ investigation that according to it, will add some Rs 5 billion to government coffer, though, initial projection was double.
Government needs sustainable funding for social programmes and public investments to promote economic growth and development. Programmes providing health, education, infrastructure and other amenities are important to achieve a common goal of a prosperous, functional and orderly society. Those programmes require governments to raise revenue but the recent trend has hit the government coffer hard making it unable to even achieve its target.
The private sector plays an essential role in contributing to economic growth and prosperity as the companies contribute to socio-economic development by employing workers, improving the skills and knowledge base, buying from local suppliers and providing products and services that improve people’s lives and revenues through generating and paying taxes.
But the recent investigation of the revenue administration has revealed a huge revenue leakages by the private sector.
“Apart from trend, legal system, bureaucracy and lack of regular policy review also fuelled the leakages,” Baskota said, adding that the Finance Ministry is on a regular basis watching and improving the legal system, apart from strengthening bureaucracy. “The policy reform is also under consideration.”
But Nepal ranks in the 111st position among the 183 economies in Paying Taxes 2012 report of the World Bank. The Paying Taxes indicators being included in Doing Business report of the World Bank Group measures the ease of paying taxes for a small to medium-sized domestic company, in all of the 183 economies that it covers. The study measures three aspects of the tax system for business – one relating to the tax cost or the total tax rate and two to the compliance burden, the time spent on tax compliance and the number of tax payments.
In the tax cost indicator, Nepal ranks 49th, whereas in time spent on tax compliance it ranks 138th and in number of tax payments 120th position giving an indication where the government needs to focus.
The administrative burden and cost of complying with taxes is important from the business perspective, as well as the rate of tax paid. “One of the causes of low compliance may be due to more time taken to pay tax,” the finance secretary said, “But to make it easier, the Finance Ministry has upgraded itself to e-filing and one can file tax from the office or home without spending much time.”
The purpose of the Paying Taxes study is to provide data to inform discussion around tax policy, tax administration, and to encourage dialogue on reform. It shows that different administrative practices used by government play a key role in lowering or increasing the compliance burden and easing compliance burden to make tax collection more efficient.
According to the study, the less time business spends on tax compliance the more time it has to focus on building the business and contributing to economic growth.
However, the government can do much to reduce burden on business by simplifying the process making it less man-to-man contact that could help plug increasing leakages.

Mauritius ranks top in ‘Paying Tax’ list in Sub-Saharan Africa

PORT LOUIS: Among the 46-Sub Saharan African countries Mauritius tops the rank in Paying Tax, followed by Botswana and South Africa in the second and third positions.
The report – a joint publication of the World Bank, International Finance Corporation, and PricewaterhouseCoopers – is the fifth edition that the World Bank Group’s Doing Business project has included the "paying taxes" indicator.
The indicator measures the ease of paying taxes in 183 economies around the world. Besides paying taxes, the Doing Business project provides quantitative measures of regulations in nine other areas: starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, trading across borders, enforcing contracts, and closing a business.
However, Mauritius ranks 12th – slipping one position down from last year’s 11th rank – among the 183 economies around the world. “A medium-size company must make seven payments in a given year in Mauritius, whereas the Sub-Saharan African average is 37.7 and OCED average is 12.8 payments per year,” according to the report.
Similarly, it takes 161 hours per year to pay the tax in Mauritius whereas in Sub-Saharan African country, it takes 306 hours in an average.
The paying taxes indicator measures tax systems from the point of view of a domestic company complying with the different tax laws and regulations in each economy. The case study company is a small to medium-size manufacturer and retailer, deliberately chosen to ensure that its business can be identified with and compared worldwide.
The indicator covers the cost of taxes borne by the case study company and the administrative burden of tax compliance for the firm. Both are important for business. They are measured using three subindicators: the total tax rate (the cost of all taxes borne), the time needed to comply with the major taxes (profit taxes, labour taxes and mandatory contributions, and consumption taxes), and the number of tax payments.
The paying taxes indicator measures all taxes and contributions mandated by government at any level (federal, state, or local) as they apply to the standardised business. The total tax rate subindicator measures the impact of taxes and contributions on the company’s income statements. It includes the corporate income tax, social contributions and labour taxes paid by the employer, property taxes, property transfer taxes, dividend tax, capital gains tax, financial transactions tax, waste collection taxes, and vehicle and road taxes. The other two subindicators, on the time to comply and number of payments, also include taxes and contributions withheld or collected, such as sales tax or value added tax (VAT).
In this year’s report, the top reformer was Timor-Leste, which introduced a new tax law, streamlined the business tax regime, and simplified tax administration. Between June 2008 and May 2009, 45 economies made it easier to pay taxes as measured by Doing Business, almost 25 per cent more than in the previous year, according to the report.
“Eastern Europe and Central Asia had the most reforms for the third year in a row, with 10 economies reforming, whereas around the world on average, the case study company faces a total tax rate (percentage of profit paid out in taxes) of 48.3 per cent and spends 286 hours a year, and makes 31 tax payments, to comply with tax laws,” the global report said.
In the EU the average total tax rate for the case study company fell from 46 per cent to 44.5 per cent reflecting in part cuts in the corporate income tax rate implemented in 2007-08 in Germany and Italy.
The number of taxes levied on the company averages 9.5 globally. The average for the EU is almost 11.
Mauritius has climbed to 17th position from 24th in the global Doing Business 2010 report. It has been ranked first among 46 Sub-Saharan Africa economies. The Indian Ocean Island country has climbed seven position up to rank 17 from last year’s 24 position, according to the Doing Business Report – measuring business regulation. Out of the 10 category in the overall report, it has improved in the four categories but slipped in the five categories, whereas it is in the bottom of one of the category – closing business – compared with last year’s report.

The top 10
Mauritius – First
Botswana – Second
South Africa – Third
Malawi – Fourth
Seychelles – Fifth
Zambia – Sixth
Comoros – Seventh
Ethiopia – Eighth
Swaziland – Ninth
Rwanda – Tenth