Reform trends and options for Malaysia

Sylvia Solf Justin Yap October 31st, 2007

Global reform trends: Eastern European and Central Asian countries reformed the most
Countries with at least one positive reform in 2006-7 (%)
E. Europe + Central Asia

OECD 62.5% 58.8% 35.5%
Latin America + Caribbean Middle East + N. Africa

78.6%

62.5% 45.8%
South Asia East Asia + Pacific

52.2%
Sub-Saharan Africa

Eastern Europe surpassed East Asia on the ease of doing business
136

Average rank, ease of doing business
107 96 87 76 77

22

Hi h n c o m OECD g i e:

Eu r p e &Ce n t l a o a i r As

Ea s a &Pa c f As t i c i

L a t Am c a &Ca r b e a n n ei i r i b

Mi d l Ea s No r Af a d e & t c t h r i

So u t As h a i

Su b - a h ar n Af a S a c i r

High income OECD

Eastern Europe & Central Asia

East Asia & Pacific

Latin America & Caribbean

Middle East & North Africa

South Asia

Sub Saharan Africa

Where does Malaysia stand in each topic?

Topic
Starting a business Dealing with licenses Employing workers Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Closing a business

Malaysia’s Rank 74 105 43 67 3 4 56 21 63 54

World’s best
Australia St. Vincent & the Grenadines United States New Zealand United Kingdom New Zealand Maldives Singapore Hong Kong, China Japan

Investors benefit from strong protection
Disclosure requirements for related party transactions are among the world’s strictest

10 9 8.7 7 Hong Kong, China Singapore

Disclosure Index Director Liability Index Shareholder Suits Index Total Investor Protection Index

Malaysia

Collateral and bankruptcy laws support access to credit
Malaysia compared to global top 10 in ease of Doing Business
10 10 9 9 9 8 8 8 7 7 7

K in g d om

h in a

Ir el an U n d it ed S ta te s

S in g ap or N e ew Z ea la n d A u st ra lia M al ay si a D en m ar k

ad a

K o

n g

H o

U

n it ed

n g ,C

Ic el an

C an

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Malaysia’s reforms improved ease of doing business in 2 areas
1. China 2. Fiji 3. 4. Indonesia Lao PDR 5. 6. 7. Malaysia Micronesi Mongolia a 8. Thailand 9. Timor Leste 10. Tonga 11. Vanuatu 12. Vietnam

Starting a business Dealing with licenses Employing workers Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Closing a business

x

x

Reforms sped business start-up…

•Time decreased by 6 days due to greater efficiency in processing name search applications and company registration certificates at CCM
China , 35 Thailand, 33

Vietnam, 50 Taiwan, China, 48

Malaysia, 24 Mongolia, 20

Hong Kong, China, 11

Singapore, 5

Si ga po r n e

Hon g Kon g, n a Chi

Mo ng ol a i

Mal a as i y

Tha a n d l i

Ch n a i

Tai an Ch n a w , i

Vi n am et

… and reduced time to pay taxes
• Less administrative burden thanks to automated tax filing and payment system. •Finance Act of 2006 will further improve Malaysia’s ranking in paying taxes. The Act decreases the income tax rate for businesses in two stages. Effects will be seen in next year’s report.
Time (hours per year)

190 hours

166 hours

DB 2007

DB 2008

What next? Administrative reforms popular and effective

Number of positive reforms

Starting a business Paying taxes Registering property Trading across borders Getting credit Getting licenses Enforcing contracts Closing a business Protecting investors Employing Workers 8 10 10 15 14 24 22 27 31

39

Easier entry regulations, simpler tax systems, faster property transfers among the most popular reforms in the world (2006/2007)

Opportunities for reform in Malaysia: Reducing start-up cost

Denmark New Zealand Ireland United States Singapore United Kingdom Australia Canada Iceland Hong Kong, China Malaysia

Denm k ar

0 0.1 0.3 0.7 0.8 0.8 0.8 0.9 2.7 3.1 18.1 2 4 6 8 10 12 14 16 18 20

NewZeala nd

e rl I a nd

Unit d St t s e ae

Aus a a r t il

Unit d Kin gdom e

Sin gapor e

Canada

c I ela nd

Hong Kong, n a Chi

Mala a y i s

0

Cost to start a business (% income per capita)

Simplifying licensing procedures for building a warehouse (ongoing reform)

Number of procedures to build a warehouse in top 10 economies and Malaysia
25 23 18 16 14 11 6 7 11 19 19

Ic el an U ni d te d St U ni at te es d K H in on gd g om K on g, C hi na M al ay si a

D en m ar N ew k Z ea la nd S in ga po re

C an ad a A us tr al ia

Ir el an d

Dealing with licenses in Singapore: Ranked 5th in the world

Speeding up property title transfer

144

Number of days to register property in top 10 economies and Malaysia

54 38 12 17 21 42

2
Z ea la nd

4

5

9

C U an ni ad te d a K in gd om

Ic el an d A us tr al ia S in ga po U re ni te d St at es

D en m ar K on k g, C hi na H on g

N ew

M al ay si a

Ir el an d

Registering property in 2 procedures, 2 days

1. Obtain certified copies of companies’ documents from Ministry of Commerce 2. Parties submit application for registration at the Land Office

How to jump 14 places by reforming 4 areas
Starting a business : from rank 74 to 16 •Introduce electronic name search/reservation •Introduce single company ID for commercial, tax, and social security registration and merge registrations •Implement lower flat registration fees Dealing with licenses : from rank 105 to 4 •Consolidate planning and building permits •Implement one stop shop for approvals •Conduct joint inspections/delegate inspections to private professionals (architect/engineer) Registering property : from rank 67 to 14 • Simplify formalities at the stamp office •Introduce flat fee and eliminate valuation visits •Improve efficiency of land registry Paying taxes: from rank 56 to 16 •Allow for online filing of social security and labor contributions

⇒ Malaysia’s new global rank: 10

Why does it matter? Business friendly regulation leads tomore registered businesses and start-ups

Business Density
(registered firms per capita)

Business Entry
(new firms in % of registered firms)

Easiest

Most difficult

Easiest

Most difficult

Countries ranked by ease of doing business, quintiles

Source: Doing Business database

…Which means more formal employment

Informal Sector
(% of GDP)

Unemployment
(% of labor force)

Easiest

Most difficult

Easiest

Most difficult

Countries ranked by ease of doing business, quintiles

Source: Doing Business database, WDI

Thank you We also invite you to visit our website at www.doingbusiness.org

www.doingbusiness.org

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