Why the glass is half empty

MANY are the positives in Sri Lanka being ranked as the best country in South Asia to do business. But the World Bank report also highlights several areas that Sri Lanka needs to work on and others where no improvement was recorded.

The rankings measure three dimensions of investor protection: transparency of transactions (Extent of Disclosure Index), liability for self-dealing (Extent of Director Liability Index), shareholders’ ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index) and Strength of Investor Protection Index.

Higher values indicate greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and better investor protection. A recent study done by Verite Research shows in a nutshell what points stakeholders need to concentrate on.

In the category of paying taxes, Sri Lanka fell by two points, from 171 in 2011 to 173 in 2012. This measures the tax that a medium-size company must pay or withhold in a given year, and the administrative burden in paying taxes.

It includes the number of payments an entrepreneur must make; the number of hours spent preparing, filing, and paying; and the percentage of their profits they must pay in taxes.

This fall in rank occurred despite the reduction on taxes on business. Payment of taxes were made less costly for businesses by abolishing the turnover tax and social security contribution and by reducing corporate income tax, value added tax and nation building tax. Perhaps there is need for more time lapse for the new simplified systems introduced by the last Budget to take effect.

Starting a business in Sri Lanka fell by three points, from 35th position in 2011 to 38th position in 2012. This is a measure of the number of steps entrepreneurs must take to launch a business, the time it takes on average and the cost and minimum capital required as a percentage of the Gross National Income (GNI) per capita.

In addition, the category of dealing with construction permits fell by one point, from 110th position in 2011 to 111 in 2012. This measures the procedures, time, and cost to build a warehouse, including obtaining necessary licenses and permits, completing required notifications and inspections, and obtaining utility connections.

Registering property was another sector that fell by three points, from 158th position in 2011 to 161 in 2012. This deals with the ease with which businesses can secure rights to property. This includes the number of steps, time, and cost involved in registering property.

To top it off, ease of getting credit fell by three points, from 75th position in 2011 to 78 in 2012; a development that shows the scope, access and quality of credit information available through public registries or private bureaus. A higher value indicates that more credit information is available from a public registry or private bureau.

Trading across borders and enforcing contracts are two aspects that Sri Lanka has stayed constant at without any change in the rankings. Sri Lanka has remained at 53rd and 136th position respectively in 2011 and 2012. A marginal two point increase has been achieved in resolving insolvency (rank 42) and getting electricity (rank 95).

The rankings have succinctly showed what more needs to be done and it is hoped that the policymakers take heed.