Call to expedite the process of starting an enterprise

Paying taxes: The Inland Revenue Board can step up efforts to reduce the time taken (currently at 188 hours) to prepare, file and pay taxes. This certainly helps to ease the loss of productivity and cost, according to Lee.

THE World Bank’s annual Doing Business report is not simply about how economies stack up against each other in terms of competitiveness as most will assume. In fact, the 11 indicators of the report sets out to do just one thing – capturing the effectiveness and quality of business regulation.

The data is then collated and presented in two aggregate measures, the distance to frontier score and the ease of doing business ranking. The distance-to-frontier score measures the distance of each economy to the so-called “frontier economy” or the best performing economy in each of the 11 indicators. The nearer an economy is to the “frontier economy”, the better the performance in that indicator.

The ease of doing business ranking is where most people relate the report to competitiveness as it provides information about an economy’s performance in business regulation relative to the performance of other economies as measured by the report.

Malaysia’s ranking in this gauge has steadily dropped, from the best the country ever achieved, at sixth for 2013, to 24th for 2017. One can interpret the decline in Malaysia’s rankings in two ways – that other countries are catching up despite the Government’s best efforts at reforms or, that reforms are now harder to implement, that the low-hanging fruits have all been plucked.

Perhaps a better gauge of Malaysia’s competitiveness can be found in the World Economic Forum’s Global Competitiveness Index, which ranks the country as the 23rd most competitive in the world out of 137 countries in the 2017/2018 period, improving from 25th.

Regulatory reforms: Goh says the Government will need to weigh what is best for the country.

Still, with the drop in a widely reported ranking again, the perennial question of economic competitiveness crops up. Interestingly, Malaysia seems to have done pretty dismally in the first of the 11 indicators, “starting a business”. The country ranked 111th out of 190.

This indicator measures procedures, time, cost and paid-in minimum capital to start a limited liability company or what is called a “sendirian berhad” company in local lingo. Economists contacted by StarBizWeek point to this indicator as a problem.

UOB Kay Hian Malaysia Research economist Julia Goh says the process of starting a business can be improved, including the number of procedures and days required to incorporate a business. “Channel checks also suggest that select investors unfamiliar and with no connections in the country are uncertain about the first point of contact when looking to start a business in Malaysia,” she points out.

What is worrying is that it should be happening at the very beginning of an entrepreneur’s or investor’s journey in setting up a business in the country. What is interesting is that there is a high-powered taskforce better known by its Malay acronym, Pemudah, comprising a group of people in the public and private sectors, that was set up back in 2007 to help investors, especially foreign ones, navigate the maze of Malaysian bureaucracy. Pemudah representatives, including co-chair Tan Sri Saw Choo Boon, were at the World Bank media briefing last Wednesday.

Socio Economic Research Centre executive director Lee Heng Guie suggests that setting up a business can be further streamlined or simplified by implementing an electronic documentation process. “A single PIN reference number can be used for all documentation papers required for the applications of starting a business,” he says, adding that the number of procedures (currently eight) for the “registering property” indicator is also 5.5 more in Asia and Pacific region and 4.6 more than in the high-income Organisation for Economic Co-operation and Development countries.

“In the area of ‘paying taxes’, the Inland Revenue Board can step up efforts to reduce the time taken (currently at 188 hours) to prepare, file and pay taxes. This certainly helps to ease the loss of productivity and cost,” Lee says.

The World Bank’s country manager for Malaysia Faris Hadad-Zervos explained in the media briefing that despite the drop in the ranking, the country’s business climate has actually improved because of the improvement in the distance-to-frontier score.

Better score: Hadad-Zervos says the country’s business climate has improved.

That should count for something but the reality is that many countries are fast catching up. India implemented eight reforms to make it easier to do business. Malaysia’s neighbours Brunei and Thailand were also on the list of the top 10 improvers.

Will a slowdown in regulatory reforms impact investments and productivity? Lee says maintaining a simpler and transparent structure in the business regulatory environment is vital to stimulate investment and economic growth as well as to improve productivity. “A good investment climate must address the local institutional, regulatory and policy environment so as to enhance the firms’ competitiveness to invest,” he says.

Goh says the Government will need to weigh what is best for the country and that includes where the economy stands on the development curve as well as where it envisions the economy to be. “I think it is fair that reforms should be justified by the economic and financial benefits it creates. Some reforms may be better suited for countries that are more advanced or have larger pool of skilled workers, or are facing ageing or shrinking populations,” she says.

But Goh noted that being a small open economy targeting to move out of the middle-income trap, there is a need to take stock of reforms abroad. “Positive regulatory reforms should focus on improving the business and operating environment to enhance investments, innovation, and productivity. With that the country becomes more competitive and economic benefits multiply,” she adds.