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The country’s ranking on the ease of doing business has slipped for the fourth consecutive time to 89th position.The former government has pledged to take the country to the top 50 position but the best position Bhutan could obtain was 73rd during its tenure.

No regulatory changes in ease of doing business

Tshering Dorji

The country’s ranking on the ease of doing business has slipped for the fourth consecutive time to 89th position.

The former government has pledged to take the country to the top 50 position but the best position Bhutan could obtain was 73rd during its tenure.

Even the current government has pledged to improve the ranking. “We will cut red tape, promote transparent decision making on procurement, framing consistent policies and deregulate unnecessary bureaucratic procedures…take public service online,” stated the current government’s manifesto.

It also mentioned that improving the ease of doing business would have significant impact on thousands of small and medium businesses that will provide employment opportunities.

While it has been almost a year for the government since it took charge, the World Bank has labelled Bhutan along with the countries like Afghanistan, the Maldives and Sri Lanka that made “no regulatory changes” in the region.

Ease of doing business index, 2020, measures regulations across 190 economies over the 12 months ending April 30, 2019. This means that even if the government had some intent to launchsome of the reforms, the reporting period leaves only five months’ time since it assumed the office.

Otherwise, the report stated that South Asian economies maintained a solid pace of regulatory reforms, as both India and Pakistan earned spots among the top most improved economies.

A high ranking on ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. The rankings are determined by sorting the aggregate scores on 10 parameters, each consisting of several indicators.

The ease of doing business looks at rules affecting a business from inception through operation to wind-down: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency.

The top 10 best places in the world to do business, according to the study, are New Zealand, Singapore, Hong Kong, Denmark, the Republic of Korea, the United States, Georgia, the United Kingdom, Norway and Sweden.

Economies that score highest on the ease of doing business ranking share several common features, including the widespread use of electronic systems. The top 20 economies have online business incorporation processes, electronic tax-filing platforms, and allow online procedures related to property transfers. Moreover, 11 economies have electronic procedures for construction permitting.

The break down

The country’s lowest ranking was in resolving insolvency (168), meaning the cases of bankruptcy. This is attributed to lack of such cases in the country and thus there is no practice of resolving insolvency.

The country was also ranked low (111th) in terms of protecting minority investors. This parameter measures the extent of the level of information that companies must share regarding their board members, senior executives, annual meetings and audits. The report revealed that Bhutan performed poor in terms of rules governing the structure and change in control of companies and roles shareholders play in key corporate decisions. This measure is based on the information the Royal Securities Exchange of Bhutan.

Bhutan is the 103rd easiest country to starting business, according to the World Bank. A further delve into the figures revealed that it takes eight procedures, 12 days to start a business with no extra payment. The top country(s) in this parameter demands zero procedure and at least three hours to start a business.

Access to finance, has long been touted as hurdle to private sector in the country. Bhutan is placed at 94th position. This indicator reports the number of individuals and firms listed by a credit bureau with information on their borrowing history from the past five years. It also delves into the coverage, scope and accessibility of credit information available through either a credit registry or a credit bureau. It also measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending.

The country, however, is ranked 15th best country when it comes to regulatory framework involving tax payment. It involves the total number of taxes and contributions paid, method of payment, frequency of payment and filing and the number of agencies involved.

The report revealed that it takes 52 hours to prepare, file and pay (or withhold) the corporate income tax, value added or sales tax, and labor taxes, including payroll taxes and social contributions.

With 225 days’ time required to resolve a dispute, counted from the moment the plaintiff decides to file the lawsuit in court until payment, Bhutan is ranked at 29th place when it comes to enforcing contract.

While it takes USD 110 to obtain, prepare and submit documents during port or border handling, customs clearance and inspection procedures, the country is still ranked at 30th place in terms of trading across border. This is because it takes lesser time to transship goods across the border to India, compared with other countires in the region.

Good ranking do not however guarantee FDI inflow, it conveys countries’ regulatory aspects to do business. But it does not cover the aspects of macroeconomic stability, market size and quality of workforce. There are rigid benchmarks and assumptions made on all the parameters.

Trading across borders, for instance, considers the distance and cost from largest city to border. In Bhutan’s case, most export commodities to other countries are either processed or manufactured in the bordering towns. But measurements, for the sake of ranking are considered from Thimphu to Jaigaon.

Many of the parameters, such as enforcing contracts, starting business and registering properties are based on the assumption that the proponent is a limited liability company.

This means that small and medium enterprises, including the traders are under-represented making small businesses believe that the ground reality of doing business is different from the ranking. This is why other instruments such as the enterprise survey, also conducted by the World Bank, assesses small businesses that are Bhutan specific because private sector in the country is skewed towards small firms.

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