Azuddin Jud Ismail - Doing Business In Malaysia

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

78.6%

62.5% 58.8% 35.5% Latin America + Caribbean

Middle East + N. Africa

62.5% 45.8% South Asia

52.2% Sub-Saharan Africa

East Asia + Pacific

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

Average rank, ease of doing business 107 96 87 76

77

22

Hig h n i c om e OECD :

High income OECD

Eu ro p e &Ce n tra lAs a i

Eastern Europe & Central Asia

Ea s tAs a i &Pa c fc i

East Asia & Pacific

L a tn i Am ec ir a &Ca rib b e a n

Latin America & Caribbean

Mid d le Ea s t&No rth Afc ri a

Middle East & North Africa

So u th As a i

South Asia

Su b -Sa h ara n Afc ri a

Sub Saharan Africa

Where does Malaysia stand in each topic?

Topic

Malaysia’s Rank

World’s best

74

Australia

105

St. Vincent & the Grenadines

Employing workers

43

United States

Registering property

67

New Zealand

Getting credit

3

United Kingdom

Protecting investors

4

New Zealand

Paying taxes

56

Maldives

Trading across borders

21

Singapore

Enforcing contracts

63

Hong Kong, China

Closing a business

54

Japan

Starting a business Dealing with licenses

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

10 9 8.7

Singapore

7 Hong Kong, China

Malaysia

Disclosure Index Director Liability Index Shareholder Suits Index

Total Investor Protection Index

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

9 8

8

8

ad a

7

C an

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

K in g d om

n it ed U

H o

n g

K o

n g ,C

h in a

7

7

d

9

Ic el an

10

Malaysia’s reforms improved ease of doing business in 2 areas 1. China

2. Fiji

x

Starting a business Dealing with licenses

3. 4. Indonesia Lao PDR

9

9

5. 6. 7. Malaysia Micronesi Mongolia a

8. Thailand

9

9. Timor Leste

10. Tonga

11. Vanuatu

12. Vietnam

9

9

Employing workers

x

Registering property Getting credit

9

9

Protecting investors

9

9

9 9

Paying taxes Trading across borders

9

Enforcing contracts Closing a business

9

9 9

9 9 9

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

Vietnam, 50 Taiwan, China, 48

China , 35 Thailand, 33

Malaysia, 24 Mongolia, 20

Hong Kong, China, 11

Singapore, 5

Sin ga po re

Hon g Kon g,Chin a

Mo ng ola i

Mala a siy

Tha a li n d

Ch n i a

Taiwan Ch , n i a

Vie n t am

… and reduced time to pay taxes • Less administrative burden thanks to automated tax filing and payment system. Time (hours per year)

•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.

190 hours

166 hours

DB 2007

DB 2008

What next? Administrative reforms popular and effective

Number of positive reforms

39

Starting a business 31

Paying taxes 27

Registering property 24

Trading across borders

22

Getting credit 15

Getting licenses

14

Enforcing contracts Closing a business

10

Protecting investors

10

Employing Workers

8

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

Denmark

NewZeala nd

Ire al nd

Unite d Sta te s

Austra ail

Unite d Kin gdom

Sin gapore

Canada

0 0.1 0.3 0.7 0.8 0.8 0.8 0.9 2.7

Ic ela nd

3.1

Hong Kong,Chin a

18.1

Mala aysi

0

2

4

6

8

10

12

14

16

Cost to start a business (% income per capita)

18

20

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

19

19

16 14 11

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

C an ad a A us tr al ia

Ir el an d

7

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

6

11

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

H on g

M al ay si a

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

21

Ir el an d

5

12

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

4

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

N ew

Z ea la nd

2

9

17

42

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

Business Entry

(registered firms per capita)

(new firms in % of registered firms)

Easiest

Most difficult

Easiest

Countries ranked by ease of doing business, quintiles

Source: Doing Business database

Most difficult

…Which means more formal employment

Informal Sector

Unemployment

(% of GDP)

(% of labor force)

Easiest

Most difficult

Easiest

Countries ranked by ease of doing business, quintiles

Source: Doing Business database, WDI

Most difficult

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