Doing Business 2017 Sri Lanka Economy Profile 2017 Sri Lanka Doing Business 2017 Sri Lanka 2 © 2017 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 19 18 17 16 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2017 Sri Lanka 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 17 Dealing with conustruction permits ........................................................................................ 24 Getting electricity ....................................................................................................................... 36 Registering property .................................................................................................................. 46 Getting credit .............................................................................................................................. 57 Protecting minority investors ................................................................................................... 63 Paying taxes ................................................................................................................................ 71 Trading across borders .............................................................................................................. 77 Enforcing contracts .................................................................................................................... 84 Resolving insolvency .................................................................................................................. 91 Labor market regulation ........................................................................................................... 95 Distance to frontier and ease of doing business ranking .................................................... 101 Resources on the Doing Business website ............................................................................ 104 Doing Business 2017 Sri Lanka 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is also provides data for other selected economies for a local entrepreneur to open and run a small to (comparator economies) for each indicator. The data in medium-size business when complying with relevant this report are current as of June 1, 2016 (except for the regulations. It measures and tracks changes in paying taxes indicators, which cover the period January– regulations affecting 11 areas in the life cycle of a December 2015). business: starting a business, dealing with construction The Doing Business methodology has limitations. Other permits, getting electricity, registering property, getting areas important to business—such as an economy’s credit, protecting minority investors, paying taxes, proximity to large markets, the quality of its trading across borders, enforcing contracts, resolving infrastructure services (other than those related to insolvency and labor market regulation. Doing Business trading across borders and getting electricity), the 2017 presents the data for the labor market regulation security of property from theft and looting, the indicators in an annex. The report does not present transparency of government procurement, rankings of economies on labor market regulation macroeconomic conditions or the underlying strength of indicators or include the topic in the aggregate distance institutions—are not directly studied by Doing Business. to frontier score or ranking on the ease of doing The indicators refer to a specific type of business, business. generally a local limited liability company operating in In a series of annual reports Doing Business presents the largest business city. Because standard assumptions quantitative indicators on business regulations and the are used in the data collection, comparisons and protection of property rights that can be compared benchmarks are valid across economies. The data not across 190 economies, from Afghanistan to Zimbabwe, only highlight the extent of obstacles to doing business; over time. The data set covers 48 economies in Sub- they also help identify the source of those obstacles, Saharan Africa, 32 in Latin America and the Caribbean, 25 supporting policy makers in designing regulatory reform. in East Asia and the Pacific, 25 in Eastern Europe and More information is available in the full report. Doing Central Asia, 20 in the Middle East and North Africa and Business 2017 presents the indicators, analyzes their 8 in South Asia, as well as 32 OECD high-income relationship with economic outcomes and presents economies. The indicators are used to analyze economic business regulatory reforms. The data, along with outcomes and identify what reforms have worked, where information on ordering Doing Business 2017, are and why. available on the Doing Business website at This economy profile presents the Doing Business http://www.doingbusiness.org. indicators for Sri Lanka. To allow useful comparison, it Doing Business 2017 Sri Lanka 5 CHANGES IN DOING BUSINESS 2017 As part of a three-year update in methodology, Doing having equal evidentiary weight of women’s testimony in Business 2017 expands further by adding postfiling court. processes to the paying taxes indicator, including a Also for the first time this year Doing Business collects gender component in three of the indicators and data on Somalia, bringing the total number of developing a new pilot indicator on selling to the economies covered to 190. government. Also, for the first time this year Doing Business collects data on Somalia, bringing the total For more details on the changes, see the “”Old and new number of economies covered to 190. factors covered in Doing Business” section in the The paying taxes indicator is expanded this year to Overview chapter starting on page 1 of the Doing include postfiling processes – those processes that occur Business 2017 report. For more details on the data and after a firm complies with its regular tax obligations. methodology, please see the “Data Notes” chapter These include tax refunds, tax audits and tax appeals. In starting on page 114 of the Doing Business 2017 report. particular, Doing Business measures the time it takes to For more details on the distance to frontier metric, get a value added tax (VAT) refund, deal with a simple please see the “Distance to frontier and ease of doing mistake on a corporate tax return that can potentially business ranking” chapter in this profile. trigger an audit and good practices with administrative appeals process. This year’s Doing Business report presents a gender dimension in four of the indicator sets: starting a business, registering property, enforcing contracts and labor market regulation. Three of these areas are included in the distance to frontier score and in the ease of doing business ranking, while the fourth —labor market regulation—is not. Doing Business has traditionally assumed that the entrepreneurs or workers discussed in the case studies were men. This was incomplete by not reflecting correctly the Doing Business processes as applied to women—which in some economies may be different from the processes applied to men. Starting this year, Doing Business measures the starting a business process for two case scenarios: one where all entrepreneurs are men and one where all entrepreneurs are women. In economies where the processes are more onerous if the entrepreneur is a woman, Doing Business now counts the extra procedures applied to roughly half of the population that is female (for example, obtaining a husband’s consent or gender-specific requirements for opening a personal bank account when starting a business). Within the registering property indicators, a gender component has been added to the quality of land administration index. This component measures women’s ability to use, own, and transfer property according to the law. Finally, within the enforcing contracts indicator set, economies will be scored on Doing Business 2017 Sri Lanka 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: South Asia based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Lower middle income businesses through their life cycle. Economies are ranked from 1 to 190 by the ease of doing business ranking. Population: 20,966,000 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 3,800 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2017 rank: 110 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2016 rank: 109* 0 represents the worst performance and 100 the frontier. Change in rank: -1 (See the chapter on the distance to frontier and ease of doing business). DB 2017 DTF: 58.79 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2016 DTF: 58.14 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: 0.65 performance on each Doing Business indicator. When compared across years, the distance to frontier score * DB2016 ranking shown is not last year’s published shows how much the regulatory environment for local ranking but a comparable ranking for DB2016 that entrepreneurs in an economy has changed over time in captures the effects of such factors as data revisions absolute terms, while the ease of doing business ranking and the changes in methodology. See the data notes can show only how much the regulatory environment has starting on page 114 of the Doing Business 2017 changed relative to that in other economies. report for sources and definitions. The 10 topics included in the ranking in Doing Business 2017: 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 labor market regulation indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented in the economy profile. Doing Business 2017 Sri Lanka THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2017 Sri Lanka THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Sri Lanka and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2016 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2017 Sri Lanka 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Sri Lanka (Scale: Rank 190 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Sri Lanka (Scale: Score 0 center, Score 100 outer edge) Source: Doing Business database. Note: The rankings are benchmarked to June 2016 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Doing Business 2017 Sri Lanka 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier score. tells only part of the story, so do changes in that ranking. This measure shows how far on average an economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy on of changes in an economy’s regulatory environment for each Doing Business indicator. firms, but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed over time—how far it has moved toward (or away from) in different areas. To aid in assessing such changes, the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Sri Lanka come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator. Starting a business is comparable to 2010. Getting credit, protecting minority investors, paying taxes and resolving insolvency had methodology changes in 2014 and thus are only comparable to 2013. Dealing with construction permits, registering property, trading across borders, enforcing contracts and getting electricity had methodology changes in 2015 and thus are only comparable to 2014. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2017 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2017 Sri Lanka 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Sri Lanka Best performer globally Bangladesh DB2017 Sri Lanka DB2017 Sri Lanka DB2016 Maldives DB2017 Pakistan DB2017 Bhutan DB2017 Indicator Nepal DB2017 India DB2017 DB2017 Starting a Business 74 95 122 94 155 65 109 141 1 (New Zealand) (Rank) Starting a Business (DTF 87.52 84.98 81.74 85.59 74.31 88.98 83.77 77.88 99.96 (New Zealand) Score) Procedure – Men 7.0 8.0 9.0 8.0 12.9 6.0 7.0 12.0 1.0 (New Zealand) (number) Time – Men (days) 9.0 10.0 19.5 15.0 26.0 12.0 17.0 18.0 0.5 (New Zealand) Cost – Men (% of 12.2 18.7 13.8 3.8 13.8 5.2 26.1 12.4 0.0 (Slovenia) income per capita) Procedure – Women 7.0 8.0 9.0 8.0 12.9 6.0 7.0 12.0 1.0 (New Zealand) (number) Time – Women (days) 9.0 10.0 19.5 15.0 26.0 12.0 17.0 18.0 0.5 (New Zealand) Cost – Women (% of 12.2 18.7 13.8 3.8 13.8 5.2 26.1 12.4 0.0 (Slovenia) income per capita) Paid-in min. capital (% 0.0 0.0 0.0 0.0 0.0 1.9 0.0 0.0 0.0 (127 Economies*) of income per capita) Dealing with 88 83 138 97 185 62 123 150 1 (New Zealand) Construction Permits Doing Business 2017 Sri Lanka 12 Best performer globally Bangladesh DB2017 Sri Lanka DB2017 Sri Lanka DB2016 Maldives DB2017 Pakistan DB2017 Bhutan DB2017 Indicator Nepal DB2017 India DB2017 DB2017 (Rank) Dealing with Construction Permits 69.31 69.25 61.60 68.47 32.83 72.80 64.18 59.07 87.40 (New Zealand) (DTF Score) Procedures (number) 13.0 13.0 14.2 21.0 35.1 10.0 10.0 15.0 7.0 (4 Economies*) Time (days) 115.0 115.0 269.0 151.0 190.0 140.0 86.0 264.2 28.0 (Korea, Rep.) Cost (% of warehouse 0.1 (Trinidad and 0.4 0.4 2.7 1.2 25.9 0.5 13.2 7.0 value) Tobago) Building quality control 5.5 5.5 10.0 12.0 11.5 7.0 9.0 12.0 15.0 (Luxembourg*) index (0-15) Getting Electricity 86 82 187 54 26 145 131 170 1 (Korea, Rep.) (Rank) Getting Electricity (DTF 71.12 70.82 16.17 80.16 85.09 53.57 57.80 42.05 99.88 (Korea, Rep.) Score) Procedures (number) 5.0 5.0 9.0 4.0 5.0 6.0 5.0 5.3 3.0 (15 Economies*) Time (days) 100.0 100.0 428.9 61.0 45.9 91.0 70.0 180.7 18.0 (Korea, Rep.*) Cost (% of income per 732.1 829.5 2860.9 525.4 133.2 321.7 1042.1 1771.9 0.0 (Japan) capita) Reliability of supply and transparency of tariff 5.0 5.0 0.0 5.0 7.0 0.0 0.0 0.0 8.0 (26 Economies*) index (0-8) Registering Property 155 154 185 51 138 172 72 169 1 (New Zealand) (Rank) Registering Property 46.76 46.76 27.58 73.40 50.00 39.97 67.00 40.70 94.46 (New Zealand) (DTF Score) Procedures (number) 9.0 9.0 8.0 3.0 7.0 6.0 3.0 7.7 1.0 (4 Economies*) Doing Business 2017 Sri Lanka 13 Best performer globally Bangladesh DB2017 Sri Lanka DB2017 Sri Lanka DB2016 Maldives DB2017 Pakistan DB2017 Bhutan DB2017 Indicator Nepal DB2017 India DB2017 DB2017 Time (days) 51.0 51.0 244.0 77.0 46.8 57.0 5.0 154.8 1.0 (3 Economies*) Cost (% of property 5.1 5.1 7.0 5.0 7.7 15.9 4.8 4.6 0.0 (Saudi Arabia) value) Quality of the land administration index (0- 3.5 3.5 4.5 24.0 7.0 8.5 5.5 6.8 29.0 (Singapore) 30) Getting Credit (Rank) 118 109 157 82 44 133 139 82 1 (New Zealand) Getting Credit (DTF 40.00 40.00 25.00 50.00 65.00 35.00 30.00 50.00 100.00 (New Zealand) Score) Strength of legal rights 2.0 2.0 5.0 4.0 6.0 2.0 6.0 3.0 12.0 (3 Economies*) index (0-12) Depth of credit 6.0 6.0 0.0 6.0 7.0 5.0 0.0 7.0 8.0 (30 Economies*) information index (0-8) Credit registry coverage 0.0 0.0 0.9 0.0 0.0 22.6 0.0 9.4 100.0 (3 Economies*) (% of adults) Credit bureau coverage 57.2 50.3 0.0 26.0 21.4 0.0 1.8 5.8 100.0 (23 Economies*) (% of adults) Protecting Minority 42 51 70 114 13 123 63 27 1 (New Zealand*) Investors (Rank) Protecting Minority 63.33 60.00 56.67 48.33 73.33 45.00 58.33 66.67 83.33 (New Zealand*) Investors (DTF Score) Strength of minority investor protection 6.3 6.0 5.7 4.8 7.3 4.5 5.8 6.7 8.3 (New Zealand) index (0-10) Extent of conflict of interest regulation 6.7 6.0 6.3 4.7 6.7 5.3 5.3 6.0 9.3 (New Zealand) index (0-10) Extent of shareholder 6.0 6.0 5.0 5.0 8.0 3.7 6.3 7.3 8.3 (Norway) governance index (0- Doing Business 2017 Sri Lanka 14 Best performer globally Bangladesh DB2017 Sri Lanka DB2017 Sri Lanka DB2016 Maldives DB2017 Pakistan DB2017 Bhutan DB2017 Indicator Nepal DB2017 India DB2017 DB2017 10) 1 (United Arab Paying Taxes (Rank) 158 157 151 19 172 134 142 156 Emirates) Paying Taxes (DTF 99.44 (United Arab 53.16 53.18 55.56 88.11 46.58 60.02 58.05 53.4 Score) Emirates) Payments (number per 3.0 (Hong Kong SAR, 47.0 47.0 33.0 18.0 25.0 30.0 34.0 47.0 year) China*) Time (hours per year) 179.0 179.0 435.0 85.0 241.0 405.5 339.0 311.5 55.0 (Luxembourg) Total tax rate (% of 55.2 55.2 34.4 35.3 60.6 30.2 29.5 33.3 26.1 (32 Economies*) profit) Postfiling index (0-100) 48.9 96.0 45.9 33.5 98.5 (Estonia) Trading across Borders 90 89 173 26 143 147 69 172 1 (10 Economies*) (Rank) Trading across Borders 100.00 (10 70.70 70.70 34.86 94.25 57.61 55.87 79.75 39.41 (DTF Score) Economies*) Time to export: Border 43 43 100 5 106 42 56 75 0 (18 Economies*) compliance (hours) Cost to export: Border 366 366 408 59 413 596 288 426 0 (18 Economies*) compliance (USD) Time to export: Documentary 76 76 147 9 38 48 19 59 1 (25 Economies*) compliance (hours) Cost to export: Documentary 58 58 225 50 92 300 85 307 0 (19 Economies*) compliance (USD) Time to import: Border 72 72 183 5 283 100 61 129 0 (25 Economies*) compliance (hours) Doing Business 2017 Sri Lanka 15 Best performer globally Bangladesh DB2017 Sri Lanka DB2017 Sri Lanka DB2016 Maldives DB2017 Pakistan DB2017 Bhutan DB2017 Indicator Nepal DB2017 India DB2017 DB2017 Cost to import: Border 300 300 1294 110 574 981 190 957 0 (28 Economies*) compliance (USD) Time to import: Documentary 58 58 144 8 61 61 48 147 1 (29 Economies*) compliance (hours) Cost to import: Documentary 283 283 370 50 135 180 80 786 0 (30 Economies*) compliance (USD) Enforcing Contracts 163 163 189 47 172 105 152 157 1 (Korea, Rep.) (Rank) Enforcing Contracts 39.31 39.31 22.21 65.36 35.19 55.07 45.26 43.49 84.15 (Korea, Rep.) (DTF Score) Time (days) 1318.0 1318.0 1442.0 225.0 1420.0 760.0 910.0 1071.2 164.0 (Singapore) Cost (% of claim) 22.8 22.8 66.8 23.1 39.6 16.5 26.8 20.5 9.0 (Iceland) Quality of judicial 7.5 7.5 7.5 5.5 9.0 6.5 5.5 5.7 15.5 (Australia) processes index (0-18) Resolving Insolvency 75 76 151 169 136 135 89 85 1 (Finland) (Rank) Resolving Insolvency 46.73 46.40 27.02 0.00 32.75 33.14 44.64 45.01 93.89 (Finland) (DTF Score) Recovery rate (cents on 46.2 45.6 27.0 0.0 26.0 50.0 42.3 43.0 92.9 (Norway) the dollar) no Time (years) 1.7 1.7 4.0 4.3 1.5 2.0 2.6 0.4 (22 Economies*) practice no Cost (% of estate) 10.0 10.0 8.0 9.0 4.0 9.0 4.0 1.0 (22 Economies*) practice Strength of insolvency 7.0 7.0 4.0 0.0 6.0 2.0 7.0 7.0 15.0 (6 Economies*) framework index (0-16) Source: Doing Business database. Doing Business 2017 Sri Lanka 16 Note: DB2016 rankings shown are not last year’s published rankings but comparable rankings for DB2016 that capture the effects of such factors as data revisions and changes to the methodology. The global best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2017 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy a t the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Doing Business 2017 Sri Lanka 17 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Obtaining approval from spouse to start a generating more revenue for the government. business, to leave the home to register the company or open a bank account. What do the indicators cover? Obtaining any gender specific document for Doing Business records all procedures officially company registration and operation, national required, or commonly done in practice, for an identification card or opening a bank entrepreneur to start up and formally operate an account. industrial or commercial business, as well as the time and cost to complete these procedures and the paid- Time required to complete each procedure in minimum capital requirement. These procedures (calendar days) include obtaining all necessary licenses and permits Does not include time spent gathering and completing any required notifications, information verifications or inscriptions for the company and employees with relevant authorities. The ranking of Each procedure starts on a separate day (2 economies on the ease of starting a business is procedures cannot start on the same day). determined by sorting their distance to frontier Procedures that can be fully completed scores for starting a business. These scores are the online are recorded as ½ day. simple average of the distance to frontier scores for Procedure completed once final document is each of the component indicators. received To make the data comparable across economies, No prior contact with officials several assumptions about the business and the procedures are used. It is assumed that any required Cost required to complete each procedure information is readily available and that the (% of income per capita) entrepreneur will pay no bribes. Assumptions about Official costs only, no bribes the business: No professional fees unless services required  Is a limited liability company (or its legal by law or commonly used in practice equivalent). If there is more than one type of limited liability company in the economy, the Paid-in minimum capital (% of income limited liability form most common among per capita) domestic firms is chosen. Information on the Deposited in a bank or with a notary before most common form is obtained from registration (or within 3 months) incorporation lawyers or the statistical office.  Operates in the economy’s largest business city.  The size of the entire office space is For 11 economies the data are also collected for the second largest business city. approximately 929 square meters (10,000 square feet). Doing Business 2017 Sri Lanka 18  Is 100% domestically owned and has five owners,  Does not qualify for investment incentives or none of whom is a legal entity. any special benefits.  Has start-up capital of 10 times income per  Has at least 10 and up to 50 employees one capita month after the commencement of operations, all of them domestic nationals.  Performs general industrial or commercial activities, such as the production or sale to the  Has a turnover of at least 100 times income per public of products or services. The business does capita. not perform foreign trade activities and does not  Has a company deed 10 pages long handle products subject to a special tax regime, for example, liquor or tobacco. It is not using The owners: heavily polluting production processes.  Have reached the legal age of majority and are  Leases the commercial plant or offices and is not capable of making decisions as an adult. If a proprietor of real estate. there is no legal age of majority, they are assumed to be 30 years old.  The amount of the annual lease for the office space is equivalent to 1 times income per capita.  Are sane, competent, in good health and have no criminal record.  Are married, the marriage is monogamous and registered with the authorities.  Where the answer differs according to the legal system applicable to the woman or man in question (as may be the case in economies where there is legal plurality), the answer used will be the one that applies to the majority of the population. Doing Business 2017 Sri Lanka 19 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Sri Lanka? 2.1) is legally mandatory for both men and women. Most According to data collected by Doing Business, starting a indicator sets refer to a case scenario in the largest business there requires 7.0 procedures , takes 9.0 days, business city of an economy, except for 11 economies for costs 12.2% of income per capita for men, and requires which the data are a population-weighted average of the 7.0 procedures , takes 9.0 days, costs 12.2% of income 2 largest business cities. See the chapter on distance to per capita for women. A requirement of paid-in frontier and ease of doing business ranking at the end of minimum capital of 0.0% of income per capita (figure this profile for more details. Figure 2.1 What it takes to start a business in Sri Lanka Paid-in minimum capital (% of income per capita): 0.0 Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Procedures in light blue for married women only. Doing Business 2017 Sri Lanka 20 STARTING A BUSINESS Globally, Sri Lanka stands at 74 in the ranking of 190 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in Sri Lanka The rankings for comparator economies and the regional to start a business. Figure 2.2 How Sri Lanka and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2017 Sri Lanka 21 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Sri Lanka (table 2.1)? Table 2.1 How has Sri Lanka made starting a business easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Sri Lanka made starting a business easier by computerizing DB2013 and expediting the process of obtaining a registration number for the Employees Provident Fund and Employees Trust Fund. Sri Lanka made starting a business easier by eliminating the DB2016 requirement to notify the Registrar of Companies of the payment of stamp duty for the initial issuance of shares. Sri Lanka made starting a business easier by removing the DB2017 stamp duty on newly issued shares. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Sri Lanka 22 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for Sri STANDARDIZED COMPANY Lanka is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Private Limited Liability Company firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid-in minimum capital requirement: LKR 0 the study of laws, regulations and publicly available City: Colombo information on business entry in that economy. Following is a detailed summary of those procedures, Start-up Capital: 10 times GNI per capita along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Sri Lanka Time to No. Procedure Cost to complete complete Reserve a unique company name Searching for a unique company name can be done online via the website of the Department of the Registrar of Companies LKR 1,000 + 11% 1 (www.drc.gov.lk). The company name reservation is valid for 3 months. 2 days VAT Agency: Registry of Companies The company secretary and director sign a consent According to Article 221(1) of the Companies Act No. 7 of 2007, every company shall have a director and a secretary. The Company Secretary must be hired before incorporation because one of the requirements to incorporate is a consent form that the Company Secretary must sign saying he/she will be the secretary for the newly formed company -- Form 19: Company Secretary Details. The company director must sign Form 18: Company Director Details. see procedure 2 1 day details There is no specific fee schedule. The fees vary from firm to firm, and are generally based on a quarterly retainer. The quarterly charges in the region vary between of USD$ 100 - 150 for private companies but some firms may charge up to USD 1000 annual fee for acting as a Company Secretary. LKR 10,000-15,000 is usually paid per month, so per quarter the amount ranges between LKR 30,000 - 45,000. Agency: Company Secretary Doing Business 2017 Sri Lanka 23 Time to No. Procedure Cost to complete complete Register at the Department of the Registrar of Companies The company must submit the following documents to the Department of the Registrar of Companies: • Form 1 – Registration of a company • Form 18 – Consent and certificate of director • Form 19 – Consent and certificate of secretary • Two copies of Articles of Association A company may either adopt the standard set of Articles of Association LKR 15,000 as the in Table A of the Companies Act of Sri Lanka or draft its own Articles of registration fee for Association. Professional charges are higher for drafting new Articles of Form 1 LKR 1000 Association than for adopting the standard text. plus 11% VAT 3 2 days charged for each According to the new Companies Act, notaries are no longer required Form 18, 19 and the to witness the signing of the articles of association, the common seal is Articles of no longer required, and the company no longer needs to notify the registrar regarding the particulars of the Principal Directors and the Association location of the registered office within 14 days of incorporation. Registrar of Companies charges a flat fee of LKR 15,000 for Form 1, and LKR 1,000 for Forms 18 and 19 and the Articles of Association, with total subject to 11% VAT. The Certificate of Incorporation is typically received in about 3 days. Agency: Registry of Companies Give public notice of incorporation According to Section 9 of Sri Lanka’s Companies Act No. 7 of 2007 and section 3(a) of the Gazette Notice No. 1566/32 dated 12/09.2008 public notice must be given within 60 days of the incorporation of a company. The notice of incorporation specifying the name of the company, registration number, date of incorporation, and address of the registered office should be published in the Government Gazette and in any daily newspaper in three languages: English, Sinhala and Tamil. The proof of publication should then be filed with the Registrar of 3 days LKR 7,000 4 Companies. The newspaper publications once handed over with the payment which depends on the size of the Notice, will appear within 3- 4 days. The publication in the Gazette will appear within 2 weeks of submitting the request with the payment. The Registrar of Companies accepts a copy of the receipt issued by the Government Printer as proof of publication. Agency: Daily Newspapers and Government Publication Bureau Register with the tax authorities and obtain a Tax Identification Number (TIN) from Taxpayer Services Unit of Inland Revenue 1 day *5 Department (simultaneous with no charge procedure 4) The applicant or an authorized representative of the applicant must be Doing Business 2017 Sri Lanka 24 Time to No. Procedure Cost to complete complete physically present at the Taxpayer Services Unit of Inland Revenue Department to pick up and complete the application for a Taxpayer Identification Number (TIN) number with supporting documents including a copy of Form 1, Certificate of Incorporation and Articles of Association. Agency: Inland Revenue Department Register for VAT with the Inland Revenue Department VAT Registration Branch To obtain permanent VAT registration, the applicant must submit documents proving turnover of LKR 3,750,000 per quarter or LKR 1 day 15,000,000 per year according to the Value Added Tax Act No. 14 of (simultaneous with *6 no charge 2002. On 1st January 2015 the general rate of VAT was reduced to 11%, previous from previous 12%. procedure) Agency: Inland Revenue Department Register with the Department of Labor and obtain the EPF number Companies must register with the Department of Labor to obtain the Employees Provident Fund (EPF) registration number. The fund is a government-owned and maintained by the Central Bank. No separate registration is required to register with the Employees Trust Fund (ETF). ETF uses the same EPF number for their monthly contributions. Companies must also pay gratuities to employees that have been 1 day *7 employed for more than 5 years. The gratuity provisions do not apply (simultaneous with no charge to companies that have fewer than 15 employees. There is no pension procedure 4) scheme for private sector employees. Businesses that engage in activities of a dangerous nature should obtain special Factories Ordinance checkups. Agency: Department of Labour and the Central Bank of Sri Lanka * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Procedures in light blue for married women only. Doing Business 2017 Sri Lanka 25 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records all procedures required for a Obtaining utility connections for water and business in the construction industry to build a sewerage warehouse along with the time and cost to complete Registering and selling the warehouse after its each procedure. In addition, the building quality completion control index evaluates the quality of building Time required to complete each procedure regulations, the strength of quality control and safety (calendar days) mechanisms, liability and insurance regimes, and professional certification requirements. Does not include time spent gathering information The ranking of economies on the ease of dealing with construction permits is determined by sorting their Each procedure starts on a separate day— though procedures that can be fully distance to frontier scores for dealing with completed online are an exception to this rule construction permits. These scores are the simple average of the distance to frontier scores for each of Procedure considered completed once final the component indicators. document is received To make the data comparable across economies, No prior contact with officials several assumptions about the construction Cost required to complete each procedure (% company, the warehouse project and the utility of warehouse value) connections are used. Official costs only, no bribes Assumptions about the construction company Building quality control index (0-15) The construction company (BuildCo): Sum of the scores of six component indices:  Is a limited liability company (or its legal Quality of building regulations (0-2) equivalent). Quality control before construction (0-1)  Operates in the economy’s largest business city. For 11 economies the data are also collected for Quality control during construction (0-3) the second largest business city. Quality control after construction (0-3)  Is 100% domestically and privately owned. Liability and insurance regimes (0-2)  Has five owners, none of whom is a legal entity. Professional certifications (0-4)  Is fully licensed and insured to carry out construction projects, such as building warehouses.  Has 60 builders and other employees, all of them nationals with the technical expertise and Doing Business 2017 Sri Lanka 26 professional experience necessary to obtain  Is valued at 50 times income per capita. construction permits and approvals.  Will be a new construction (there was no previous  Has a licensed architect and a licensed engineer, construction on the land), with no trees, natural both registered with the local association of water sources, natural reserves or historical architects or engineers. BuildCo is not assumed monuments of any kind on the plot. to have any other employees who are technical  Will have complete architectural and technical plans or licensed experts, such as geological or prepared by a licensed architect. If preparation of topographical experts. the plans requires such steps as obtaining further  Has paid all taxes and taken out all necessary documentation or getting prior approvals from insurance applicable to its general business external agencies, these are counted as procedures. activity (for example, accidental insurance for  Will include all technical equipment required to be construction workers and third-person liability). fully operational.  Owns the land on which the warehouse will be  Will take 30 weeks to construct (excluding all delays built and will sell the warehouse upon its due to administrative and regulatory requirements). completion. Assumptions about the warehouse Assumptions about the utility connections The warehouse: The water and sewerage connections:  Will be used for general storage activities, such as storage of books or stationery. The warehouse  Will be 150 meters (492 feet) from the existing will not be used for any goods requiring special water source and sewer tap. If there is no water conditions, such as food, chemicals or delivery infrastructure in the economy, a borehole pharmaceuticals. will be dug. If there is no sewerage infrastructure, a septic tank in the smallest size available will be  Will have two stories, both above ground, with a installed or built. total constructed area of approximately 1,300.6 square meters (14,000 square feet). Each floor  Will not require water for fire protection reasons; a will be 3 meters (9 feet, 10 inches) high. fire extinguishing system (dry system) will be used instead. If a wet fire protection system is required  Will have road access and be located in the by law, it is assumed that the water demand periurban area of the economy’s largest business specified below also covers the water needed for city (that is, on the fringes of the city but still fire protection. within its official limits). For 11 economies the data are also collected for the second largest  Will have an average water use of 662 liters (175 business city. gallons) a day and an average wastewater flow of 568 liters (150 gallons) a day. Will have a peak  Will not be located in a special economic or water use of 1,325 liters (350 gallons) a day and a industrial zone. peak wastewater flow of 1,136 liters (300 gallons) a  Will be located on a land plot of approximately day. 929 square meters (10,000 square feet) that is  Will have a constant level of water demand and 100% owned by BuildCo and is accurately wastewater flow throughout the year. registered in the cadastre and land registry.  Will be 1 inch in diameter for the water connection and 4 inches in diameter for the sewerage connection. Doing Business 2017 Sri Lanka 27 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build an economy, except for 11 economies for which the data a warehouse in Sri Lanka? According to data collected by are a population-weighted average of the 2 largest Doing Business, dealing with construction permits there business cities. See the chapter on distance to frontier requires 13.0 procedures, takes 115.0 days and costs and ease of doing business ranking at the end of this 0.4% of the warehouse value (figure 3.1). Most indicator profile for more details. sets refer to a case scenario in the largest business city of Figure 3.1 What it takes to comply with formalities to build a warehouse in Sri Lanka Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. . Doing Business 2017 Sri Lanka 28 DEALING WITH CONSTRUCTION PERMITS Globally, Sri Lanka stands at 88 in the ranking of 190 other useful information for assessing how easy it is for economies on the ease of dealing with construction an entrepreneur in Sri Lanka to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How Sri Lanka and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2017 Sri Lanka 29 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in Sri Lanka (table 3.1)? Table 3.1 How has Sri Lanka made dealing with construction permits easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Sri Lanka made dealing with construction permits easier by DB2014 eliminating the requirement to obtain a tax clearance and by reducing building permit fees. Sri Lanka made dealing with construction permits less time- DB2016 consuming by streamlining the internal review process for building permit applications. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Sri Lanka 30 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Sri Lanka are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated value of information collected from experts in construction LKR 26,094,886 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Colombo service providers and public officials who deal with building regulations. These procedures are those that apply to a company and structure matching the The procedures, along with the associated time and cost, standard assumptions used by Doing Business in are summarized below. collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Sri Lanka Time to No. Procedure Cost to complete complete Request and obtain a proof of ownership from the Colombo Municipal Council It is mandatory to obtain and submit a proof of ownership when applying for a building permit. The lawyer completes the application form and apply for a proof of ownership at the 14 days LKR 1,100 1 Colombo Municipal Council – Municipal Assessor. This proof of ownership must not be more than 6 months old. Agency: Colombo Municipal Council Receive on-site inspection from Fire Service Department and obtain fire safety clearance for proposed building The Fire Service Department will carry out the inspection when the relevant department of the CMC sends the plan. The Fire Officers of the Fire Service Department will carry out a study of *2 the plan and then may conduct a fire inspection and issue fire 14 days no charge safety clearance. It takes 10 working days to obtain a fire inspection. Agency: Fire Service Department of the CMC Request and receive water sanction inspection and sewage inspection The following documents must be submitted to obtain a drainage certificate: 1 day LKR 204 *3 • The prescribed application form, signed in duplicate • Six copies of the approved building plan • The water and drainage plans • Two copies of the building permit • A copy of the water sanction Doing Business 2017 Sri Lanka 31 Time to No. Procedure Cost to complete complete All applications for drainage certificates must be submitted by a contractor registered with the local authority, and the drainage connection should be carried out by such contractor. Agency: Water and Drainage Department of the CMC Obtain the water sanction and the drainage certificate from Water and Drainage Department of the Municipal Council of Colombo (CMC) LKR 1.50 per sq. ft. + VAT (excluded for the purposes of Doing 7 days LKR 21,420 4 Business) + 2% of NBT Agency: Water and Drainage Department of the CMC Submit building permit application to Municipal Council of Colombo (CMC) Once the proof of ownership has been obtained, BuildCo, can submit the application to obtain a building permit along with all the building plans and other documents. 1 day no charge 5 The Colombo Municipal Council will proceed with a site inspection to verify the location. Agency: Municipal Council of Colombo (CMC) Receive on-site inspection from Municipal Council of Colombo (CMC) The applicant normally provides transportation or is responsible for the cost of a taxi or a trishaw. The cost depends on the 1 day no charge 6 location, but does not normally exceed USD 10.00. Agency: Municipal Council of Colombo (CMC) Obtain building permit from Municipal Council of Colombo (CMC) An application for a building permit must be submitted along with five copies of the building plan. The following are the internal steps involved in the issuance of the building permit: • The Water Supply and Drainage Department of the Municipal 7 Council of Colombo (CMC) marks the drainage (no longer 14 days LKR 38,150 applicable; water lines and supply related work transferred to Water Supply and Drainage Board) on the proposed plan and issues the drainage clearance • The Fire Service Department of the CMC issues the fire report with or without conditions • The Building Department of the CMC issues the street line certification. An on-site inspection is conducted by an area Doing Business 2017 Sri Lanka 32 Time to No. Procedure Cost to complete complete inspector of the CMC and a report is prepared based on the investigations. • The Area Inspector’s report is assessed by an Officer in Charge, Planning Officer or Building Engineer, and presented to the Planning Committee with comments and recommendations • The Planning Committee may approve the building plan and grant the development permit with or without conditions • The street/building lines must be demarcated on the ground, before the commencement of construction The building permit application form costs LKR 150.00. If the floor area is more than 3,500 square feet, the application should be certified by an architect and a chartered engineer. The following documents are needed: • A certificate from a qualified civil structural engineer regarding the design, supervision, and structural stability of the proposed development in order to ensure that no damage would be caused to adjoining properties • An insurance policy and a letter of indemnity Agency: Municipal Council of Colombo (CMC) Request and receive on-site inspection by fire inspector of Fire Service Department of CMC *8 1 day no charge Agency: Fire Service Department of the CMC Request and receive final inspection by Area Inspector of the Planning Department of the Municipal Council of Colombo (CMC) 9 1 day no charge Agency: Planning Division of the CMC Obtain certificate of conformity from Municipal Council of Colombo The application to obtain a certificate of conformity must be signed by the owner(s) and a qualified person. The certificate of conformity is issued only under the names of the owners. To obtain a certificate of conformity, an application must be 42 days LKR 699 10 submitted with the following documents: • Water sanction • Drainage certificate • Approved building plan: the building plan should be strictly in compliance with the Building Regulations of the Urban Development Authority Act • On-site inspection by an Area Inspector of the Planning Doing Business 2017 Sri Lanka 33 Time to No. Procedure Cost to complete complete Department of the CMC to ensure that construction has been completed according to the approved plan • On-site inspection by a fire inspector. The inspector’s report is then assessed by a technical staff assistant and by an Officer in Charge, Planning Officer or Building Engineer, and presented to the Planning Committee • A certificate approving the mechanical ventilation system by private air-conditioning engineers (working for AC suppliers) • Any other certificates mentioned in the building permit Agency: Municipality Apply for water connection from National Water Supply and Drainage Board To obtain the water connection, BuildCo must submit an application to the National Water Supply and Drainage Board, an assessment notice, the title deed and an ownership certificate. 1 day no charge 11 After that, BuildCo receives an on-site inspection, pays the water installation costs, and signs an agreement with the Board. Agency: National Water Supply and Drainage Board Receive on-site inspection by inspector from National Water Supply and Drainage Board 12 1 day no charge Agency: National Water Supply and Drainage Board Obtain water connection 13 32 days LKR 31,000 Agency: National Water Supply and Drainage Board * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2017 Sri Lanka 34 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index The building quality control index is the sum of the The index ranges from 0 to 15, with higher values scores on the quality of building regulations, quality indicating better quality control and safety mechanisms in control before construction, quality control during the construction permitting system. construction, quality control after construction, The indicator is based on the same case study liability and insurance regimes, and professional assumptions as the measures of efficiency. certifications indices. Table 3.3 Summary of quality control and safety mechanisms in Sri Lanka Answer Score Building quality control index (0-15) 5.5 Which third-party entities are required by law to verify that the Civil servant reviews building plans are in compliance with existing building plans. regulations? (0-1) Quality of building regulations index (0-2) 1.5 Free of charge; In How accessible are building laws and regulations in your official gazette; Not 0.5 economy? (0-1) easily accessible. List of required Which requirements for obtaining a building permit are clearly documents; Fees to be specified in the building regulations or on any accessible website, 1.0 paid; Required brochure or pamphlet? (0-1) preapprovals. Quality control before construction index (0-1) 0.0 Which third-party entities are required by law to verify that the Civil servant reviews building plans are in compliance with existing building 0.0 plans. regulations? (0-1) Quality control during construction index (0-3) 1.0 What types of inspections (if any) are required by law to be Inspections by in-house 1.0 carried out during construction? (0-2) engineer. Mandatory inspections Do legally mandated inspections occur in practice during are not always done in 0.0 construction? (0-1) practice during construction. Quality control after construction index (0-3) 3.0 Is there a final inspection required by law to verify that the Yes, final inspection is building was built in accordance with the approved plans and done by government 2.0 regulations? (0-2) agency. Final inspection always Do legally mandated final inspections occur in practice? (0-1) 1.0 occurs in practice. Liability and insurance regimes index (0-2) 0.0 Which parties (if any) are held liable by law for structural flaws or No party is held liable 0.0 problems in the building once it is in use (Latent Defect Liability under the law. Doing Business 2017 Sri Lanka 35 Answer Score or Decennial Liability)? (0-1) Which parties (if any) are required by law to obtain an insurance No party is required by policy to cover possible structural flaws or problems in the law to obtain insurance 0.0 building once it is in use (Latent Defect Liability Insurance or . Decennial Insurance)? (0-1) Professional certifications index (0-4) 0.0 What are the qualification requirements for the professional Being a registered responsible for verifying that the architectural plans or drawings 0.0 architect or engineer. are in compliance with existing building regulations? (0-2) What are the qualification requirements for the professional who Being a registered 0.0 supervises the construction on the ground? (0-2) architect or engineer. Source: Doing Business database. Doing Business 2017 Sri Lanka 36 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity connection a customer is always to gain access by obtaining a (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, Obtaining external installation works and as well as the time and cost to complete them. These possibly purchasing material for these works procedures include applications and contracts with Concluding any necessary supply contract and electricity utilities, clearances from other agencies obtaining final supply and the external and final connection works. In addition, Doing Business also measures the reliability Time required to complete each procedure of supply and transparency of tariffs index (included (calendar days) in the aggregate distance to frontier score and Is at least 1 calendar day ranking on the ease of doing business) and the price Each procedure starts on a separate day of electricity (omitted from these aggregate measures). The ranking of economies on the ease of Does not include time spent gathering getting electricity is determined by sorting their information distance to frontier scores for getting electricity. Reflects the time spent in practice, with little These scores are the simple average of the distance follow-up and no prior contact with officials to frontier scores for each of the component Cost required to complete each procedure (% indicators. To make the data comparable across of income per capita) economies, several assumptions are used. Official costs only, no bribes Assumptions about the warehouse Excludes value added tax The warehouse: The reliability of supply and transparency of  Is owned by a local entrepreneur. tariffs index  Is located in the economy’s largest business city. Sum of the scores of six component indices: For 11 economies the data are also collected for Duration and frequency of outages the second largest business city. Tools to monitor power outages  Is located in an area where similar warehouses Tools to restore power supply are typically located. In this area a new electricity connection is not eligible for a special investment Regulatory monitoring of utilities’ performance promotion regime (offering special subsidization Financial deterrents aimed at limiting outages or faster service, for example). Transparency and accessibility of tariffs  Is located in an area with no physical constraints. Price of electricity (cents per kilowatt-hour)* For example, the property is not near a railway. Price based on monthly bill for commercial  Is a new construction and is being connected to warehouse in case study electricity for the first time. *Price of electricity is not included in the calculation of distance to frontier nor ease of doing business ranking Doing Business 2017 Sri Lanka 37 The warehouse (continued): Assumptions about the monthly consumption  Has two stories, both above ground, with a total  It is assumed that the warehouse operates 30 days surface area of approximately 1,300.6 square a month from 9:00 a.m. to 5:00 p.m. (8 hours a day), meters (14,000 square feet). The plot of land on with equipment utilized at 80% of capacity on which it is built is 929 square meters (10,000 average and that there are no electricity cuts square feet). (assumed for simplicity reasons).  Is used for storage of goods.  The monthly energy consumption is 26,880 kilowatt-hours (kWh); hourly consumption is 112 Assumptions about the electricity connection kWh. The electricity connection:  If multiple electricity suppliers exist, the warehouse  Is a permanent one. is served by the cheapest supplier.  Is a three-phase, four-wire Y connection with a  Tariffs effective in March of the current year are subscribed capacity of 140-kilo-volt-ampere used for calculation of the price of electricity for the (kVA) with a power factor of 1, when 1 kVA = 1 warehouse. Although March has 31 days, for kilowatt (kW). calculation purposes only 30 days are used.  Has a length of 150 meters. The connection is to either the low- or medium-voltage distribution network and is either overhead or underground, whichever is more common in the area where the warehouse is located  Requires works that involve the crossing of a 10- meter road (such as by excavation or overhead lines) but are all carried out on public land. There is no crossing of other owners’ private property because the warehouse has access to a road.  Includes only a negligible length in the customer’s private domain.  Does not require work to install the internal wiring of the warehouse. This has already been completed up to and including the customer’s service panel or switchboard and the meter base. Doing Business 2017 Sri Lanka 38 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Sri Lanka? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 5.0 procedures, which the data are a population-weighted average of the takes 100.0 days and costs 732.1% of income per capita 2 largest business cities. See the chapter on distance to (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Sri Lanka Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2017 Sri Lanka 39 GETTING ELECTRICITY Globally, Sri Lanka stands at 86 in the ranking of 190 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Sri Lanka to connect The rankings for comparator economies and the regional a warehouse to electricity. Figure 4.2 How Sri Lanka and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2017 Sri Lanka 40 GETTING ELECTRICITY Obtaining an electricity connection is essential to enable ensure safety in the connection process while keeping a business to conduct its most basic operations. In many connection costs reasonable, governments around the economies the connection process is complicated by the world have worked to consolidate requirements for multiple laws and regulations involved—covering service obtaining an electricity connection. What reforms in quality, general safety, technical standards, procurement getting electricity has Doing Business recorded in Sri practices and internal wiring installations. In an effort to Lanka (table 4.1)? Table 4.1 How has Sri Lanka made getting electricity easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Sri Lanka made getting electricity easier by improving the DB2014 utility’s internal workflow and by reducing the time required to process new applications for connections. Source: Doing Business database. Doing Business 2017 Sri Lanka 41 GETTING ELECTRICITY What are the details? The indicators reported here for Sri Lanka are based on a OBTAINING AN ELECTRICITY CONNECTION* set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Name of utility: Ceylon Electricity Board identified by Doing Business. Data are collected from the distribution utility, then completed and verified by Price of electricity electricity regulatory agencies and independent (US cents per kWh): 20.1 professionals such as electrical engineers, electrical contractors and construction companies. The electricity City: Colombo distribution utility surveyed is the one serving the area (or areas) in which warehouses are located. If there is a *Price is calculated as a monthly consumption of 26,880 kWh choice of distribution utilities, the one serving the largest for business customers, based on a standardized case study number of customers is selected. adopted by the getting electricity methodology. Doing Business measures the price of electricity but does not include these The procedures are those that apply to a warehouse and data when calculating the distance to frontier score for getting electricity connection matching the standard electricity or the ranking on the ease of getting electricity. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Sri Lanka Time to No. Procedure Cost to complete complete Submit application to Ceylon Electricity Board and await external site inspection An application should be submitted to the City Office of Ceylon Electricity Board, together with the following documents. These documents need not be notarized. (i) A copy of the approved Building Plan; (ii) Documentary evidence to establish the street address/assessment number allotted to the property by the Colombo 1 Municipal Council (e.g. - Certificate of ownership, Statutory Notice of 4 calendar days LKR 2,000 Assessment for the current year, Non-vesting certificate or a letter issued by the CMC); and (iii) a copy of the certificate of incorporation to identify the customer. Once the documents are checked and accepted, the applicant is provided with an appointment for the site visit. Agency: Ceylon Electricity Board Receive site inspection and estimate from Ceylon Electricity Board CEB officials make site visit to ascertain the possible route/s for the 25 calendar days LKR 0 2 connection cable/s, length/s of possible rout/e, point/s of connection to the medium voltage network of Colombo City; as well as to decide upon the network improvements required to make available the power Doing Business 2017 Sri Lanka 42 Time to No. Procedure Cost to complete complete capacity at the proposed point/s of network of network, to finalize the substation kiosk location and to make measurements and any other details for the kiosk. CEB officials then design the proposal for the connection and the detailed design of the substation kiosk. The quotation provided by CEB includes a) all further costs payable to CEB; b) any other requirements to be fulfilled such as Chartered Engineer’s certificate and the specifications and the drawing of the kiosk is sent out to the applicant by post or handed over if he calls over to collect it. Agency: Ceylon Electricity Board Request and receive installation test certificate from chartered electrical engineer Applicant has to pay for the Charted Electrical Engineers as follows; > 150kVA - LKR 10,000 - 15,000 < 150kVA - LKR 15,000 - 25,000 *3 This inspection is carried out by a Chartered Electrical Engineer, who is 1 calendar day LKR 15,000 registered with the City Office of CEB. Request for the inspection could be made by phone. Agency: Chartered Electrical Engineer Obtain excavation permit Ceylon Electricity Board gives the customer an excavation sketch which needs to be provided by the customer to Central Road Maintenance Unit (CRMU) of the Colombo Municipal Council. The CRMU will examine the same and if necessary visit the site and provide an estimated reinstatement cost which will be the cost of the excavation permit. 4 8 calendar days LKR 457,025 The cost of the excavation permit will depend on the type of paving on the road or foot path that has to be excavated to lay the underground cabling and that must be therefore reinstated. Agency: Colombo Municipal Council Ceylon Electricity Board carries out laying of cables, installation of switchgears and equipment and commission of electricity 5 63 calendar days LKR 3,346,659.12 Once the estimate is paid, the utility applies for the road excavation permit from the Colombo Municipal Council/Road Development Authority. Labor costs are charged by the RDA/CMC for reinstatement of excavation. Construction cost is essentially for construction of sub- Doing Business 2017 Sri Lanka 43 Time to No. Procedure Cost to complete complete station. This amount has to be submitted to the CEB. Approved building plan from CMC is sufficient from applicant's side. But CEB has to get approval from following institutes (before cable laying);- Presidential Security Division; Traffic Police; Sri Lanka Police; Colombo Municipal Council. All the material needed for the external connection is provided by the CEB. Meter is installed by the Construction Unit of the CEB and at the same time the connection is provided by the Area Unit of the CEB. Prior to the connection, the applicant should enter into an Agreement with the CEB for supply of electricity. Agency: Ceylon Electricity Board * Takes place simultaneously with previous procedure. Source: Doing Business database. Doing Business 2017 Sri Lanka 44 GETTING ELECTRICITY Reliability of supply and transparency of tariffs index The reliability of supply and transparency of tariffs Doing Business uses the system average interruption index encompasses quantitative data on the duration duration index (SAIDI) and the system average and frequency of power outages as well as interruption frequency index (SAIFI) to measure the qualitative information on the mechanisms put in duration and frequency of power outages in the largest place by the utility for monitoring power outages business city of each economy (for 11 economies the data and restoring power supply, the reporting are also collected for the second largest business city). relationship between the utility and the regulator for SAIDI is the average total duration of outages over the power outages, the transparency and accessibility of course of a year for each customer served, while SAIFI is tariffs and whether the utility faces a financial the average number of service interruptions experienced deterrent aimed at limiting outages (such as a by a customer in a year. Annual data (covering the requirement to compensate customers or pay fines calendar year) are collected from distribution utility when outages exceed a certain cap). companies and national regulators on SAIDI and SAIFI. Both SAIDI and SAIFI estimates include load shedding. The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Table 4.3 Reliability of Supply and Transparency of Tariff Index in Sri Lanka Answer Score Reliability of supply and transparency of tariff index (0-8) 5.0 Total duration and frequency of outages per customer a year (0-3) 2.0 System average interruption duration index (SAIDI) 2.8 System average interruption frequency index (SAIFI) 2.7 Mechanisms for monitoring outages (0-1) 0.0 Does the distribution utility use automated tools to monitor outages? No Mechanisms for restoring service (0-1) 1.0 Does the distribution utility use automated tools to restore service? Yes Regulatory monitoring (0-1) 1.0 Does a regulator—that is, an entity separate from the utility—monitor Yes the utility’s performance on reliability of supply? Financial deterrents aimed at limiting outages (0-1) 0.0 Does the utility either pay compensation to customers or face fines by No the regulator (or both) if outages exceed a certain cap? Communication of tariffs and tariff changes (0-1) 1.0 Are effective tariffs available online? Yes Link to the website, if available online http://www.ceb.lk Doing Business 2017 Sri Lanka 45 Answer Score /sub/business/tp_ generalpurpose.h tml Are customers notified of a change in tariff ahead of the billing cycle? Yes Price of electricity (US cents per kWh) 20.1 Source: Doing Business database. Note: If data on power outages is not collected or if the SAIFI index or SAIDI index are above the threshold of 100, the economy is not eligible to obtain a score in the Reliability of Supply and Transparency of Tariff Index. If SAIDI and SAIFI are 12 (equivalent to an outage of one hour each month) or below, a score of 1 is assigned. If SAIDI and SAIFI are 4 (equivalent to an outage of one hour each quarter) or below, 1 additional point is assigned. Finally, if SAIDI and SAIFI are 1 (equivalent to an outage of one hour per year) or below, 1 more point is assigned. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. The price of electricity is measured in cents per kilowatt-hour. On the basis of the assumptions about monthly consumption, a monthly bill for a commercial warehouse in the largest business city of the economy is computed for the month of March. As noted, the warehouse uses electricity 30 days a month, from 9:00 a.m. to 5:00 p.m., so different tariff schedules may apply if a time-of-use tariff is available. Doing Business 2017 Sri Lanka 46 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. In (calendar days) addition, Doing Business also measures quality of Does not include time spent gathering the land administration system in each economy. information The ranking of economies on the ease of registering property is determined by sorting their distance to Each procedure starts on a separate day— frontier scores for registering property. These scores though procedures that can be fully completed online are an exception to this rule are the simple average of the distance to frontier scores for each of the component indicators. To Procedure considered completed once final make the data comparable across economies, document is received several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are used. Cost required to complete each procedure (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% domestically and privately owned and perform No value added or capital gains taxes included general commercial activities in the economy’s Quality of land administration index (0-30) largest business city.  Have 50 employees each, all of whom are  Has no mortgages attached, has been under the nationals. same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square feet)  Has a value of 50 times income per capita. The of land and a 10-year-old, 2-story warehouse of 929 sale price equals the value and entire property square meters (10,000 square feet). The warehouse is will be transferred. in good condition and complies with all safety  Is registered in the land registry or cadastre, or standards, building codes and legal requirements. both, and is free of title disputes. There is no heating system.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2017 Sri Lanka 47 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Sri Most indicator sets refer to a case scenario in the largest Lanka? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 9.0 procedures, takes which the data are a population-weighted average of the 51.0 days and costs 5.1% of the property value (figure 2 largest business cities. See the chapter on distance to 5.1). The score on the quality of land administration frontier and ease of doing business ranking at the end of index is 3.5 this profile for more details. Figure 5.1 What it takes to register property in Sri Lanka Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2017 Sri Lanka 48 REGISTERING PROPERTY Globally, Sri Lanka stands at 155 in the ranking of 190 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Sri Lanka to transfer property. Figure 5.2 How Sri Lanka and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2017 Sri Lanka 49 REGISTERING PROPERTY Economies worldwide have been making it easier for the time required substantially—enabling buyers to use entrepreneurs to register and transfer property—such as or mortgage their property earlier. What property by computerizing land registries, introducing time limits registration reforms has Doing Business recorded in Sri for procedures and setting low fixed fees. Many have cut Lanka (table 5.1)? Table 5.1 How has Sri Lanka made registering property easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Sri Lanka made registering property faster by introducing an DB2013 electronic system at the Land Registry in Colombo. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Sri Lanka 50 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: LKR 26,094,886 notaries and property registries. These procedures are those that apply to a transaction matching the City: Colombo standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Sri Lanka Time to No. Procedure Cost to complete complete Seller needs to obtain certificate of non-vesting and certificate of ownership stating that the seller is the owner of the land and premises from the Municipality The seller obtains the following documents from the Municipality (from a different counter than the building and street line certificate in 16 days procedure 2): (simultaneous 1 LKR 598.50 1. Certificate of non-vesting with Procedures 2. Certificate of ownership stating that the seller is the owner of the land 1,2 and 4) and premises Agency: Colombo Municipal Council Seller needs to obtain the building and street line certificate from the Municipality 14 days The seller obtains from the Municipality the building and street line (simultaneous *2 certificate and the certificate of conformity LKR 330 with Procedures 1,3 and 4) Agency: Colombo Municipal Council Obtain an updated survey plan of the property Obtaining a new updated plan of the land and the building is advisable 14 days to ensure that the boundaries on the ground have not changed or if the (simultaneous About 0.1% of *3 survey plan is old. with Procedures property value 1,2 and 3) Agency: Colombo Municipal Council Doing Business 2017 Sri Lanka 51 Time to No. Procedure Cost to complete complete A title search must be carried out at the relevant Land Registry On receipt of the last title deed and plan from the seller, a title search has to be carried out at the relevant Land Registry. A lawyer/notary engaged by the purchaser has to recommend the title. Good title has to be established for the past 35 years. All deeds and plans have to be checked. If prior deeds are not available with the seller the notary will have to check duplicates of deeds at the Land Registry. If plans are not available, the relevant surveyors would have to be contacted and obtain duplicates of the plans. Other checks must be carried out as well by the lawyer (notary) at the local authority. Confirmation from the lawyer (notary) should be obtained that the title to the property is clear. On confirmation that the title to the property is clear, step 2 will apply; if not title insurance is recommended, and the next step would be to obtain a policy of title Insurance (procedure 1a). 4 days If title insurance is recommended in procedure 1 due to a defect in title, (simultaneous *4 LKR 500 then the next step would be to obtain a Buyer's Policy of Title Insurance with procedures to cover defects. This step is optional and contingent to the result of step 2, 3 and 4) 1. If the policy is needed, the time necessary to obtain this title will depend on the time taken by the title insurance company to evaluate the title, make a decision to issue or not to issue the title insurance policy and the cost will depend on the premium payable. Usually title insurance is recommended for the following reasons: • Prior deeds and documentation not being available and further if the registers at the land registry cannot be traced for 35 years (if the books are damaged). • If there are any discrepancies in the title deeds and plans. • If the present owner had owned an undivided share of a larger land, and had sub-divided it without the consent of the other parties or without a Deed of Partition or Partition Plan. Agency: Land Registry Transfer deed is signed in favor of the buyer The following document with regard to the Selling company must be presented to the buyer’s lawyer/notary for the deed of transfer to be signed in favor of the buyer: 1% of purchase The documents are as follows: price (Lawyer’s 5 1. Articles of Association of the company 2 days fees) + LKR 500 2. Certificate of incorporation of the seller additional cost 3. Resolution authorizing the sale of land. If the purchase-sale is a major transaction as defined by section 185 of Companies Act No. 7 of 2007, such a transaction should require the shareholders sanction as well. The buyer needs to pass a resolution to purchase the property. On receipt of the above documents the deed of transfer in favor of the purchaser can be signed. Lawyer’s fees are paid by the buyer and will Doing Business 2017 Sri Lanka 52 Time to No. Procedure Cost to complete complete depend on the lawyer (usually 1% of purchase price). Agency: Lawyer/Notary Obtain the market value from the Provincial Department of Revenue Before or after the payment of stamp duty the instrument of transfer is forwarded to the office of the Provincial Department of Revenue of the Western Province for the purpose of obtaining the market value of the property. This measure was introduced beginning March 1, 2013 with the purpose of ensuring that stamp duties are paid based on the correct market value. The appropriate value will be provided at the discretion of the department's valuer. If the instrument is submitted after the stamp duties have already been paid the and after the examination the 1 day LKR 250 6 department determines that the amount paid is inadequate, then the balance must be settled. The department will provide the certification of "instrument with duly paid stamp duties." By ensuring that the stamp duty was paid based on the value provided by the Provincial Department of Revenue the instrument will not be recalled later on for examination of its value and will not be refused registration. Agency: Provincial Department of Revenue, Western Province Payment of stamp duty at a nominated bank After execution of the deed of transfer stamp duty will have to be paid Stamp duty within 7 days to a nominated state bank in favor of the Revenue payable as follows Commissioner of the relevent Provincial Council in which the land is 3% on the First Rs. 7 1 day situated. 100 000 4% on the Agency: State Bank Balance Deed is sent for registration to the relevant land registry After payment of stamp duty, the deed duly attested by the notary, will have to be sent for registration to the relevant Land Registry. The deed is registered and returned to the notary from the Land Registry within 3 days after receiving the Day Book. Notaries are involved with searching, preparing title report and attestation, as well as paying stamp duty. The 8 details of the registered deeds are published in the Land Registry 15 days LKR 100 website (www.Rgd.gov.lk) and notice boards are available at the Land Registry office. Computerized system and greater number of staff are ensuring faster registration of deeds. Agency: Land Registry Doing Business 2017 Sri Lanka 53 Time to No. Procedure Cost to complete complete Name of the buyer must be registered at the Municipality and the certificate of ownership is obtained The name of the new company will have to be registered as the new owner at the Colombo Municipal Council. An abstract of title form should be duly filled by a Notary Public and should be submitted to the relevant Local Authority together with a Pedigree, a certificate, a copy of LKR 570 for 9 the rate receipt, a certified copy of the latest plan and deed of transfer 16 days commercial and a covering letter prepared by the Notary. Thereafter the name of the properties new owner will be registered in the Assessment registers and the Certificate of Ownership will be issued giving the present owner's name. Agency: Colombo Municipal Council * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2017 Sri Lanka 54 REGISTERING PROPERTY Quality of land administration The quality of land administration index is the sum of If private sector entities were unable to register property the scores on the reliability of infrastructure, transfers in an economy between June 2015 and June transparency of information, geographic coverage, 2016, the economy receives a “no practice” mark on the land dispute resolution and equal access to property procedures, time and cost indicators. A “no practice” rights indices. economy receives a score of 0 on the quality of land administration index even if its legal framework includes The index ranges from 0 to 30, with higher values provisions related to land administration. indicating better quality of the land administration system. Table 5.3 Summary of quality of land administration in Sri Lanka Answer Score Quality of the land administration index (0-30) 3.5 Reliability of infrastructure index (0-8) 0.0 Land Registry What is the institution in charge of immovable property registration? Colombo In what format are the majority of title or deed records kept in the largest business city—in a paper format or in a computerized format Paper 0.0 (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, No 0.0 mortgages, restrictions and the like)? In what format are the majority of maps of land plots kept in the largest business city—in a paper format or in a computerized format Paper 0.0 (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral information (geographic information No 0.0 system)? Is the information recorded by the immovable property registration Separate agency and the cadastral or mapping agency kept in a single database, 0.0 databases in different but linked databases or in separate databases? Do the immovable property registration agency and cadastral or No 0.0 mapping agency use the same identification number for properties? Transparency of information index (0–6) 2.5 Who is able to obtain information on land ownership at the agency in Anyone who pays 1.0 charge of immovable property registration in the largest business city? the official fee Is the list of documents that are required to complete any type of Yes, online 0.5 property transaction made publicly available–and if so, how? Link for online access: http://www.rgdep t.lk/title/Transacti Doing Business 2017 Sri Lanka 55 Answer Score ons.htm Is the applicable fee schedule for any property transaction at the agency in charge of immovable property registration in the largest Yes, online 0.5 business city made publicly available–and if so, how? http://www.rgdep Link for online access: t.lk/title/Instrume nt.htm Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property No 0.0 ownership within a specific time frame–and if so, how does it communicate the service standard? Link for online access: Is there a specific and separate mechanism for filing complaints about a problem that occurred at the agency in charge of immovable property No 0.0 registration? Contact information: Are there publicly available official statistics tracking the number of No 0.0 transactions at the immovable property registration agency? Number of property transfers in the largest business city in 2015: Anyone who pays Who is able to consult maps of land plots in the largest business city? 0.5 the official fee Is the applicable fee schedule for accessing maps of land plots made No 0.0 publicly available—and if so, how? Link for online access: Does the cadastral or mapping agency commit to delivering an updated map within a specific time frame—and if so, how does it No 0.0 communicate the service standard? Link for online access: Is there a specific and separate mechanism for filing complaints about No 0.0 a problem that occurred at the cadastral or mapping agency? Geographic coverage index (0–8) 0.0 Are all privately held land plots in the economy formally registered at No 0.0 the immovable property registry? Are all privately held land plots in the largest business city formally No 0.0 registered at the immovable property registry? Are all privately held land plots in the economy mapped? No 0.0 Doing Business 2017 Sri Lanka 56 Answer Score Are all privately held land plots in the largest business city mapped? No 0.0 Land dispute resolution index (0–8) 1.0 Does the law require that all property sale transactions be registered at the immovable property registry to make them opposable to third No 0.0 parties? Is the system of immovable property registration subject to a state or No 0.0 private guarantee? Is there a specific compensation mechanism to cover for losses incurred by parties who engaged in good faith in a property transaction No 0.0 based on erroneous information certified by the immovable property registry? Does the legal system require a control of legality of the documents necessary for a property transaction (e.g., checking the compliance of Yes 0.5 contracts with requirements of the law)? If yes, who is responsible for checking the legality of the documents? Registrar. Does the legal system require verification of the identity of the parties Yes 0.5 to a property transaction? If yes, who is responsible for verifying the identity of the parties? Notary. Is there a national database to verify the accuracy of identity No 0.0 documents? For a standard land dispute between two local businesses over tenure rights of a property worth 50 times gross national income (GNI) per District Court of capita and located in the largest business city, what court would be in Colombo charge of the case in the first instance? How long does it take on average to obtain a decision from the first- More than 3 0.0 instance court for such a case (without appeal)? years Are there any statistics on the number of land disputes in the first No 0.0 instance? Number of land disputes in the largest business city in 2015: Equal access to property rights index (-2–0) 0.0 Do unmarried men and unmarried women have equal ownership rights Yes 0.0 to property? Do married men and married women have equal ownership rights to Yes 0.0 property? Source: Doing Business database. Doing Business 2017 Sri Lanka 57 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view and consider a potential borrower’s Strength of legal rights index (0–12) financial history (positive or negative) when assessing Rights of borrowers and lenders through risk and they allow borrowers to establish a good collateral laws credit history that will facilitate their access to credit. Protection of secured creditors’ rights through Sound collateral laws enable businesses to use their bankruptcy laws assets, especially movable property, as security to generate capital—while strong creditors’ rights have Depth of credit information index (0–8) been associated with higher ratios of private sector Scope and accessibility of credit information credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in largest lenders with respect to secured transactions through credit bureau as percentage of adult population 2 sets of indicators. The depth of credit information Credit registry coverage (% of adults) index measures rules and practices affecting the coverage, scope and accessibility of credit Number of individuals and firms listed in credit registry as percentage of adult population information available through a credit registry or a credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope Has up to 50 employees. of the secured transactions system, involving a secured borrower and a secured lender and Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable The ranking of economies on the ease of getting credit collateral (for more details on each case, see the Data is determined by sorting their distance to frontier scores Notes section of the Doing Business 2017 report). for getting credit. These scores are the distance to These scenarios assume that the borrower: frontier score for the strength of legal rights index and Is a domestic limited liability company. the depth of credit information index. Has its headquarters and only base of operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2017 Sri Lanka 58 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Sri Lanka stands at 118 in the ranking of 190 and bankruptcy laws in Sri Lanka facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 6.0 on the depth of rankings for comparator economies provide other useful credit information index and a score of 2.0 on the information for assessing how well regulations and strength of legal rights index (see the summary of institutions in Sri Lanka support lending and borrowing. scoring at the end of this chapter for details). Higher scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Sri Lanka and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2017 Sri Lanka 59 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Sri Lanka and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Source: Doing Business database. Source: Doing Business database. Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2017 Sri Lanka 60 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Sri Lanka (table 6.1)? Table 6.1 How has Sri Lanka made getting credit easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Sri Lanka strengthened its secured transactions system by DB2013 establishing an electronic, searchable collateral registry and issuing regulations for its operation. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Sri Lanka 61 GETTING CREDIT What are the details? The getting credit indicators reported here for Sri Lanka The data on the legal rights of borrowers and lenders are are based on detailed information collected in that gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as well collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Strength of legal rights index (0–12) Index score: 2.0 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable 0 assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of 0 movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its 1 assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically to 0 the products, proceeds or replacements of the original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement include a 0 maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is 0 unified geographically and by asset type, with an electronic database indexed by debtor's name? Can banks and financial institutions access borrowers’ credit information online (for example, 0 through a web interface, a system-to-system connection or both)? Does a modern collateral registry exist in which registrations, amendments, cancellations and 0 searches can be performed online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor 0 defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is 0 liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by 0 providing clear grounds for relief from the stay and/or sets a time limit for it? Doing Business 2017 Sri Lanka 62 Strength of legal rights index (0–12) Index score: 2.0 Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through public auction and 1 private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 6.0 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - No No 0 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years Yes No 1 of negative data or erase data on defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? By law, do borrowers have the right to access their data Yes No 1 in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an online Yes No 1 platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions No No 0 assess the creditworthiness of borrowers? Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Coverage Credit bureau Credit registry Number of individuals 7,555,732 0 Number of firms 368,224 0 Total 7,923,956 0 Total percentage of adult population 57.2 0.0 Source: Doing Business database. Doing Business 2017 Sri Lanka 63 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of WHAT THE PROTECTING MINORITY companies to raise the capital they need to grow, innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require Extent of disclosure index (0–10) shareholder participation in major decisions of the Review and approval requirements for related-party company and set detailed standards of accountability transactions; Disclosure requirements for related-party for company insiders. transactions What do the indicators cover? Extent of director liability index (0–10) Ability of minority shareholders to sue and hold Doing Business measures the protection of minority interested directors liable for prejudicial related-party investors from conflicts of interest through one set of transactions; Available legal remedies (damages, indicators and shareholders’ rights in corporate disgorgement of profits, fines, imprisonment, rescission governance through another. The ranking of economies of the transaction) on the strength of minority investor protections is Ease of shareholder suits index (0–10) determined by sorting their distance to frontier scores Access to internal corporate documents; Evidence for protecting minority investors. These scores are the obtainable during trial and allocation of legal expenses simple average of the distance to frontier scores for the extent of conflict of interest regulation index and the Extent of conflict of interest regulation index (0– extent of shareholder governance index. To make the 10) data comparable across economies, a case study uses Simple average of the extent of disclosure, extent of several assumptions about the business and the director liability and ease of shareholder indices transaction. Extent of shareholder rights index (0-10) The business (Buyer): Shareholders’ rights and role in major corporate decisions  Is a publicly traded corporation listed on the Extent of ownership and control index (0-10) economy’s most important stock exchange. If the Governance safeguards protecting shareholders from number of publicly traded companies listed on that undue board control and entrenchment exchange is less than 10, or if there is no stock exchange in the economy, it is assumed that Buyer Extent of corporate transparency index (0-10) is a large private company with multiple Corporate transparency on ownership stakes, shareholders. compensation, audits and financial prospects Extent of shareholder governance index (0–10)  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of Buyer Simple average of the extent of shareholders rights, extent of ownership and control and extent of corporate where permitted, even if this is not specifically transparency indices required by law. Strength of minority investor protection index (0–  Has a supervisory board (applicable to economies 10) with a two-tier board system) on which 60% of the Simple average of the extent of conflict of interest shareholder-elected members have been appointed regulation and extent of shareholder governance indices by Mr. James, who is Buyer’s controlling shareholder and a member of Buyer’s board of directors.  Has not adopted any bylaws or articles of association that differ from default minimum standards and does not follow any nonmandatory codes, principles, recommendations or guidelines Doing Business 2017 Sri Lanka 64 relating to corporate governance.  Is a manufacturing company with its own distribution network. The transaction involves the following details:  Mr. James owns 60% of Buyer and elected two directors to Buyer’s five-member board.  Mr. James also owns 90% of Seller, a company that operates a chain of retail hardware stores. Seller recently closed a large number of its stores.  Mr. James proposes that Buyer pur chase Seller’s unused fleet of trucks to expand Buyer’s distribution of its food products, a proposal to which Buyer agrees. The price is equal to 10% of Buyer’s assets and is higher than the market value.  The proposed transaction is part of the company’s ordinary course of business and is not outside the authority of the company.  Buyer enters into the transaction. All required approvals are obtained, and all required disclosures made (that is, the transaction is not fraudulent).  The transaction causes damages to Buyer. Shareholders sue Mr. James and the other parties that approved the transaction. Doing Business 2017 Sri Lanka 65 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Sri Lanka? The economy has a score of 6.3 not measure all aspects related to the protection of on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Sri Lanka stands at 42 in the ranking of 190 economies on the strength of minority investor Figure 7.1 How Sri Lanka and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2017 Sri Lanka 66 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the A summary of scoring for the protecting minority investors protecting minority investors indicators into context indicators at the end of this chapter provides details on is to see where the economy stands in the how the indices were calculated. distribution of scores across comparator economies. Figure 7.2 highlights the scores on the various minority investor protection indices for Sri Lanka. Figure 7.2 Summary of the various minority investor protection indices for Sri Lanka and comparator economies. Source: Doing Business database. Doing Business 2017 Sri Lanka 67 PROTECTING MINORITY INVESTORS Economies with the strongest protections of minority result, reforms to strengthen minority investor investors from self-dealing require detailed disclosure protections may move ahead on different fronts—such and define clear duties for directors. They also have well- as through new or amended company laws, securities functioning courts and up-to-date procedural rules that regulations or civil procedure rules. What minority give minority shareholders the means to prove their case investor protection reforms has Doing Business recorded and obtain a judgment within a reasonable time. As a in Sri Lanka (table 7.1)? Table 7.1 How has Sri Lanka strengthened minority investor protections—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Sri Lanka strengthened investor protections by requiring DB2012 greater corporate disclosure in case of transactions between interested parties. Sri Lanka strengthened minority investor protections by requiring board and in some cases shareholder approval of related-party transactions and by requiring that such DB2017 transactions undergo external review. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Sri Lanka 68 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Sri Lanka are based on detailed information shareholder rights, ownership and control and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2017 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Sri Lanka. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Sri Lanka Answer Score Strength of minority investor protection index (0-10) 6.3 Extent of conflict of interest regulation index (0-10) 6.7 Extent of disclosure index (0-10) 8.0 Which corporate body is legally sufficient to approve the Board of directors excluding 2.0 Buyer-Seller transaction? (0-3) interested members Must Mr. James disclose his conflict of interest to the board Existence of a conflict without any 1.0 of directors? (0-2) specifics Must Buyer disclose the transaction in published periodic Disclosure on the transaction and 2.0 filings (annual reports)? (0-2) on the conflict of interest Must Buyer immediately disclose the transaction to the Disclosure on the transaction and 2.0 public and/or shareholders? (0-2) on the conflict of interest Must an external body review the terms of the transaction Yes 1.0 before it takes place? (0-1) Extent of director liability index (0-10) 5.0 Can shareholders representing 10% of Buyer's share capital sue directly or derivatively for the damage the transaction Yes 1.0 caused to Buyer? (0-1) Can shareholders hold the interested director liable for the Liable if negligent 1.0 damage the transaction caused to Buyer? (0-2) Can shareholders hold the other directors liable for the Liable if negligent 1.0 damage the transaction caused to Buyer (0-2) Must Mr. James pay damages for the harm caused to Buyer Yes 1.0 upon a successful claim by shareholders? (0-1) Must Mr. James repay profits made from the transaction No 0.0 upon a successful claim by shareholders? (0-1) Is Mr. James disqualifed or fined and imprisoned upon a No 0.0 successful claim by shareholders? (0-1) Can a court void the transaction upon a successful claim by Voidable if negligently concluded 1.0 shareholders? (0-2) Ease of shareholder suits index (0-10) 7.0 Before suing can shareholders representing 10% of Buyer's No 0.0 share capital inspect the transaction documents? (0-1) Can the plaintiff obtain any documents from the defendant Any relevant document 3.0 and witnesses at trial? (0-3) Can the plaintiff request categories of documents from the No 0.0 Doing Business 2017 Sri Lanka 69 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Yes 2.0 witnesses at trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1.0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if successful 1.0 the company? (0-2) Extent of shareholder governance index (0-10) 6.0 Extent of shareholder rights index (0-10) 6.0 Does the sale of 51% of Buyer's assets require shareholder Yes 1.0 approval? Can shareholders representing 10% of Buyer's share capital Yes 1.0 call for an extraordinary meeting of shareholders? Must Buyer obtain its shareholders’ approval every time it No 0.0 issues new shares? Do shareholders automatically receive preemption rights No 0.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the Yes 1.0 external auditor? Are changes to the rights of a class of shares only possible if Yes 1.0 the holders of the affected shares approve? Assuming that Buyer is a limited company, does the sale of Yes 1.0 51% of its assets require member approval? Assuming that Buyer is a limited company, can members representing 10% call for an extraordinary meeting of Yes 1.0 members? Assuming that Buyer is a limited company, must all No 0.0 members consent to add a new member? Assuming that Buyer is a limited company, must a member first offer to sell his interest to the existing members before No 0.0 selling to a non-member? Extent of ownership and control index (0-10) 6.0 Is it forbidden to appoint the same individual as CEO and No 0.0 chair of the board of directors? Must the board of directors include independent and Yes 1.0 nonexecutive board members? Can shareholders remove members of the board of Yes 1.0 directors without cause before the end of their term? Must the board of directors include a separate audit Yes 1.0 committee exclusively comprising board members? Must a potential acquirer make a tender offer to all Yes 1.0 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by Yes 1.0 law after the declaration date? Is a subsidiary prohibited from acquiring shares issued by its Yes 1.0 parent company? Assuming that Buyer is a limited company, is there a No 0.0 management deadlock breaking mechanism? Assuming that Buyer is a limited company, must a potential acquirer make a tender offer to all shareholders upon No 0.0 acquiring 50% of Buyer? Assuming that Buyer is a limited company, must Buyer No 0.0 Doing Business 2017 Sri Lanka 70 distribute profits within a maximum period set by law after the declaration date? Extent of corporate transparency index (0-10) 6.0 Must Buyer disclose direct and indirect beneficial ownership Yes 1.0 stakes representing 5%? Must Buyer disclose information about board members’ other directorships as well as basic information on their Yes 1.0 primary employment? Must Buyer disclose the compensation of individual No 0.0 managers? Must a detailed notice of general meeting be sent 21 days No 0.0 before the meeting? Can shareholders representing 5% of Buyer’s share capital No 0.0 put items on the agenda for the general meeting? Must Buyer's annual financial statements be audited by an Yes 1.0 external auditor? Must Buyer disclose its audit reports to the public? Yes 1.0 Assuming that Buyer is a limited company, must members Yes 1.0 meet at least once a year? Assuming that Buyer is a limited company, can members No 0.0 representing 5% put items on the meeting agenda? Assuming that Buyer is a limited company, must Buyer's annual financial statements be audited by an external Yes 1.0 auditor? Source: Doing Business database. Doing Business 2017 Sri Lanka 71 PAYING TAXES Taxes are essential. The level of tax rates needs to be WHAT THE PAYING TAXES INDICATORS carefully chosen—and needless complexity in tax rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2014 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business records the taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as Time required to comply with 3 major taxes measures of the administrative burden of paying (hours per year) taxes and contributions and dealing with postfiling processes. This case scenario uses a set of financial Collecting information and computing the tax payable statements and assumptions about transactions made over the year. Information is also compiled on Completing tax return forms, filing with the frequency of filing and payments, time taken to proper agencies comply with tax laws, time taken to comply with the Arranging payment or withholding requirements of postfiling processes and time waiting for these processes to be completed. The Preparing separate tax accounting books, if required ranking of economies on the ease of paying taxes is determined by sorting their distance to frontier Total tax rate (% of profit before all taxes) scores on the ease of paying taxes. These scores are Profit or corporate income tax the simple average of the distance to frontier scores for each of the four component indicators – number Social contributions and labor taxes paid by of tax payments. time, total tax rate and postfiling the employer index – with a threshold and a nonlinear Property and property transfer taxes transformation applied to one of the component Dividend, capital gains and financial indicators, the total tax rate1. If both VAT (or GST) transactions taxes and corporate income tax apply, the postfiling index is the simple average of the distance to frontier Waste collection, vehicle, road and other taxes scores for each of the four components: the time to Postfiling Index comply with a VAT or GST refund, the time to obtain The time to comply with a VAT or GST refund a VAT or GST refund, the time to comply with a corporate income tax audit and the time to complete The time to receive a VAT or GST refund a corporate income tax audit. If only VAT (or GST) or The time to comply with a corporate income corporate income tax If onapplies, the postfiling tax audit index is the simple average of the scores for only the The time to complete a corporate income tax two components pertaining to the applicable tax. If audit neither VAT (or GST) nor corporate income tax 1 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax rate below this threshold receive the same score as the economy at the threshold. Doing Business 2017 Sri Lanka 72 applies, the postfiling index is not included in the ranking of the ease of paying taxes. Assumptions about the corporate income tax audit process: Taxes and mandatory contributions include corporate income tax, turnover tax and all labor  An error in the calculation of the income tax taxes and contributions paid by the company. A liability (for example, use of incorrect tax range of standard deductions and exemptions are depreciation rates, or incorrectly treating an also recorded. expense as tax deductible) leads to an incorrect All financial statement variables are proportional to income tax return and consequently an 2012 income per capita. To make the data underpayment of corporate income tax. comparable across economies, several assumptions  TaxpayerCo. discovered the error and are used. voluntarily notified the tax authority of the error TaxpayerCo is a medium-size business that started in the corporate income tax return. operations on January 1, 2014. The business starts from the same financial position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded. Taxes and mandatory contributions are measured at all levels of government. Assumptions about the VAT refund process:  In June 2015, TaxpayerCo. makes a large capital purchase: one additional machine for manufacturing pots.  The value of the machine is 65 times income per capita of the economy.  Sales are equally spread per month (that is, 1,050 times income per capita divided by 12).  Cost of goods sold are equally expensed per month (that is, 875 times income per capita divided by 12).  The seller of the machinery is registered for VAT or general sales tax (GST).  Excess input VAT incurred in June will be fully recovered after four consecutive months if the VAT or GST rate is the same for inputs, sales and the machine and the tax reporting period is every month. Doing Business 2017 Sri Lanka 73 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with tax 8.2 and table 8.3 the end of this chapter for details). obligations and postfiling processes in Sri Lanka—and Most indicator sets refer to a case scenario in the largest how much do firms pay in taxes? Globally, Sri Lanka business city of an economy, except for 11 economies for stands at 158 in the ranking of 190 economies on the which the data are a population-weighted average of the ease of paying taxes (figure 8.1). The rankings for 2 largest business cities. See the chapter on distance to comparator economies and the regional average ranking frontier and ease of doing business ranking at the end of provide other useful information for assessing the tax this profile for more details. compliance burden for businesses in Sri Lanka (see table . Figure 8.1 How Sri Lanka and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2017 Sri Lanka 74 PAYING TAXES Economies around the world have made paying taxes and exemptions. Many have lowered tax rates. Changes faster, easier and less costly for businesses —such as by have brought concrete results. Some economies consolidating payments and filings of taxes, offering simplifying tax payment and reducing rates have seen electronic systems for filing and payment, establishing tax revenue rise. What tax reforms has Doing Business taxpayer service centers or allowing for more deductions recorded in Sri Lanka (table 8.1)? Table 8.1 How has Sri Lanka made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform DB2011 Sri Lanka made paying taxes less costly for businesses by abolishing the turnover tax and social security contribution and DB2012 by reducing corporate income tax, value added tax and national building tax rates. Sri Lanka made paying taxes easier for companies by DB2014 introducing an electronic filing system for social security contributions. Sri Lanka made paying taxes more costly for companies by DB2015 increasing the reduced corporate income tax rate for qualifying small and medium-size enterprises. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Sri Lanka 75 PAYING TAXES What are the details? The indicators reported here for Sri Lanka are based LOCATION OF STANDARDIZED COMPANY on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Colombo chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in table 8.2, completed during its 2nd year of operation. along with the associated number of payments, time Respondents are asked how much taxes and and tax rate. mandatory contributions the business must pay, how these taxes are filed and paid, how much time The postfiling index is based on four components—the taxpayers spend preparing, filing and paying three time to comply with a VAT or GST refund, the time to major taxes (profit taxes, labor taxes including obtain a VAT or GST refund, the time to comply with a mandatory contributions and consumption taxes) and corporate income tax audit and the time to complete a how much time taxpayers spend complying with corporate income tax audit. These components are postfiling processes and waiting for these processes based on expanded case study assumptions. If only VAT to be completed. (or GST) or corporate income tax applies for an economy, the postfiling index is the simple average of the scores for only the two components pertaining to the applicable tax. If neither VAT (or GST) nor corporate income tax applies, the postfiling index is not included in the ranking of the ease of paying taxes. Table 8.2 Summary of tax rates and administration Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Nation Building Tax 12 2% turnover 35.35 gross Employees Trust Fund (ETF) 12 3% 3.38 salaries Employer paid - Social security gross 1 online 21 12% 13.54 contribution (EPF) salaries annual Property tax 1 35% property 1.73 value taxable Corporate income tax 5 16 12% 1.17 profit interest included in Tax on interest 0 withheld 10% 0.26 income other taxes Doing Business 2017 Sri Lanka 76 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate varies from Municipal business tax 1 LKR 250 to 0.02 LKR 5,000 fixed fee depending Vehicle tax 1 LKR 1,000 0.00 on vehicle type value not Value added tax (VAT) 12 142 12% 0.00 addition included various small Stamp duty 1 0.00 rates amount included in small Fuel tax 1 the price 0.00 amount of fuel Employee paid - Social security gross 0 jointly 8% 0.00 withheld contribution (EPF) salaries Totals 47.0 179.0 55.2 Source: Doing Business database. Doing Business 2017 Sri Lanka 77 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE FOR IMPORT & EXPORT business. Excessive use of paper documents, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead Documentary compliance to extra costs and delays for exporters and Obtaining, preparing and submitting documents importers, stifling trade potential. during transport, clearance, inspections and port or border handling in origin economy What do the indicators cover? Obtaining, preparing and submitting documents Doing Business records the time and cost required by destination economy and any transit associated with the logistical process of exporting economies and importing goods. Doing Business measures the Covers all documents required by law and in time and cost (excluding tariffs) associated with practice, including electronic submissions of three sets of procedures—documentary information as well as non-shipment-specific compliance, border compliance and domestic documents necessary to complete the trade transport—within the overall process of exporting Border compliance or importing a shipment of goods. The ranking of economies on the ease of trading across borders is Customs clearance and inspections determined by sorting their distance to frontier Inspections by other agencies (if applied to more scores for trading across borders. These scores are than 10% of shipments) the simple average of the distance to frontier Port or border handling scores for the time and cost for documentary compliance and border compliance to export and Processing of documents during clearance, import (domestic transport is not used for inspections and port or border handling. calculating the ranking). Domestic transport Loading and unloading of shipment at warehouse, To make the data comparable across economies, a dry port or border few assumptions are made about the traded goods and the transactions: Transport by most widely used mode between warehouse and terminal or dry port Time Traffic delays and road police checks while Time is measured in hours, and 1 day is 24 hours shipment is en route (for example, 22 days are recorded as 22 × 24 = 528 hours). If customs clearance takes 7.5 hours, the data are recorded as is. Alternatively, suppose Cost that documents are submitted to a customs Insurance cost and informal payments for which no receipt agency at 8:00 a.m., are processed overnight and is issued are excluded from the costs recorded. Costs are can be picked up at 8:00 a.m. the next day. In this reported in U.S. dollars. Contributors are asked to convert case the time for customs clearance would be local currency into U.S. dollars based on the exchange rate recorded as 24 hours because the actual procedure prevailing on the day they answer the questionnaire. took 24 hours. Doing Business 2017 Sri Lanka 78 Assumptions of the case study  If government fees are determined by the value of the shipment, the value is assumed to be $50,000.  For each of the 190 economies covered by Doing Business, it is assumed that a shipment  The product is new, not secondhand or used travels from a warehouse in the largest merchandise. business city of the exporting economy to a  The exporting firm is responsible for hiring and paying warehouse in the largest business city of the for a freight forwarder or customs broker (or both) importing economy. For 11 economies the and pays for all costs related to international shipping, data are also collected, under the same case domestic transport, clearance and mandatory study assumptions, for the second largest inspections by customs and other government business city. agencies, port or border handling, documentary  The import and export case studies assume compliance fees and the like for exports. The different traded products. It is assumed that importing firm is responsible for the above costs for each economy imports a standardized imports. shipment of 15 metric tons of containerized  The mode of transport is the one most widely used for auto parts (HS 8708) from its natural import the chosen export or import product and the trading partner—the economy from which it imports partner, as is the seaport, airport or land border the largest value (price times quantity) of auto crossing. parts. It is assumed that each economy exports the product of its comparative advantage  All electronic submissions of information requested by (defined by the largest export value) to its any government agency in connection with the natural export partner—the economy that is shipment are considered to be documents obtained, the largest purchaser of this product. Special prepared and submitted during the export or import products, such as precious metal and gems, process. live animals and pharmaceuticals are excluded  A port or border is defined as a place (seaport, airport from the list of possible export products, or land border crossing) where merchandise can enter however, and the second largest product or leave an economy. category is considered as needed.  Government agencies considered relevant are  A shipment is a unit of trade. Export shipments agencies such as customs, port authorities, road do not necessarily need to be containerized, police, border guards, standardization agencies, while import shipments of auto parts are ministries or departments of agriculture or industry, assumed to be containerized. national security agencies and any other government authorities. Doing Business 2017 Sri Lanka 79 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Borders indicator refers to a case Globally, Sri Lanka stands at 90 in the ranking of 190 study scenario of a warehouse in the largest business city economies on the ease of trading across borders (figure of an economy (except for 11 economies for which the 9.1). data are a population-weighted average of the 2 largest While not included in the distance to frontier or ease of business cities) trading with the main import and export doing business ranking, data on domestic transportation partner through the economy’s main border crossing. is also recorded for all economies and provided in Table 9.3. Figure 9.1 How Sri Lanka and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2017 Sri Lanka 80 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ internation al easier over the years. Governments have introduced competitiveness. What trade reforms has Doing Business tools to facilitate trade—including single windows, risk- recorded in Sri Lanka (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Sri Lanka made trading across borders easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform Sri Lanka reduced the time to export by implementing the DB2013 ASYCUDA World electronic data interchange system. Sri Lanka made trading across borders easier by introducing DB2014 an electronic payment system for port services. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2017 Sri Lanka 81 TRADING ACROSS BORDERS What are the details? The indicators reported here for Sri Lanka are based LOCATION OF STANDARDIZED COMPANY on a set of specific predefined procedures for trading a shipment of goods by the most widely used mode of transport (whether sea or land or some City: Colombo combination of these). The information on the time and cost to complete export and import is collected The details on the predefined set of procedures, and the from local freight forwarders, customs brokers and associated time and cost, for exporting and importing a traders. shipment of goods are listed in the summary bellow, along with the required documents. Table 9.2 Summary of export and import time and cost for trading across borders in Sri Lanka Sri Lanka South Asia Time to export: Border compliance (hours) 43 59 Cost to export: Border compliance (USD) 366 376 Time to export: Documentary compliance (hours) 76 78 Cost to export: Documentary compliance (USD) 58 183 Time to import: Border compliance (hours) 72 116 Cost to import: Border compliance (USD) 300 645 Time to import: Documentary compliance (hours) 58 106 Cost to import: Documentary compliance (USD) 283 348 Source: Doing Business database. Table 9.3 Summary of trading details, transport time and documents for trading across borders in Sri Lanka Export Import HS 61 : Articles of apparel HS 8708: Parts and accessories Product and clothing accessories, of motor vehicles knitted or crocheted Trade partner United States Japan Border Colombo port Colombo port Distance (km) 5 5 Domestic transport time (hours) 6 6 Domestic transport cost (USD) 110 110 Source: Doing Business database. Note: Although Doing Business collects and publishes data on the time and cost for domestic transport, it does not use these Doing Business 2017 Sri Lanka 82 data in calculating the distance to frontier score for trading across borders or the ranking on the ease of trading across borders. Documents to export Commercial invoice Packing list Certificate of origin Insurance certificate Export declaration Bill of lading Documents to import Bill of lading Packing list Commercial invoice Certificate of origin Customs Import Declaration Delivery order E-manifest Source: Doing Business database. Note: Doing Business continues to collect data on the number of documents needed to trade internationally. Unlike in previous years, however, these data are excluded from the calculation of the distance to frontier score and ranking. The time and cost for documentary compliance serve as better measures of the overall cost and complexity of compliance with documentary requirements than does the number of documents required. Doing Business 2017 Sri Lanka 83 Figure 9.2 Summary of Sri Lanka on the ease of trading across borders Export Import Source: Doing Business database. Doing Business 2017 Sri Lanka 84 ENFORCING CONTRACTS WHAT THE ENFORCING CONTRACTS Effective commercial dispute resolution has many benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent Time required to enforce a contract through courts encourage new business relationships because the courts (calendar days) businesses know they can rely on the courts if a new customer fails to pay. Speedy trials are essential for Time to file and serve the case small enterprises, which may lack the resources to Time for trial and to obtain the judgment stay in business while awaiting the outcome of a long Time to enforce the judgment court dispute. Cost required to enforce a contract through What do the indicators cover? the courts (% of claim) Doing Business measures the time and cost for Attorney fees resolving a standardized commercial dispute through a local first-instance court. In addition, Doing Court fees Business measures the quality of judicial processes Enforcement fees index, evaluating whether each economy has Quality of judicial processes index (0-18) adopted a series of good practices that promote quality and efficiency in the court system. The Court structure and proceedings (0-5) ranking of economies on the ease of enforcing Case management (0-6) contracts is determined by sorting their distance to frontier scores. These scores are the simple average Court automation (0-4) of the distance to frontier scores for each of the Alternative dispute resolution (0-3) component indicators. The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The  The seller sues the buyer before the court with case study assumes that the court hears an expert on jurisdiction over commercial cases worth 200% of the quality of the goods in dispute. This distinguishes income per capita or $5,000. the case from simple debt enforcement. To make the  The seller requests a pretrial attachment to secure data comparable across economies, Doing Business the claim. uses several assumptions about the case:  The dispute on the quality of the goods requires an expert opinion.  The dispute concerns a lawful transaction  The judge decides in favor of the seller; there is no between two businesses (Seller and Buyer), both appeal. located in the economy’s largest business city. For 11 economies the data are also collected for  The seller enforces the judgment through a public the second largest business city. sale of the buyer’s movable assets.  The buyer orders custom-made goods, then fails to pay.  The value of the dispute is 200% of the income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2017 Sri Lanka 85 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial frontier and ease of doing business ranking at the end of dispute through the courts in Sri Lanka? According to this profile for more details. data collected by Doing Business, contract enforcement Globally, Sri Lanka stands at 163 in the ranking of 190 takes 1318.0 days and costs 22.8% of the value of the economies on the ease of enforcing contracts (figure claim. Most indicator sets refer to the largest business 10.1). The rankings for comparator economies and the city of an economy, except for 11 economies for which regional average provide other useful benchmarks for the data are a population-weighted average of the 2 assessing the efficiency of contract enforcement in Sri largest business cities. See the chapter on distance to Lanka. Figure 10.1 How Sri Lanka and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2017 Sri Lanka 86 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for Sri ECONOMY DETAILS Lanka are built by following the step-by-step evolution of a commercial sale dispute within the court, under the assumptions about the case Claim value: LKR 925,002 described above (figure 10.2). The time and cost of resolving the standardized dispute are identified Court name: Colombo District Court through study of the codes of civil procedure and other court regulations, as well as through City: Colombo questionnaires completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Figure 10.2 Time and cost of contract enforcement in Sri Lanka and comparator economies Source: Doing Business database. Doing Business 2017 Sri Lanka 87 Table 10.2 Details on time and cost for enforcing contracts in Sri Lanka South Asia Indicator Sri Lanka average Time (days) 1,318 1,099 Filing and service 62 Trial and judgment 1,000 Enforcement of judgment 256 Cost (% of claim) 22.8 30.6 Attorney fees 20.2 Court fees 1.1 Enforcement fees 1.5 Source: Doing Business database. Doing Business 2017 Sri Lanka 88 ENFORCING CONTRACTS Quality of judicial processes index The quality of judicial processes index measures The scores reported here show which of these good whether each economy has adopted a series of good practices are available in Sri Lanka (figure 10.3). practices in its court system in four areas: court This methodology was initially developed by Djankov and structure and proceedings, case management, court others (2003) and is adopted here with several changes. automation and alternative dispute resolution. The The quality of judicial processes index was introduced in score on the quality of judicial processes index is the Doing Business 2016. The good practices tested in this sum of the scores on these 4 sub-components. The index were developed on the basis of internationally index ranges from 0 to 18, with higher values recognized good practices promoting judicial efficiency. indicating more efficient judicial processes. Figure 10.3 Quality of judicial processes index in Sri Lanka and comparator economies Doing Business 2017 Sri Lanka 89 Source: Doing Business database. Table 10.3 Details of the quality of judicial processes index in Sri Lanka Answer Score Quality of judicial processes index (0-18) 7.5 Court structure and proceedings (0-5) 4.5 1. Is there a court or division of a court dedicated solely to hearing Yes 1.5 commercial cases? 2. Small claims court 1.5 2.a. Is there a small claims court or a fast-track procedure for small Yes claims? 2.b. If yes, is self-representation allowed? Yes 3. Is pretrial attachment available? Yes 1.0 4. Are new cases assigned randomly to judges? Yes, but manual 0.5 5. Does a woman's testimony carry the same evidentiary weight in Yes 0.0 court as a man's? Case management (0-6) 0.0 1. Time standards 0.0 1.a. Are there laws setting overall time standards for key court events in No a civil case? 1.b. If yes, are the time standards set for at least three court events? n.a. 1.c. Are these time standards respected in more than 50% of cases? n.a. 2. Adjournments 0.0 2.a. Does the law regulate the maximum number of adjournments that No can be granted? 2.b. Are adjournments limited to unforeseen and exceptional Yes circumstances? 2.c. If rules on adjournments exist, are they respected in more than 50% No of cases? 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) clearance rate report; No 0.0 (iii) age of pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques No 0.0 used before the competent court? 5. Are there any electronic case management tools in place within the No 0.0 competent court for use by judges? Doing Business 2017 Sri Lanka 90 Answer Score 6. Are there any electronic case management tools in place within the No 0.0 competent court for use by lawyers? Court automation (0-4) 0.5 1. Can the initial complaint be filed electronically through a dedicated No 0.0 platform within the competent court? 2. Is it possible to carry out service of process electronically for claims No 0.0 filed before the competent court? 3. Can court fees be paid electronically within the competent court? No 0.0 4. Publication of judgments 0.5 4.a Are judgments rendered in commercial cases at all levels made available to the general public through publication in official gazettes, No in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made available to the general public through Yes publication in official gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 2.5 1. Arbitration 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or section of the applicable code of civil Yes procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy—that cannot be submitted to No arbitration? 1.c. Are valid arbitration clauses or agreements usually enforced by the Yes courts? 2. Mediation/Conciliation 1.0 2.a. Is voluntary mediation or conciliation available? Yes 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or section of the applicable code of civil Yes procedure encompassing substantially all their aspects? 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or conciliation is successful, a refund of No court filing fees, income tax credits or the like)? Source: Doing Business database. Doing Business 2017 Sri Lanka 91 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By clarifying the expectations of creditors and debtors about the outcome of insolvency Appeals and requests for extension are proceedings, well-functioning insolvency systems can included facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and sustainably grow the economy. estate) What do the indicators cover? Measured as percentage of estate value Doing Business studies the time, cost and outcome of Court fees insolvency proceedings involving domestic legal Fees of insolvency administrators entities. These variables are used to calculate the Lawyers’ fees recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recovered by secured creditors through Other related fees reorganization, liquidation or debt enforcement Outcome (foreclosure or receivership) proceedings. To determine the present value of the amount Whether business continues operating as a recovered by creditors, Doing Business uses the going concern or business assets are sold lending rates from the International Monetary Fund, piecemeal supplemented with data from central banks and the Recovery rate for creditors Economist Intelligence Unit. Measures the cents on the dollar recovered To make the data on the time, cost and outcome by secured creditors comparable across economies, several assumptions Outcome for the business (survival or not) about the business and the case are used: determines the maximum value that can be  A hotel located in the largest city (or cities) has recovered 201 employees and 50 suppliers. The hotel Official costs of the insolvency proceedings experiences financial difficulties. are deducted  The value of the hotel is 100% of the income per Depreciation of furniture is taken into capita or the equivalent in local currency of USD account 200,000, whichever is greater. Present value of debt recovered  The hotel has a loan from a domestic bank, Strength of insolvency framework index (0- secured by a mortgage over the hotel’s real 16) estate. The hotel cannot pay back the loan, but makes enough money to operate otherwise. Sum of the scores of four component indices: Commencement of proceedings index (0-3) In addition, Doing Business evaluates the adequacy and integrity of the existing legal framework Management of debtor’s assets index (0-6) applicable to liquidation and reorganization Reorganization proceedings index (0-3) proceedings through the strength of insolvency Creditor participation index (0-4) framework index. The index tests whether economies adopted internationally accepted good practices in management of debtor’s assets, reorganization four areas: commencement of proceedings, proceedings and creditor participation. Doing Business 2017 Sri Lanka 92 RESOLVING INSOLVENCY Where does the economy stand today? Globally, Sri Lanka stands at 75 in the ranking of 190 not measure insolvency proceedings of individuals and economies on the ease of resolving insolvency (figure financial institutions. The data are derived from 11.1). The ranking of economies on the ease of resolving questionnaire responses by local insolvency practitioners insolvency is determined by sorting their distance to and verified through a study of laws and regulations as frontier scores for resolving insolvency. These scores are well as public information on bankruptcy systems. the simple average of the distance to frontier scores for the recovery rate and the strength of insolvency framework index. The resolving insolvency indicator does Figure 11.1 How Sri Lanka and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2017 Sri Lanka 93 RESOLVING INSOLVENCY Recovery of debt in insolvency Data on the time, cost and outcome refer to the most average recovery rate is 46.2 cents on the dollar. Most likely in-court insolvency procedure applicable under indicator sets refer to a case scenario in the largest specific case study assumptions. business city of an economy, except for 11 economies for which the data are a population-weighted average of the According to data collected by Doing Business, resolving 2 largest business cities. insolvency takes 1.7 years on average and costs 10.0% of the debtor’s estate, with the most likely outcome being that the company will be sold as piecemeal sale. The Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in Sri Lanka and comparator economies. Source: Doing Business database. Note: The recovery rate is calculated based on the time, cost and outcome of insolvency proceedings involving domestic legal entities and is recorded as cents on the dollar recovered by secured creditors. The calculation takes into account the outcome: whether the business emerges from the proceedings as a going concern or the assets are sold piecemeal. Then the costs of the proceedings are deducted. Finally, the value lost as a result of the time the money remains tied up in insolvency proceedings is taken into account. The recovery rate is the present value of the remaining proceeds, based on end-2015 lending rates. Doing Business 2017 Sri Lanka 94 Table 11.1 Details of data on efficiency of insolvency proceedings in Sri Lanka Indicator Answer Explanation As per provisions of the new Companies Act No. 7 of 2007, secured creditors are totally exempted from an automatic stay. Therefore, after Mirage's default Proceeding foreclosure on payment, BizBank would initiate foreclosure trying to recoup the investment as soon as possible by filing the petition at the High Court. The hotel will stop operating and Mirage assets will be sold piecemeal by the Outcome piecemeal sale court-appointed auctioneer after the foreclosure proceeding. The foreclosure procedure takes approximate 1.7 years until BizBank is repaid some or all of the money owed to it. BizBank would initiate foreclosure after 60 days since Mirage's default on payment. It takes at least half a year for the Time (in High Court to make the initial decision on BizBank's petition. Mirage would be 1.7 years) given another 60 days to appeal the decision followed by the Court's final decision (another 2 months). The appeal will take several months. The preparation and execution of the auction sale until BizBank receives the sale proceeds usually takes at least 3 months. The costs associated with the case would amount to approximately 10% of the value of the debtor's estate. Cost incurred during the entire insolvency process Cost (% of mainly include court or government agency fees (<1%), attorney fees (5%), 10.0 estate) costs of notification and publication (<1%), ), fees of accountants, assessors, inspectors and other professionals (1%), and fees of auctioneers (5%), additional cost related to the auction (1%). Recovery rate: 46.2 Source: Doing Business database. Doing Business 2017 Sri Lanka 95 LABOR MARKET REGULATION Doing Business studies the flexibility of regulation of food retail sector and they apply even to firms employment, specifically as it relates to the areas of that are not party to them. hiring, working hours and redundancy. Doing Business  Abides by every law and regulation but does not also measures several aspects of job quality such as the grant workers more benefits than those availability of maternity leave, paid sick leave and the mandated by law, regulation or (if applicable) equal treatment of men and women at the workplace. collective bargaining agreements. Doing Business 2017 presents the data for the labor market regulation indicators in an annex. The report does not present rankings of economies on these indicators or include the topic in the aggregate distance to frontier score or ranking on the ease of doing business. Detailed data collected on labor market regulation are available on the Doing Business website (http://www.doingbusiness.org). The data on labor market regulation are based on a detailed questionnaire on employment regulations that is completed by local lawyers and public officials. Employment laws and regulations as well as secondary sources are reviewed to ensure accuracy. To make the data comparable across economies, several assumptions about the worker and the business are used. The worker:  Is a cashier in a supermarket or grocery store, age 19, with one year of work experience.  Is a full-time employee.  Is not a member of the labor union, unless membership is mandatory. The business:  Is a limited liability company (or the equivalent in the economy).  Operates a supermarket or grocery store in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city.  Has 60 employees.  Is subject to collective bargaining agreements if such agreements cover more than 50% of the Doing Business 2017 Sri Lanka 96 LABOR MARKET REGULATION What are the details? The data reported here for Sri Lanka are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Hiring Data on hiring cover five areas: (i) whether fixed-term minimum wage to the average value added per worker contracts are prohibited for permanent tasks; (ii) the (the ratio of an economy’s GNI per capita to the maximum cumulative duration of fixed-term contracts; working-age population as a percentage of the total (iii) the minimum wage for a cashier, age 19, with one population). year of work experience; and (iv) the ratio of the Hiring Data Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) No limit Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage applicable to the worker assumed in the case study 78.5 (US$/month) Ratio of minimum wage to value added per worker 0.2 Source: Doing Business database. Doing Business 2017 Sri Lanka 97 LABOR MARKET REGULATION Working hours Data on working hours cover nine areas: i) the maximum and nonnursing women can work the same night hours number of working days allowed per week; (ii) the as men*; (vii) whether there are restrictions on weekly premium for night work (as a percentage of hourly pay); holiday work; (viii) whether there are restrictions on (iii) the premium for work on a weekly rest day (as a overtime work; and (ix) the average paid annual leave for percentage of hourly pay); (iv) the premium for overtime workers with 1 year of tenure, 5 years of tenure, and 10 work (as a percentage of hourly pay); (v) whether there years of tenure. are restrictions on night work; (vi) whether nonpregnant Working Hours Data Maximum number of working days per week 5.5 Premium for night work (% of hourly pay) 0.0 Premium for work on weekly rest day (% of hourly pay) 0.0 Premium for overtime work (% of hourly pay) 50.0 Restrictions on night work? Yes Whether nonpregnant and nonnursing women can work the same night Yes hours as men Restrictions on weekly holiday? No Restrictions on overtime work? No Paid annual leave for a worker with 1 year of tenure (working days) 14.0 Paid annual leave for a worker with 5 years of tenure (working days) 14.0 Paid annual leave for a worker with 10 years of tenure (working days) 14.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 14.0 working days) Source: Doing Business database. Doing Business 2017 Sri Lanka 98 LABOR MARKET REGULATION Redundancy rules Data on redundancy cover nine areas: (i) the length of whether the employer needs approval from a third party the maximum probationary period (in months) for to terminate one redundant worker; (vi) whether the permanent employees; (ii) whether redundancy is employer needs approval from a third party to terminate allowed as a basis for terminating workers; (iii) whether a group of nine redundant workers; (vii) whether the law the employer needs to notify a third party (such as a requires the employer to reassign or retrain a worker government agency) to terminate one redundant worker; before making the worker redundant; (viii) whether (iv) whether the employer needs to notify a third party to priority rules apply for redundancies; and (ix) whether terminate a group of nine redundant workers; (v) priority rules apply for reemployment. Redundancy rules Data Maximum length of probationary period (months) n.a. Dismissal due to redundancy allowed by law? Yes Third-party notification if one worker is dismissed? Yes Third-party approval if one worker is dismissed? Yes Third-party notification if nine workers are dismissed? Yes Third-party approval if nine workers are dismissed? Yes Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? Yes Priority rules for reemployment? No Source: Doing Business database. Doing Business 2017 Sri Lanka 99 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice severance payments applicable to a worker with 1 year of requirements and severance payments due when tenure, a worker with 5 years and a worker with 10 years terminating a redundant worker, expressed in weeks of is considered. One month is recorded as 4 and 1/3 salary. The average value of notice requirements and weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 4.3 Notice period for redundancy dismissal for a worker with 5 years of tenure 4.3 Notice period for redundancy dismissal for a worker with 10 years of tenure 4.3 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 10.8 Severance pay for redundancy dismissal for a worker with 5 years of tenure 54.2 Severance pay for redundancy dismissal for a worker with 10 years of tenure 97.5 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 54.2 of tenure) Source: Doing Business database. Doing Business 2017 Sri Lanka 100 LABOR MARKET REGULATION Job quality Doing Business introduced new data on job quality in leave receive 100% of wages; (vi) the availability of five 2015. Doing Business 2017 covers eight questions on job fully paid days of sick leave a year; (vii) whether a worker quality (i) whether the law mandates equal remuneration is eligible for an unemployment protection scheme after for work of equal value; (ii) whether the law mandates one year of service; and (viii) the minimum duration of nondiscrimination based on gender in hiring; (iii) the contribution period (in months) required for whether the law mandates paid or unpaid maternity unemployment protection. leave; (iv) the minimum length of paid maternity leave (in . calendar days); (v) whether employees on maternity Job Quality Data Equal remuneration for work of equal value? No Gender nondiscrimination in hiring? No Paid or unpaid maternity leave mandated by law? Yes Minimum length of maternity leave (calendar days)? 84.0 Receive 100% of wages on maternity leave? Yes Five fully paid days of sick leave a year? Yes Unemployment protection after one year of employment? No Minimum contribution period for unemployment protection (months)? n.a. Source: Doing Business database. Doing Business 2017 Sri Lanka 101 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING Doing Business presents results for two aggregate even though it is no longer at the frontier in a measures: the distance to frontier score and the ease of subsequent year. doing business ranking, which is based on the distance For scores such as those on the strength of legal rights to frontier score. The ease of doing business ranking index or the quality of land administration index, the compares economies with one another; the distance to frontier is set at the highest possible value. For the total frontier score benchmarks economies with respect to tax rate, consistent with the use of a threshold in regulatory best practice, showing the absolute distance calculating the rankings on this indicator, the frontier is to the best performance on each Doing Business defined as the total tax rate at the 15th percentile of the indicator. When compared across years, the distance to overall distribution for all years included in the analysis frontier score shows how much the regulatory up to and including Doing Business 2015. For the time to environment for local entrepreneurs in an economy has pay taxes the frontier is defined as the lowest time changed over time in absolute terms, while the ease of recorded among all economies that levy the three major doing business ranking can show only how much the taxes: profit tax, labor taxes and mandatory regulatory environment has changed relative to that in contributions, and value added tax (VAT) or sales tax. For other economies. the different times to trade across borders, the frontier is Distance to Frontier defined as 1 hour even though in many economies the time is less than that. The distance to frontier score captures the gap between an economy’s performance and a measure of best In the same formulation, to mitigate the effects of practice across the entire sample of 41 indicators for 10 extreme outliers in the distributions of the rescaled data Doing Business topics (the labor market regulation for most component indicators (very few economies indicators are excluded). For starting a business, for need 700 days to complete the procedures to start a example, New Zealand has the smallest number of business, but many need 9 days), the worst performance procedures required (1), and New Zealand the shortest is calculated after the removal of outliers. The definition time to fulfill them (0.5 days). Slovenia has the lowest of outliers is based on the distribution for each cost (0.0), and Australia, Colombia and 111 other component indicator. To simplify the process two rules economies have no paid-in minimum capital were defined: the 95th percentile is used for the requirement (table 14.1 in the Doing Business 2017 indicators with the most dispersed distributions report). (including minimum capital, number of payments to pay taxes, and the time and cost indicators), and the 99th Calculation of the distance to frontier score percentile is used for number of procedures. No outlier is Calculating the distance to frontier score for each removed for component indicators bound by definition economy involves two main steps. In the first step or construction, including legal index scores (such as the individual component indicators are normalized to a depth of credit information index, extent of conflict of common unit where each of the 41 component interest regulation index and strength of insolvency indicators y (except for the total tax rate) is rescaled framework index) and the recovery rate (figure 14.1 in using the linear transformation (worst − y)/(worst − the Doing Business 2017 report). frontier). In this formulation the frontier represents the In the second step for calculating the distance to frontier best performance on the indicator across all economies score, the scores obtained for individual indicators for since 2005 or the third year in which data for the each economy are aggregated through simple averaging indicator were collected. Both the best performance and into one distance to frontier score, first for each topic the worst performance are established every five years and then across all 10 topics: starting a business, dealing based on the Doing Business data for the year in which with construction permits, getting electricity, registering they are established, and remain at that level for the five property, getting credit, protecting minority investors, years regardless of any changes in data in interim years. paying taxes, trading across borders, enforcing contracts Thus an economy may set the frontier for an indicator and resolving insolvency. More complex aggregation methods—such as principal components and unobserved components—yield a ranking nearly Doing Business 2017 Sri Lanka 102 identical to the simple average used by Doing Business2. The nonlinear transformation is not based on any Thus Doing Business uses the simplest method: economic theory of an “optimal tax rate” that minimizes weighting all topics equally and, within each topic, giving distortions or maximizes efficiency in an economy’s equal weight to each of the topic components3. overall tax system. Instead, it is mainly empirical in nature. The nonlinear transformation along with the An economy’s distance to frontier score is indicated on a threshold reduces the bias in the indicator toward scale from 0 to 100, where 0 represents the worst economies that do not need to levy significant taxes on performance and 100 the frontier. All distance to frontier companies like the Doing Business standardized case calculations are based on a maximum of five decimals. study company because they raise public revenue in However, indicator ranking calculations and the ease of other ways—for example, through taxes on foreign doing business ranking calculations are based on two companies, through taxes on sectors other than decimals. manufacturing or from natural resources (all of which are The difference between an economy’s distance to outside the scope of the methodology). In addition, it frontier score in any previous year and its score in 2017 acknowledges the need of economies to collect taxes illustrates the extent to which the economy has closed from firms. the gap to the regulatory frontier over time. And in any Calculation of scores for economies with 2 cities given year the score measures how far an economy is covered from the best performance at that time. For each of the 11 economies in which Doing Business Treatment of the total tax rate collects data for the second largest business city as well The total tax rate component of the paying taxes as the largest one, the distance to frontier score is indicator set enters the distance to frontier calculation in calculated as the population-weighted average of the a different way than any other indicator. The distance to distance to frontier scores for these two cities (table frontier score obtained for the total tax rate is 13.1). This is done for the aggregate score, the scores for transformed in a nonlinear fashion before it enters the each topic and the scores for all the component distance to frontier score for paying taxes. As a result of indicators for each topic. the nonlinear transformation, an increase in the total tax rate has a smaller impact on the distance to frontier score for the total tax rate—and therefore on the distance to frontier score for paying taxes—for economies with a below-average total tax rate than it would have had before this approach was adopted in Doing Business 2015 (line B is smaller than line A in figure 14.2 of the Doing Business 2017 report). And for economies with an extreme total tax rate (a rate that is very high relative to the average), an increase has a greater impact on both these distance to frontier scores than it would have had before (line D is bigger than line C in figure 14.2 of the Doing Business 2017 report). 2 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less importance in the context of a specific economy. 3 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned to the strength of legal rights index and 40% to the depth of credit information index. Indicators for all other topics are assigned equal weights Doing Business 2017 Sri Lanka 103 Table 13.1 Weights used in calculating the distance to the most. First, it selects the economies that in 2015/16 frontier scores for economies with 2 cities covered implemented regulatory reforms making it easier to do business in 3 or more of the 10 topics included in this Economy City Weight (%) year’s aggregate distance to frontier score. Twenty-nine Dhaka 78 Bangladesh economies meet this criterion: Algeria; Azerbaijan; Chittagong 22 São Paulo 61 Bahrain; Belarus; Brazil; Brunei Darussalam; Burkina Faso; Brazil Rio de Janeiro 39 Côte d’Ivoire; Georgia; India; Indonesia; Kazakhstan; Shanghai 55 Kenya; Madagascar; Mali; Mauritania; Morocco; Niger; China Beijing 45 Pakistan; Poland; Senegal; Serbia; Singapore; Thailand; Mumbai 47 Togo; Uganda; the United Arab Emirates; Uzbekistan and India Delhi 53 Vanuatu. Second, Doing Business sorts these economies Jakarta 78 Indonesia on the increase in their distance to frontier score from Surabaya 22 Tokyo 65 the previous year using comparable data. Japan Osaka 35 Mexico City 83 Selecting the economies that implemented regulatory Mexico Monterrey 17 reforms in at least three topics and had the biggest Lagos 77 improvements in their distance to frontier scores is Nigeria Kano 23 intended to highlight economies with ongoing, broad- Karachi 65 based reform programs. The improvement in the Pakistan Lahore 35 distance to frontier score is used to identify the top Moscow 70 Russian Federation improvers because this allows a focus on the absolute St. Petersburg 30 improvement—in contrast with the relative improvement New York 60 United States Los Angeles 40 shown by a change in rankings—that economies have made in their regulatory environment for business. Source: United Nations, Department of Economic and Social Affairs, Population Division, World Urbanization Prospects, 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Ease of Doing Business ranking The ease of doing business ranking ranges from 1 to 190. Economies that improved the most across 3 or more The ranking of economies is determined by sorting the Doing Business topics in 2015/16 aggregate distance to frontier scores, rounded to 2 Doing Business 2017 uses a simple method to calculate decimals. which economies improved the ease of doing business Doing Business 2017 Sri Lanka 104 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 190 Contributors http://www.doingbusiness.org/rankings More than 12,500 specialists in 190 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 190 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 136 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, case studies and repreneurship customized economy and regional profiles http://www.doingbusiness.org/reports Distance to frontier Data benchmarking 190 economies to the frontier in Methodology regulatory practice and a distance to frontier The methodologies and research papers underlying calculator Doing Business http://www.doingbusiness.org/data/distance-to- http://www.doingbusiness.org/methodology frontier Research Information on good practices Abstracts of papers on Doing Business topics and Showing where the many good practices identified related policy issues by Doing Business have been adopted http://www.doingbusiness.org/research http://www.doingbusiness.org/data/good-practice Doing Business reforms Short summaries of DB2017 business regulation reforms and lists of reforms since DB2008 http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2017 Sri Lanka 105