Labour, tax law overhaul needed to ease business in South Asia

Labour, tax law overhaul needed to ease business in South Asia
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First Published: Thu, Feb 15 2007. 03 09 AM IST
Updated: Thu, Feb 15 2007. 03 09 AM IST
New Delhi: Countries in South Asia, including India, Sri Lanka and Pakistan, need to change labour laws, cut procedures and simplify tax payments to ease business, a World Bank study said.
“Priorities for reform across the region are—make labour market regulations more flexible, ensure more efficient contract enforcement, and facilitate trade,” the World Bank said in a report titled, ‘Doing Business in South Asia 2007’. The report ranks Pakistan 74, Bangladesh 88, Sri Lanka 89 and India 134 in terms of ease of doing business. Maldives at 53 topped the region’s list.
Countries in South Asia, which accounts for about a fourth of the world’s population, have changed policies ranging from allowing foreign ownership to cutting taxes to boost the pace of growth. Still, the countries lag behind those in eastern Europe. Georgia cut the start-up time for companies to 16 days from 21 and cut the minimum capital requirements by 90%. Registrations by companies in Georgia rose 55% on year, the bank said.
“Reforms allow firms to grow faster and create jobs,” the World Bank said. “An increasing number of those jobs will be in the formal economy because the benefits of being formal—such as easier access to credit and better utility services—often outweigh the costs, such as taxes.”
By improving the ease of doing business, a country can cut the contribution of the informal industries in the gross domestic product, the bank said.
The economy of Georgia, a country of 40 lakh people between Russia and Turkey on the eastern shore of the Black Sea, grew 9.5% last year.
India, Nepal and Sri Lanka have strict requirements for redundancy dismissal, the bank said. The notice period for firing a worker is 13 weeks in India. Sri Lanka requires a severance payment of 39 months of wages, the bank said. “When such tight restrictions are placed on a firm’s ability to fire, that firm necessarily becomes wary of hiring,” the World Bank said.
Columbia cut severance payment from 26 to 11 months and the mandated notice from eight weeks to two weeks. This helped create three lakh jobs, the bank said. The South American nation’s economy grew 7.7% in 2006 third-quarter, its fastest pace since 1978.
Countries in South Asia need to ease licensing. It takes on average 16 procedures, 226 days and costs 375% of per capita income to obtain all the required building permits, the World Bank said.
In Japan, a builder needs to complete 11 procedures requiring 96 days and 20% of the average annual income to fulfil all regulations to construct a warehouse, the bank said.
The region needs to simplify its tax collection system, the bank said. A medium-sized company in India has to make 59 tax payments totalling 81% of commercial profit. A company in Bangladesh needs to make 17 payments, but the whole process takes 400 hours, the bank said.
In Hong Kong, a company needs to pay each year one income tax and one fuel tax totalling 29% of commercial profit, the bank said.
India is now on par with China in the time taken to start a business, the bank said. India cut the time to start a business from 71 days to 35 days, the same as in China, by simplifying a complex tax registration system.
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First Published: Thu, Feb 15 2007. 03 09 AM IST
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