Insight
Doing Business 2016 - Measuring regulatory quality and efficiency
March 2016
The World Bank Group's Doing Business report measures the ease of doing business for small and medium enterprises in 189 economies, with the goal of promoting more efficient regulations for domestic entrepreneurs. The Doing Business indicators, thus, broadly measure the complexity and cost of regulatory processes as well as the strength of legal institutions, spanning the life-cycle of a business, from start-up to closing. The 10 areas measured are — 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 — to develop an overall ease of doing business ranking. Data is also collected on the regulation of labour markets but this is not part of the overall ease of Doing Business ranking.
An overall trend from the past 12 years of Doing Business research shows convergence towards best practices, as lower-income economies have improved more in the areas measured by Doing Business than high-income economies (which started with relatively stronger regulatory frameworks). This historical trend is reflected in the findings from the latest report, Doing Business 2016: Measuring Regulatory Quality and Efficiency, which finds that over 60% of the world's economies improved their business regulations during the past year. Nearly three-quarters of the 231 reforms recorded over the past year were implemented in developing economies.
The largest number of these reforms were effected in the area of Starting a Business, which looks at all the procedures required to obtain a permit for starting a business as well as the time and cost involved in completing these procedures. Thirty-three out of the 45 economies that effected improvements in the area of Starting a Business were developing economies. India, for example, made significant improvements by eliminating the minimum capital requirement and a business operations certificate, saving entrepreneurs an unnecessary procedure and five days' wait time. Kenya also made business incorporation easier by simplifying pre-registration procedures, reducing the time to incorporate by four days. Doing Business data for the past 12 years shows that in 2003, it took an average of 51 days worldwide to start a new business. By 2015, this had been more than halved to 20 days.
Economies around the world are also showing improvements in the area of Paying Taxes, which records the taxes and mandatory contributions that a medium-size company must pay in a given year as well as the administrative burden of paying taxes and contributions. In the past 11 years, almost 80% of the economies monitored by Doing Business made significant changes to improve their tax regimes. The Doing Business 2016 report records that Vietnam reduced the frequency of VAT filings for companies with an annual turnover of VND 50 billion or less from monthly to quarterly. Also, The Gambia improved its bookkeeping system for VAT accounts to better track the input and output records required for filing VAT returns.
Both high-income and low-income economies offer online regulatory solutions for entrepreneurs. For Starting a Business, electronic registration is possible in more than 80% of high-income economies and in about 30% of low-income ones. In the past year, 11 economies enacted reforms to encourage electronic business regulation. For Paying Taxes, more than 40% of economies allow businesses to file taxes online and the majority of businesses use the online systems. In the past year, 18 economies established or improved online tax payment systems, which makes it the most common type of business reform for Paying Taxes.
Doing Business 2016 caps a two-year effort to significantly expand the benchmarks used to measure the efficiency of business regulation, such as the time and cost of complying with government regulations, to now include more measurements of the quality of regulation. This better reflects the reality of business operations on the ground. Analysis shows that efficiency and quality go hand in hand: economies that have efficient regulatory processes as measured by Doing Business also tend to have good regulatory quality. Economies of Europe and Central Asia have performed well on the new quality benchmarks, while those in the Middle East and North Africa region have performed less well.
Doing Business has become one of the world's most influential policy publications, in part because it offers the unique ability to analyse thousands of data points for multiple topics for hundreds of economies for more than a decade. Collecting these thousands of data points every year is possible thanks to more than 11,000 legal, tax, engineering and trade professionals in 189 economies who generously contribute their expertise, on a pro bono basis, to answer annual questionnaires about the time, cost, procedures and regulatory aspects of running a small business in their country. Russell Bedford contributes global research expertise to the Doing Business project.
For copies of the national, regional and global Doing Business reports, visit: www.russellbedford.com/doing-business