Transcript Starting a Business

Vietnam Stakeholder Roundtable:
Starting a Business
• Olin McGill and Dang Quang Vinh, Ph.D.
• APEC Technical Assistance & Training Facility (TATF)
• October 28, 2013
• Ha Noi
Workshop Overview:
1. Introductions
2. WB Start a Business scoring
3. Lessons Learned globally in
regulatory efficiency reforms
4. Going Beyond Doing Business
5. Conclusion: Setting Priorities
1
1. Introductions:
• Purpose – APEC Initiative:
– APEC initiative: By 2015, 25% Easier, Faster & Cheaper
in Starting a Business, Getting Credit, Enforcing
Contracts, Trading Across Borders, Dealing with
Construction Permits
– Gather information about problems and priorities in SAB
• Participants:
– Who we are, What we do, Our biggest SAB issue
• Doing Business and SAB indicator:
– Where Vietnam stands and why it matters
2
Vietnam on DB 2013: 99th of 185
Free
X Efficient People Are More
Prosperous
DB 2012 RANK
1 – 30
31 – 60
61 – 90
91 – 120
121 – 150
151 - 183
Average PC GDP (2011)
$36,923
$22,986
$10,484
$5,437
$2,241
$1,950
Vietnam GNI Per Capita:
$1,270 – DB 2012
$1,400 – DB 2013
GNI Per Capita Over Time
5
Vietnam’s DB 2013 SAB Performance
Starting a Business -- DB 2013
Score
Rank /
# Tied
Procedures
10
146/13
Time (Days)
34
139/2
Cost (% of
income per
capita)
8.7
76
0
1 (91)
Indictor
Paid-In
minimum
capital
Overall
99
Vietnam Lags in New Biz Starts
Country
Income
per
Capita
Cost as %
income per
capita
Cost
New
Start
Rate
Vietnam (99)
$1,260
8.7%
$110
3.0
15.10%
$1,271
Malaysia (54)
Nominal
$8,420
Malaysia Actual
2.5
8.2%
$690
Hong Kong (6)
$35,160
1.90%
$668
19.2
New Zealand (1)
$36,648
0.40%
$147
17.1
Singapore (4)
$42,930
0.60%
$258
7.4
7
2. DB Start a Business scoring
• The hypothetical new company
• Review DB scoring of Vietnam
– Is it accurate?
– What can we streamline?
• Identify SAB priorities
8
The Hypothetical New Business:
• Limited liability company (or its legal equivalent).
Operates in the economy’s largest business city.
• 100% domestically owned and has 5 owners, all people
• Start-up capital 10 times income per capita, paid in
cash.
• Performs general industrial or commercial activities
• Leases the commercial plant and offices and is not a
proprietor of real estate.
• Not qualified for investment incentives or any benefits.
• Has 10 to 50 employees 1 month operations start
• Has a turnover of at least 100 times income per capita.
• Has a company deed 10 pages long.
DB Scoring – Part 1
#
Procedures
Check the proposed company name;
obtain business registration certificate
1 and tax registration certificate from the
local business registration office under
the Dept. of Planning and Investment
Days
Costs
14 days 200,000
2 Make a company seal
6 days
165,000
370,000
for bronze
Registration of the seal sample at the
3
Police Department
1 day
20,000
4 Open a bank account
1 day
no charge
Publish announcement in a daily
5
newspaper
5 days
700,000
10
DB Scoring – Part 2
#
Procedures
* 6 Pay business license tax
Days
1 day
Buy pre-printed VAT invoices from the
* 7 Municipal Taxation Department or
10 days
obtain self-printed VAT invoices
Register with the local labor office to
declare use of labor (Municipal
*8
1 day
Department for Labor, Invalids and
Social Affairs).
Register employees with the Social
* 9 Insurance Fund for the payment of
1 day
health insurance and social insurance.
Costs
1,000,000
(business
license tax)
200,000 per
book
no charge
no charge
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3. Global Reform Lessons Learned
• The Staggering Costs of Inefficiency
• Lessons from DB and Georgia:
– Ruthless transactional efficiency
– Aggressive incrementalism
• Efficiency, Investment & Growth
• Quantifying Costs of Inefficiency
• Efficiency & Transaction Volumes & Values
12
Mongolia Meat Exporters Crippled
Agency
Purpose
Mongolian Taxation Agency
To certify meat exporter doesn’t owe taxes
- Copy of State Registration Certificate
Certificate of Origin
- Copy of State Registration Certificate
- Copy of Sales Contract
- Invoice
- Packing list
test results
- Copy of Certificate of Origin
- Copy of State Registration Certificate
- Copy of Sales Contract
- Application form
GASI
Conformity Certificate
- Copy of State Registration Certificate
- Certification of Origin
- Test Results
- Invoice
- Application form
NARTAM & Railway Admin.
CMR transport documentation
- Copy of Sales Contract
- Copy of State Registration Certificate
customs clearance
- Sale of Goods Contract
- Copy of State Registration Certificate
- Conformity Certificate
- CMR
- Certification of Origin
- Taxation Certificate
- Export Certificate
MNCCI
GASI and the Central
Laboratory
MCGA
Required Documents
What can DB and Georgia Teach Us?
Small, incremental changes boost Georgia from 112th to 11th in four years
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Impacts on GDP of Top 10 Trade Times
Economy Rank
2010 GDP Days Top
(Millions) Export 10
Average
Increase
Days Top Average Total GDP
Import 10 Increase Increase
Chile
62
203,443
21
-14
10,538
20 -13
5,554
16,092
Indonesia
39
706,558
17
-10
46,633
27 -20
26,849
73,482
Malaysia
29
237,804
17
-10
26,158
14
-7
12,984
39,143
Mexico
59
1,039,662
12
-5
48,864
20 -13
45,953
94,817
Peru
56
153,845
12
-5
2,538
17 -10
1,639
4,177
Philippines
51
199,589
15
-8
12,135
14
-7
7,125
19,261
PNG
99
9,480
26
-19
251
29 -22
719
970
PRC
60
5,873,629
21
-14
657,846
24 -17
259,614
917,461
160
1,479,819
36
-29
163,076
36 -29
52,412
215,488
Thailand
17
318,847
14
-7
19,195
13
-6
5,165
24,360
Vietnam
68
103,572
22
-15
11,963
21 -14
15,370
27,333
Russia
Totals
10,326,248
999,198
433,386 1,432,583
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New Jobs from Top 10 Trade Times
%
Unskilled
New Jobs
Population
Economy
Working
(20%)
in Export
(Thousands)
(15-64) (Thousands)
New Jobs
in Import
Total New
Jobs for
Unskilled
Chile
17,114
69
2,348
52,595
125,148
177,744
Indonesia
239,871
67
32,335
808,375
2,004,770
2,813,145
Malaysia
28,401
65
3,686
328,054
286,402
614,456
Mexico
113,423
65
14,654
293,080
858,759
1,151,839
Peru
29,077
64
3,716
15,921
89,184
105,105
Philippines
93,261
61
11,359
381,662
469,127
850,789
PNG
6,858
58
798
11,001
112,095
123,096
PRC
1,338,300
72
193,786
10,038,115
13,177,448
23,215,563
Russia
141,750
72
20,469
1,127,842
2,433,764
3,561,606
Thailand
69,122
71
9,760
225,456
169,824
395,280
Vietnam
86,937
70
12,241
1,083,329
2,433,511
3,516,839
14,365,430
22,160,032
36,525,462
Totals
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Calculating Traders’ Opportunity Costs
Reductions in time to trade across borders
• Import: from 52 days to 13 days = 39 days saved
• Export: from 54 days to 10 days = 44 days saved
15% = average annual opportunity cost
0.04% = average daily opportunity cost
Savings to traders:
• Import: 39 days X 0.04% X $4.4 billion = $68.6 million
• Export: 44 days X 0.04% X $1.1 billion = $19.4 million
With same capital, trader can do
•
6.75 deals a year at 54 days (365/54)
•
36.5 deals a year at 10 days (365/10)
Ruthless Transactional Efficiency:
• Lejava’s First Law: Government
should never ask a citizen or
business for info it already has.
• Corruption is a technical issue:
Every interaction between business
and government is an opportunity for
corruption. Eliminate every
interaction we can.
Vakhtang Lejava
Former Chief Adviser
to the Prime Minister
Government of Georgia
• Simplicity is Power: Streamline
and automate everything. (Control
and compliance will both increase.)
Aggressive Incrementalism:
• “A poor transitional country
with no capacity to do
anything needs poor
transitional laws.”
• Eliminating agencies with no
capacity to do their jobs
can’t make things worse
• Fix what we can today,
every day.
Kakha Bendukidze
Former State Minister
of Reforms Coordination
Georgia’s Results - 2006 - 2009
•
•
•
•
•
•
•
•
•
•
•
GDP increased 65%
Tax collections increased 121%
FDI increased annually 7 – 20%
50% increase in total trade turnover
67% increase in registered businesses
464% increased in registered individual entrepreneurs
50% increase in construction sector employment, 65% increase in
salaries
Total deposits grew 34% annually, from $535 million to $2.5 billion
(467%)
Private credit grew 39 % annually, from $533 million to $3.1 billion
(582%)
Construction lending grew 43% annually, from $28 million to $195
million (696%)
Mortgage lending grew 66% annually, from $72 million to $546
million (758%)
Georgia: Efficiency Savings Fuel Growth
$744 million
Annual Savings
to Business and
Government
Annual Return
on USAID’s
Four Year
Investment
-- $57 to $1
Quantifying Costs of Inefficiency
• Based on methodology by The Netherlands to quantify
administrative burdens on business.
• Monetizing Benefits v. Quantifying Costs
• Benefits /Costs to business = Costs X Quantity
Costs = financial (fees, bribes(?), etc.) + compliance
Quantity = number of businesses X frequency per year
• Benefits/Costs to government = Administrative Savings
Savings = hourly rate of gov’t worker X hours saved
Other = rental space, storage space, retrieval time, etc.
Georgia Business Registry Archives
Unified Business/Tax Registration
1.
92 GEL = average daily net profit of businesses in Georgia
* 43,000 business registered annually
* 5 days saved by new procedures
= 19.78 million GEL
2. 1 day of accountant/lawyer work saved
* 45 GEL average daily salary
= 1.935 million GEL
3. 22 Tax Department personnel reassigned
* 4,500 GEL average annual salary
= 99,000 GEL
Total annual savings = 21,814,000 GEL or $ 12.4 million.
Registrations Nearly Double
80,000
77,778
70,000
60,000
50,000
40,000
40,916
30,000
20,000
10,000
0
Taxpayers registered in
Taxpayers registered in
September 1, 2004 - August September 1, 2005 - August
31, 2005
31, 2006
Simplified Registration of
Individual Taxpayers
1. 11 GEL = average daily salary
* 78,000 annual individual registration
* 1 day saved by new procedures
= 858,000 GEL
2. 5 GEL notary fee eliminated
* 78,000 annual individual registrations
= 390,000 GEL
3. 0.50 needed to serve each applicant
* 78,000 annual applications
* 18 GEL average Tax Department employee salary
= 88,000 GEL
Total annual savings = 1.336 million GEL or $763,500 USD.
Registrations Increase 4X
30000
28,077
25000
20000
15000
10000
5000
7,114
0
Natural Persons registered in April, May, June (25 days) of 2006
Natural Persons registered in July, August, September (25 days) of 2006
Mongolia’s SAB Reforms
• 220,456,633 – Registration at Tax Office Eliminated*
• 473,862,935 – Notary Requirements Reduced*
•
54,311,442 – GASR reviews reduced from 3 to 2
• 748,631,010 – Total Savings ($448,282) – 03-09/2013
– 694,319,567 – Total Savings for Business
– 54,311,442 – Total Savings for Government
Business Savings 12.8 Times Government Savings
4. Going Beyond Doing Business
• Why do so many businesses stop, fail, or
“disappear”?
• Why so many JSCs, and so few oneshareholder LLCs?
• What are biggest non-compliance issues?
• How to address Business Registry Office
resource issues?
29
5. Conclusion
Setting Priorities:
– Obey Lejava’s First Law?
– Empower business start-up professionals?
– What else?
30