Bhutan’s ranking on ease of doing business has been slipping for the last three years despite reforms and the former government’s pledge to take the country’s ranking to the top 50.
The World Bank’s ease of doing business report, 2019, which compares business regulation for domestic firms in 190 economies, placed Bhutan in the 81st position, down from 73 in 2018.
A high ranking on ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. The rankings are determined by sorting the aggregate scores on 10 parameters, each consisting of several indicators.
In last year’s report, Bhutan was considered the best place to do business in South Asia. This year, India tops the regional ranking at 77th place, up from 100. Bhutan comes second in the region with Sri Lanka ranking 100, Nepal 110, Pakistan 136 and the Maldives 139.
Afghanistan (167) and Bangladesh (176) are the lowest ranked economies in the region when it comes to doing business.
Among the ten parameters, Bhutan’s top ranking was in a parameter that records tax payments, time taken and contribution rate for a firm to comply with all tax regulations. In terms of paying tax, Bhutan ranks 15 among 190 economies. This was because of the introduction of electronic systems such as RAMIS. “Bhutan made paying taxes easier by introducing an online platform for filing corporate income tax and personal income tax returns,” the report states.
In other two parameters, trading across the border and enforcing contract, Bhutan ranks 28th. About nine hours of trading time is consumed in documentary compliance costing about USD 50 and another five hours in border compliance, which costs another USD 59. This is with regard to export and for the sake of assessment, the distance from the capital city to the nearest border is taken into account.
It takes 225 days to enforce a contract, with each contract costing 23 percent of the contract value.
Bhutan is ranked 54th in terms of ‘registering property’ parameter. According to the report, there are three procedures involved in registering a property and it takes 77 days. Quality of land administration is rated 23.5 out of 30.
The country ranks 73rd in ‘getting electricity.’ It involves four procedures and takes 61 days to get electricity connection. The score on reliable power supply and transparency of tariff is four out of eight.
On getting credit, Bhutan is ranked 55 as the credit bureau coverage is only about 35.9 percent of the adults. Dealing with construction permit, is another parameter, where the country is ranked 88. There are 21 procedures involved and it takes 150 days to get a permit.
It takes 12 days and 8 procedures to start a business in Bhutan, as per the report. The country is placed 91st for starting a new business.
With regard to protecting minority investors, the country is ranked 125. Bhutan is also placed at 168 for resolving insolvency since there is no practice of bankruptcy as yet and thus all scores in this parameter a zero.
Ease of doing business advocates for both regulatory quality and efficiency. “It is important to have effective rules in place that are easy to follow and understand. To realise economic gains, reduce corruption and encourage SMEs to flourish, unnecessary red tape should be eliminated,” the report stated.
The report stated that scores and rankings of each economy vary considerably across topics, indicating that a strong performance by an economy in one area of regulation can coexist with weak performance in another. One way to assess the variability of an economy’s regulatory performance is to look at its scores across each parameter. Qatar, for example, has an overall ease of doing business score of 65.89, meaning that it is about two-thirds of the way from the worst to the best performance. It scores highly at 99.44 on paying taxes, however.
Many economies use the index to assess its level of regulatory performance and how it improves over time. The individual indicator scores show the distance of each economy to the best regulatory performance observed in each of the indicators across all economies in the Doing Business sample since 2005.
Doing Business, according to the World Bank does not measure the full range of factors, policies and institutions that affect the quality of an economy’s business environment or its national competitiveness. It does not, for example, capture aspects of macroeconomic stability, development of the financial system, market size, the incidence of bribery and corruption or the quality of the labour force.
The focus is deliberately narrow even within the relatively small set of indicators. The time and cost required for the logistical process of exporting and importing goods is captured in the trading across borders indicators, for example, but they do not measure the cost of tariffs or of international transport. Doing Business provides a narrow perspective on the infrastructure challenges that firms face, particularly in the developing world. It does not address the extent to which inadequate roads, rail, ports and communications may add to firms’ costs and undermine competitiveness.