South Asia Lagging Behind On Business Reforms

by Mary Swire, Tax-News.com, Hong Kong

15 February 2007

The pace of business reform in 2005 and 2006 was slower in South Asia than in any other region, with only India and Pakistan starting to improve their business environment, according to a new report by the World Bank.

The South Asia 'Doing Business' report covers 8 countries. The top ranked countries in the region are the Maldives (53) and Pakistan (74), followed by Bangladesh (88), Sri Lanka (89), Nepal (100), India (134), Bhutan (138), and Afghanistan (162).

As a region, South Asia performs comparatively well in business start-up and protecting investors, but lags far behind on the ease of employing workers, enforcing contracts, and trading across borders, the report finds.

An examination of indicators in key cities reveled that Hyderabad has the most business-friendly regulations in India, Karachi in Pakistan, and Dhaka ranks best in Bangladesh.

However, the report finds that entrepreneurs in South Asia face large regulatory obstacles to doing business. For example, it takes 18 months of salary, on average in the region, to dismiss a redundant worker. More than a year (425 days) is needed to register property in Bangladesh.

High taxes are also an obstacle: a standard company in India pays 81% of commercial profits in taxes and in Pakistan, it takes 560 hours per year to comply with all tax regulations.

According to the report, complex and costly business regulations in the region push workers into the underground economy. In India, just over 8 million workers have formal jobs in the private sector — in a country of over 1 billion people and a work force of 458 million. Sri Lanka has over 4 million workers in formal jobs in the private sector—out of a work force of about 7 million.

By comparison, in Northern European countries, where it is easy to do business and people benefit from social protection, less than 8% of all economic activity occurs in the underground economy.

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