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Building confidence in doing business in Malaysia
06 Nov 2016
Malaysia slipped a notch this year, ranking 23rd out of 190 economies in the World Bank Doing Business 2017 Report released in the end of October.
As a barometer gauging the worthiness of doing business, Malaysia dropped one spot out of 189 economies with a distance to frontier score of 78.18.
Nevertheless, Malaysia remains ahead of advanced countries such as Switzerland (31st), France (29th), Netherlands (28th), United Arab Emirates (26th), Japan (34th), Thailand (46th), China (78th) and India (130th),
Malaysia is also ranked second in Asean in the report after Singapore and 7th in the Asia Pacific after New Zealand, Singapore, Hong Kong, South Korea, Taiwan and Australia.
Based on the improved measurements, Malaysia’s 23rd placing was based on a Distance to Frontier (DTF) score of 78.11 in DB 2017, calculated Malaysia Productivity Corporation (MPC) director-general, Datuk Mohd Razali Hussain.
Mohd Razali told a media briefing after sharing the methodology and highlights of the Doing Business Report 2017. This is in contrast to 22nd out of 189 economies in the DB 2016, with a DTF score of 78.18.
The DB 2017 further refined the methodology this year with the “Paying Taxes” indicator expanded and gender dimension being added in three of the 11 indicators.
“The Paying Taxes indicator set has been expanded to cover the post filing processes (what happens after a firm pays taxes) such as tax refunds, tax audits and administrative tax appeals.
“A gender dimension has been included in four of the 11 indicator sets which sees Starting a Business, Registering Property and Enforcing Contracts presenting a gender dimension for the first time this year,” he added.
Malaysia is also credited alongside Japan as being the best performers on the “Reliability of Supply and Transparency of Tariffs Index” under the “Getting Electricity” indicator. Last year, the country was also one of the best performers on this index.
Malaysia is also acknowledged as having made paying taxes easier by enhancing the electronic system for filing and paying the Goods and Services Tax (GST). The country is also recognised as one of the economies to have introduced the bureau or registry credit scores as a value-added service.
Meanwhile, MPC’s Deputy Director General Datuk Abdul Latif Abu Seman said the World Bank DB case study was done based on Kuala Lumpur, but people are actually doing business throughout the country.
“What is happening on the ground is what supposedly counts. That’s why we have extended initiatives to improve the ease of doing business throughout the country, and not just in Kuala Lumpur,” he added.
This comes as the Doing Business historical graph shows that Malaysia climbed from 25th spot in 2007 to sixth place in 2014.
“Of course, the rules of the game sometimes do change. That doesn’t matter. It not so much about numbers, but what is good for the country. If we were able to achieve sixth position once, I think we can do it again and need to be diligent at the task,” he added.
How ‘business-worthy’ is our climate?
The new World Bank Group’s Doing Business Report has revealed that Malaysia continued its efforts to improve the business climate for local entrepreneurs.
The report, ‘Doing Business 2017: Equal Opportunity for All’ also found that Malaysia was one of 17 economies that implemented reforms in East Asia and the Pacific region in the past year.
Country Manager of World Bank Group’s Global Knowledge and Research Hub in Malaysia, Faris Hadad-Zervos, said Malaysia has implemented two business reforms in the past year, including the strengthening of credit reporting by providing consumer credit scores.
“With this change, Malaysia has attained a perfect score in the depth of credit information index of the Doing Business Indicator of Getting Credit,” he told reporters after the launch of the report here yesterday.
According to the report, Malaysia also made it easier to pay taxes by introducing an online system for filing and paying goods and services tax, reducing the number of payments to comply with the taxes to nine for medium-sized company from 13 in the previous year.
Faris said Malaysia continued to be among the top 15 performers globally in dealing with construction permits, which required only 79 days to obtain construction permit versus the global average of 156 days.
“Malaysia also retains its spot this year as the third best economy in the world in terms of protecting minority investors,” he said.
The tax paying taxes indicator for the report this year has been expanded to include measures of post-filing processes relating to tax audits and tax refunds.
Faris said Malaysia performed well on this measure, taking about five hours to comply with a corporate income tax audit as compared to the regional average of 18 hours.
Steady biz confidence in the third quarter
Meanwhile, the latest Global Economic Conditions Survey (GECS) from the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants (IMA) shows that business confidence in Malaysia has remained steady during the third quarter of 2016.
The survey also revealed that confidence across Asia Pacific has improved for the fourth consecutive quarter – thanks in large part to improved confidence in the region’s biggest economy, China.
David Chin, head of ACCA Malaysia, said Malaysia has outperformed Singapore and fellow regional trading partners this quarter in terms of confidence, which is a positive thing to note.
However, concerns about rising household debt predominantly observed in Malaysia, Singapore, Korea, and Thailand, has preyed on overall prospects within the region.
“Thus, the affordable housing incentives and enhanced tax incentives announced by the Prime Minister in the recent Budget 2017 will have significant implications and are a positive nudge towards addressing this household debt strain,” he said in a statement last week.
According to ACCA’s report, 46 per cent of respondents across Asia Pacific are feeling less confident about their prospects than the past quarter, which is well above the global average of 38 per cent. This is despite improving confidence in general, aided by an improved outlook for China and Hong Kong.
On the global front, business confidence is at a 12-month high, boosted by increased prospects of government spending and recoveries in China and North America. But despite improvements in confidence, the world has yet to see it translate into a meaningful boost to hiring and investment.
The survey reported only 19 per cent of companies said they are considering hiring new staff, and 14 per cent were looking at opportunities to invest in new technology. In every region, there were more businesses planning to cut staff than those planning to hire more.
Chin called for Malaysia to learn from the OECD in terms of investment driving confidence.
“North America is performing strongly in contrast to most other regions, helped by strong employment growth in the US,” he said in a statement. “Meanwhile, confidence in China is at its highest level since 2012, which has had an uplifting effect on many emerging markets. Even Brazil, which has been in deep recession for several years, and Russia are showing tentative signs of improvement.
“Across the OECD there is a strong correlation between governments reaching for their wallets following years of austerity and improving confidence. This underlines the importance of investment to support economic growth.”
ACCA’s report also mentioned the upcoming presidential election in the US as a global risk factor, given the uncertainty surrounding it. Protectionist sentiments have been unusually pronounced, thus the outcome and response of the new President will be significant for the future prospects of global free trade.
Within the report, it is observed that confidence across Asia Pacific has improved for the fourth consecutive quarter – thanks in large part to improved confidence in the region’s biggest economy, China.
However, although confidence does appear to be improving, it remains weak compared with other regions.
Across Asia Pacific, 46 per cent of respondents report feeling less confident about their prospects than last quarter – higher than any other region apart from Latin America, and well above the global average of 38 per cent.
Weak export growth, which has dragged down growth in the region’s most trade-dependent economies – namely Taiwan, Hong Kong and Singapore – has been a key factor holding back economic prospects.
Rising levels of household debt, especially in Korea, Singapore, Malaysia and Thailand, have been another concern.
In 3Q, confidence in Hong Kong increased sharply, while it fell in Singapore, and was broadly flat in Malaysia.
The sharp rise in confidence in Hong Kong reflects the improved prospects for China, which is Hong Kong’s largest trading partner.
The fall in Singapore could have been due to renewed concerns over the outlook for the city state’s overheating property market.
Convergence with IFRS another step forward
Meanwhile, Malaysia’s full adoption of the International Financial Reporting Standard (IFRS) as a standard in Malaysia set to be effective Jan 1, 2018 will be another determinant in boosting Malaysia’s business confidence.
Malaysian Accounting Standards Board (MASB) chairman Mohamed Raslan Abdul Rahman said Malaysia is on track to achieve full convergence and adoption of the global standard, which is used in more than 100 countries.
Mohamed Raslan said the implementation of the new framework for private entities, which is the Malaysian Private Entities Reporting Standard (MPERS) by Jan 1, 2016, is already part of the convergence.
This is when, by next year, Malaysia will adopt the IFRS in small and medium enterprises (SMEs).
The MPERS is almost identical to the IFRS for SMEs set by the IASB, except for the requirements for those involved in property development activities.
“The MPERS, which is more simpler, will replace the current Private Entities Reporting Standards (PERS), beginning Jan 1, 2016, and will make it easier for SMEs to do business overseas. Most Malaysian companies are ready for the MPERS.”
MIA President Datuk Mohammad Faiz Azmi said there are about 1,500 licensed accounting firms.
“The MIA has 32,000 members and it is our aim to double the number of accountants in the country.
“Although we have between 4,000-5,000 students graduating annually with accounting degrees, the conversion rate for people doing the professional exam is very low. “We are focusing our efforts on this,” he added.
The ratio of accountants to people in Malaysia is 1,000:1, whereas in more developed countries, it is 100:1 – signifying Malaysia’s underrepresentation of the matter.
New Companies Bill next year to further boost confidence
The Malaysia Productivity Corporation (MPC) has maintained its target of being in the list of top 10 countries in the ease of doing business ranking by 2020.
Director-General Datuk Mohd Razali Hussain said the target can be achieved with the government committed to improving the ranking on the pledge to make further improvements every year, alongside the collaboration from other parties.
“Given our previous experience and focus groups that are now very cohesive in terms of interaction on this matter, as well as looking at other relevant country experiences, we are confident of achieving the top 10 goal by 2020,” he added.
Razali said for example, in respect of the “Starting a Business Indicator”, Malaysia’s ranking on the DB can improve, following implementation of the new Companies Bill.
“If we are able to execute it (the Bill) by January 2017, than we can show some result by June of the year,” he added.
To note, the Companies Bill 2015, which will replace the Companies Act 1965, has received Royal Assent on August 31, 2016 and has been gazetted on September 15, 2016 as the Companies Act 2016. It will be implemented in stages beginning January 2017.
Companies Commission of Malaysia (SSM) chief executive officer Datuk Zahrah Abd Wahab Fenner said companies will see changes in enforcement as early as in the first quarter.
“Right now the Bill is awaiting the consent of the Yang di-Pertuan Agong Tuanku Abdul Halim Mu’adzam Shah. Once we obtain the nod, SSM will enforce it in stages. We are currently working out the details, including the fee structure,” she told reporters at the SSM National Conference 2016 in Kuala Lumpur last month.
The Companies Bill 2015, which is said to be a more modern set of legislation, places emphasis on better governance and internal controls in business operations.
Under the new legislation which was passed by the Parliament in April 28 this year, companies will need to comply with, among others, new rules for better business reporting as well as improved auditing and accounting.
She said the new legislation would encourage more young entrepreneurs to start their own businesses as starting a business would be made simpler, with the removal of multiple forms and the introduction of a super-form.
“Under the 2015 Bill, new set-ups will not be required to have the Memorandum and Articles of Association and common seal at the point of registration.
“A flat incorporation fee will be introduced, depending on the type of companies registered. This will translate into lower cost in starting a business,” she said.
Under the new legislation, companies will have to comply with new rules for better business reporting, improved audit and accounting, strengthening of share and capital maintenance framework.
The new legal framework will have an impact on all companies, shareholders, directors, as well as creditors.
Neww set-ups will not be required to have the Memorandum and Articles of Association and common seal at the point of registration. A flat rate incorporation fee will be introduced, depending on the type of companies registered. This will translate into lower cost in starting a business.
The upcoming legislation will also allow a single member to incorporate a company, and this person may choose to become the sole director of the firm.
The new bill will also eliminate obsolete procedures in addition to reducing the cost of compliance through the simplification of rules and deregulatory measures.
He welcomed the new requirement of solvency statements for corporate exercises involving reduction of share capital, financial assistance, share buy-backs and payment of dividends.
Under the bill, the solvency test is used as a tool for capital maintenance much more widely than current law as a means to protect the interest of creditors.
Meanwhile, the sections dealing with “Directors’ Duties and Responsibilities” under the bill would have an impact on the senior management of a company as “director” includes the chief executive officer (CEO), chief financial officer (CFO), chief operating officer (COO) or any other person responsible for the management of the company.
For board meetings, new clauses in the bill include a presumption that directors have voted in favour of a resolution unless there is express dissent from or a vote to object to the resolution at the meeting.
And in cases of near-insolvency of a company, directors have “to be cognisant of duties to creditors” as there could be liability for unlawful trading and misfeasance.
Posted on : 06 November 2016
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