ISLAMABAD, March 29: The World Bank has urged the Securities and Exchange Commission of Pakistan (SECP) to "do more" to increase compliance with respect to immediate disclosure of large party related transactions, beneficial ownership and control by shareholders and companies.
"More effective enforcement has helped improve compliance," the WB said in a new report on "Doing Business in South Asia 2007" released on Thursday.
It said that access to information about specific transactions by minority shareholders prior to filing a law suit can also be strengthened. The burden of proof for holding directors liable is generally high. "Pakistan needs to strengthen compliance with its rules governing annual general shareholder meetings.
Some companies still do not hold them, or hold them in difficult to reach or obscure locations. This is particularly important because the law does not allow voting by mail or electronically."
Pakistan is a runner-up reformer in the region, Karachi has the country's most business-friendly regulations. Doing business became easier in Pakistan in 2005-06, the new report by the World Bank and its private sector arm - International Finance Corporation (IFC) said.
Two reforms in Pakistan reduced the time, cost, and hassle for businesses to comply with legal and administrative requirements. Out of the six major Pakistani cities covered by the report, Karachi has the most business-friendly regulations as measured by the Doing Business reports, while Quetta imposes the most complex and costly administrative barriers. Faisalabad, Lahore, Peshawar, and Sialkot rank in between.
The report compares business regulations in the World Bank's South Asia region with 175 economies around the world. Pakistan, the runner-up reformer in South Asia, implemented reforms to simplify cross-border trade and reduce corporate tax rates.
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).
Doing Business in South Asia 2007 is the third report in a series of South Asia regional reports based on the methodology of the annual global Doing Business report. Doing Business tracks a set of regulatory indicators related to business start-up, operation, trade, payment of taxes, and closure by measuring the time and cost associated with various government requirements.
It does not track variables such as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates. This year's report covers six Pakistani cities in four different provinces. Recent reforms have resulted in a drop in the number of days required to import in Pakistan: from 39 to 19 days. Pakistan now ranks 51st worldwide in time to import, based on a concerted effort to complement trade liberalisation with improved trade logistics.
Pakistan also reformed positively in the area of taxation by steadily reducing its corporate tax rate, from 39 per cent in 2004 to 37 per cent in 2005 and 35 per cent in 2006. Like most other countries in the region, Pakistan scores well on the indicators related to starting a business (54th out of 175) and protecting investors (19th out of 175).
"Despite these improvements and recent reforms, Pakistan can do better on the overall ease of doing business", the report said. It finds that the greatest remaining obstacles for the country include enforcing contracts through courts, labour regulations, and paying taxes. For example, it takes 880 days or about 2.5 years in Karachi to resolve a commercial dispute.
Despite the reduced tax rate, businesses must still spend about two months per year or 560 hours to comply with all tax regulations. And an employer who is faced with less demand for the products he sells must pay an average of 90 weeks of salary to make a worker redundant.
Different provincial and municipal level regulatory requirements, as well as differences in the implementation of national-level regulations, either enhance or constrain local business activity.
This explains, for example, why in Sindh, it only takes six procedures and 50 days to register property, whereas it takes 12 procedures and 96 days in Quetta, with the provinces of Punjab (Faisalabad, Lahore, Sialkot) and NWFP (Peshawar) falling in the middle.
"Provinces can learn from each other in the areas of business regulation where there are important regional variations," the report added. In Lahore, for example, starting a business is easiest; in Peshawar, resolving a commercial dispute through court is easiest; and in Karachi, registering property can serve as best practice.
One of the most interesting findings of the report is how Pakistan could improve significantly if it simply adopted the best practices in business regulation that already exist within the country.
Pakistan could jump from its current position at 74th to 52nd on the Doing Business rankings, said Caralee McLiesh, one of the authors of the report.