73953 Economy Profile: Kyrgyz Republic Doing Business 2013 Kyrgyz Republic 2 © 2013 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 15 14 13 12 A copublication of The World Bank and the International Finance Corporation. This work is a product of the staff of The World Bank with external contributions. Note that The World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Doing Business 2013 Kyrgyz Republic 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 37 Registering property .................................................................................................................. 44 Getting credit .............................................................................................................................. 54 Protecting investors ................................................................................................................... 61 Paying taxes ................................................................................................................................ 70 Trading across borders .............................................................................................................. 78 Enforcing contracts .................................................................................................................... 87 Resolving insolvency .................................................................................................................. 98 Employing workers .................................................................................................................. 104 Data notes ................................................................................................................................. 111 Resources on the Doing Business website ............................................................................ 116 Doing Business 2013 Kyrgyz Republic 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is (except for the paying taxes indicators, which cover the for a local entrepreneur to open and run a small to period January–December 2011). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy‘s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and employing workers. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 185 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 33 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 19 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2013 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and presents indicators for Kyrgyz Republic. To allow useful business regulatory reforms. The data, along with comparison, it also provides data for other selected information on ordering Doing Business 2013, are economies (comparator economies) for each indicator. available on the Doing Business website at The data in this report are current as of June 1, 2012 http://www.doingbusiness.org. Doing Business 2013 Kyrgyz Republic 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy‘s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: Eastern Europe & Central Asia business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Low income medium-size businesses through their life cycle. Economies are ranked from 1 to 185 by the ease of Population: 5,507,000 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 920 percentile rankings on each of the 10 topics included in the index in Doing Business 2013: starting a business, DB2013 rank: 70 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2012 rank: 69* investors, paying taxes, trading across borders, Change in rank: -1 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see * DB2012 ranking shown is not last year‘s published the data notes for more details). The employing workers ranking but a comparable ranking for DB2012 that indicators are not included in this year‘s aggregate ease captures the effects of such factors as data of doing business ranking, but the data are presented corrections and the addition of 2 economies in this year‘s economy profile. (Barbados and Malta) to the sample this year. See the data notes for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy‘s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2013 Kyrgyz Republic 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy relative to the regional average (figure 1.2). The stands in the aggregate ranking on the ease of economy‘s rankings on the topics included in the doing business is useful. Also useful is to know how ease of doing business index provide another it ranks relative to comparator economies and perspective (figure 1.3). Figure 1.2 How Kyrgyz Republic and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Kyrgyz Republic ranks on Doing Business topics Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business year Doing Business introduced the distance to frontier tells only part of the story, so do changes in that ranking. measure. This measure shows how far each economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy since of changes in an economy‘s regulatory environment for 2005 on each indicator in 9 Doing Business indicator sets. firms, but they are always relative. An economy‘s ranking Comparing the measure for an economy at 2 points in might change because of developments in other time allows users to assess how much the economy‘s economies. An economy that implemented business regulatory environment as measured by Doing Business regulation reforms may fail to rise in the rankings (or may has changed over time—how far it has moved toward (or even drop) if it is passed by others whose business away from) the most efficient practices and strongest regulation reforms had a more significant impact as regulations in areas covered by Doing Business (figure 1.4). measured by Doing Business. The results may show that the pace of change varies widely Moreover, year-to-year changes in the overall rankings do across the areas measured. They also may show that an not reflect how the business regulatory environment in an economy is relatively close to the frontier in some areas economy has changed over time—or how it has changed and relatively far from it in others. in different areas. To aid in assessing such changes, last Figure 1.4 How far has Kyrgyz Republic come in the areas measured by Doing Business? Note: The distance to frontier measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2005. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). The overall distance to frontier is the average of the distance to frontier in the 9 indicator sets shown in the figure. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy‘s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Kyrgyz Republic Kyrgyz Republic DB2013 Kyrgyz Republic DB2012 Best performer globally Kazakhstan DB2013 Russian Federation Tajikistan DB2013 Moldova DB2013 Ukraine DB2013 Indicator DB2013 DB2013 Starting a Business (rank) 15 16 25 92 101 77 50 New Zealand (1) Procedures (number) 2 2 6 7 8 5 7 New Zealand (1)* Time (days) 10 10 19 9 18 24 22 New Zealand (1) Cost (% of income per 2.8 3.5 0.6 5.7 2.0 27.1 1.5 Slovenia (0.0) capita) Paid-in Min. Capital (% of 0.0 0.0 0.0 8.7 1.4 0.0 0.0 91 Economies (0.0)* income per capita) Dealing with Construction Hong Kong SAR, China 67 67 155 168 178 180 183 Permits (rank) (1) Hong Kong SAR, China Procedures (number) 12 12 32 26 42 24 20 (6)* Time (days) 142 142 189 291 344 228 375 Singapore (26) Cost (% of income per 140.6 171.8 103.5 69.3 129.2 638.5 1,262.6 Qatar (1.1) capita) Doing Business 2013 Kyrgyz Republic 11 Kyrgyz Republic DB2013 Kyrgyz Republic DB2012 Best performer globally Kazakhstan DB2013 Russian Federation Tajikistan DB2013 Moldova DB2013 Ukraine DB2013 Indicator DB2013 DB2013 Getting Electricity (rank) 177 182 80 161 184 181 166 Iceland (1) Procedures (number) 7 7 6 7 10 9 11 Germany (3)* Time (days) 159 247 88 140 281 185 285 Germany (17) Cost (% of income per 2,428.6 2,545.6 71.1 578.0 1,573.7 1,140.6 192.3 Japan (0.0) capita) Registering Property 11 16 28 16 46 82 149 Georgia (1) (rank) Procedures (number) 4 4 4 5 5 6 10 Georgia (1)* Time (days) 5 5 40 5 44 37 69 Portugal (1) Cost (% of property value) 1.8 2.2 0.1 0.9 0.2 4.3 3.7 Belarus (0.0)* Getting Credit (rank) 12 9 83 40 104 180 23 United Kingdom (1)* Strength of legal rights 10 10 4 8 3 2 9 Malaysia (10)* index (0-10) Depth of credit 4 4 5 4 5 0 4 United Kingdom (6)* information index (0-6) Public registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Portugal (90.7) (% of adults) Private bureau coverage United Kingdom 24.6 18.7 39.3 3.9 45.4 0.0 23.3 (% of adults) (100.0)* Protecting Investors 13 13 10 82 117 25 117 New Zealand (1) (rank) Extent of disclosure index Hong Kong SAR, China 8 8 9 7 6 8 5 (0-10) (10)* Doing Business 2013 Kyrgyz Republic 12 Kyrgyz Republic DB2013 Kyrgyz Republic DB2012 Best performer globally Kazakhstan DB2013 Russian Federation Tajikistan DB2013 Moldova DB2013 Ukraine DB2013 Indicator DB2013 DB2013 Extent of director liability 7 7 6 3 2 6 2 Singapore (9)* index (0-10) Ease of shareholder suits 8 8 9 6 6 6 7 New Zealand (10)* index (0-10) Strength of investor 7.7 7.7 8.0 5.3 4.7 6.7 4.7 New Zealand (9.7) protection index (0-10) United Arab Emirates Paying Taxes (rank) 168 162 17 109 64 175 165 (1) Payments (number per Hong Kong SAR, China 51 51 7 48 7 69 28 year) (3)* United Arab Emirates Time (hours per year) 210 210 188 220 177 224 491 (12) Trading Across Borders 174 173 182 142 162 184 145 Singapore (1) (rank) Documents to export 8 8 9 7 8 11 6 France (2) (number) Time to export (days) 63 63 81 32 21 71 30 Singapore (5)* Cost to export (US$ per 4,160 3,210 4,685 1,545 2,820 8,450 1,865 Malaysia (435) container) Documents to import 10 10 12 7 11 11 8 France (2) (number) Time to import (days) 75 72 69 35 36 72 33 Singapore (4) Cost to import (US$ per 4,700 3,450 4,665 1,870 2,920 9,800 2,155 Malaysia (420) container) Enforcing Contracts (rank) 47 48 28 26 11 43 42 Luxembourg (1) Doing Business 2013 Kyrgyz Republic 13 Kyrgyz Republic DB2013 Kyrgyz Republic DB2012 Best performer globally Kazakhstan DB2013 Russian Federation Tajikistan DB2013 Moldova DB2013 Ukraine DB2013 Indicator DB2013 DB2013 Time (days) 260 260 370 327 270 430 343 Singapore (150) Cost (% of claim) 29.0 29.0 22.0 28.6 13.4 25.5 41.5 Bhutan (0.1) Procedures (number) 38 38 37 31 36 35 30 Ireland (21)* Resolving Insolvency 155 153 55 91 53 79 157 Japan (1) (rank) Time (years) 4.0 4.0 1.5 2.8 2.0 1.7 2.9 Ireland (0.4) Cost (% of estate) 15 15 15 9 9 9 42 Singapore (1)* Outcome (0 as piecemeal sale and 1 as going 0 0 0 0 0 0 concern) Recovery rate (cents on 9.1 11.7 43.1 32.0 43.4 36.0 8.7 Japan (92.8) the dollar) Note: DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. The ranking methodology for the paying taxes indicators changed in Doing Business 2013; see the data notes for details. For more information on “no practice� marks, see the data notes. Data for the outcome of the resolving insolvency indicator are not available for DB2012. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy‘s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy‘s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures officially required or commonly done in received practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur  Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that the entrepreneur will  Has a turnover of at least 100 times income per pay no bribes. And it assumes that the business: capita.  Is a limited liability company, located in the  Does not qualify for any special benefits. largest business city.  Does not own real estate.  Has between 10 and 50 employees.  Is 100% domestically owned.  Conducts general commercial or industrial activities. Doing Business 2013 Kyrgyz Republic 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Kyrgyz procedures, takes 10 days, costs 2.8% of income per Republic? According to data collected by Doing capita and requires paid-in minimum capital of 0.0% of Business, starting a business there requires 2 income per capita (figure 2.1). Figure 2.1 What it takes to start a business in Kyrgyz Republic Paid-in minimum capital (% of income per capita): 0.0 Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 16 STARTING A BUSINESS Globally, Kyrgyz Republic stands at 15 in the ranking of and the regional average ranking provide other useful 185 economies on the ease of starting a business information for assessing how easy it is for an (figure 2.2). The rankings for comparator economies entrepreneur in Kyrgyz Republic to start a business. Figure 2.2 How Kyrgyz Republic and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how the process have changed—and which have not (table easy (or difficult) it is to start a business in Kyrgyz 2.1). That can help identify where the potential for Republic today, data over time show which aspects of improvement is greatest. Table 2.1 The ease of starting a business in Kyrgyz Republic over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 16 15 Procedures 9 9 9 9 9 4 3 2 2 2 (number) Time (days) 21 21 21 21 21 15 11 10 10 10 Cost (% of income per 12.5 11.5 10.4 10.7 8.8 7.4 5.2 3.7 3.5 2.8 capita) Paid-in Min. Capital (% of 0.7 0.6 0.6 0.5 0.5 0.4 0.0 0.0 0.0 0.0 income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by what is possible in making it easier to start a business. the economies that over time have had the best And changes in regional averages can show where performance regionally or globally on the procedures, Kyrgyz Republic is keeping up—and where it is falling time, cost or paid-in minimum capital required to start behind. a business (figure 2.3). These benchmarks help show Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2013 Kyrgyz Republic 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: Ninety-one economies globally have no paid-in minimum capital requirement. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Kyrgyz Republic (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has Kyrgyz Republic made starting a business easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. A one stop shop was created that streamlined and simplified business registration processes and other formalities were DB2009 eliminated such as proof of residence reducing the number of procedures tremendously. The Kyrgyz Republic eased the business start-up process by eliminating the minimum capital requirement, reducing the DB2010 registration time and abolishing various post-registration fees, as well as the need to open a bank account before registration. The Kyrgyz Republic eased business start-up by eliminating DB2011 the requirement to have the signatures of company founders notarized. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Kyrgyz Republic is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Bishkek firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Private Limited Liability Company professionals and the study of laws, regulations and Paid in Minimum Capital Requirement: None publicly available information on business entry in that economy. Following is a detailed summary of Start-up Capital: 10 times GNI per capita those procedures, along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the ―standardized company‖) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Kyrgyz Republic—and the time and cost Time to No. Procedure Cost to complete complete Register at the One stop shop Register with the Social Fund and the State Tax and the National statistics In June 2008 the one-stop shop registration procedure came into force. The applicant submits the full package of documents to the one-stop shop at the Ministry of Justice of the Kyrgyz Republic. According to article 10 of the Law ―On State Registration of Legal Entities‖ of the Kyrgyz Republic, the registration of legal entity (LTD) has to be done in 10 calendar days. Since the amendements to the civil code in April 2009, the one stop shop operates officially in 3 days and interacts electronically with all the agencies. As of April, 2009, only 3 documents are needed fo registartion: KGS 232 (registration 1 7 days • application for the company incorporation; fee) • letter stating the entrepreneur's decision to create the LLC - founding agreement; • copies of IDs of founders and managers. • Applicant submits all the documents to the one-stop-shop in an application. • The office accepts the documents and should carry an expertise of the incorporation documents to make sure they comply with legislation during the 3 days period. • Upon expiration of the term, the system delivers an order to register and issue a certificate of registration for the legal entity. This certificate contains the OKPO code, INN code (tax payer number) issued by statistics offices and tax authority via electronic data base Doing Business 2013 Kyrgyz Republic 22 Time to No. Procedure Cost to complete complete correspondingly. Obtain permission to make company seal and make a seal KGS 1,100 (125 of The seal-making company requests permission to make its client‘s permission cost + 2 company seal. The cost of the seal depends on the delivery time (say, 2 3 days service fees of 450- hours versus 1 day). The faster the delivery, the higher the cost. The 1,500). Presidential decree of 23rd April nb 182 makes the use of the seal optional, however in practice, companies still use it. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy‘s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes  Is a limited liability company operating in  Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The  Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long.  Has 60 builders and other employees.  Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring  Is a new construction (there was no special conditions). previous construction on the land).  Will take 30 weeks to construct (excluding all  Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2013 Kyrgyz Republic 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to construction permits there requires 12 procedures, build a warehouse in Kyrgyz Republic? According to takes 142 days and costs 140.6% of income per capita data collected by Doing Business, dealing with (figure 3.1). Figure 3.1 What it takes to comply with formalities to build a warehouse in Kyrgyz Republic Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 25 DEALING WITH CONSTRUCTION PERMITS Globally, Kyrgyz Republic stands at 67 in the ranking of ranking provide other useful information for assessing 185 economies on the ease of dealing with how easy it is for an entrepreneur in Kyrgyz Republic construction permits (figure 3.2). The rankings for to legally build a warehouse. comparator economies and the regional average Figure 3.2 How Kyrgyz Republic and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 26 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how aspects of the process have changed—and which have easy (or difficult) it is to deal with construction permits not (table 3.1). That can help identify where the in Kyrgyz Republic today, data over time show which potential for improvement is greatest. Table 3.1 The ease of dealing with construction permits in Kyrgyz Republic over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 67 67 Procedures (number) 22 22 22 13 12 12 12 12 Time (days) 395 395 395 155 142 142 142 142 Cost (% of income 917.3 763.4 689.2 432.2 169.8 151.1 171.8 140.6 per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections a nd the addition of 2 economies (Barbados and Malta) to the sample this year. For more information on ―no practice‖ marks, see the data notes. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 27 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by possible in making it easier to deal with construction the economies that over time have had the best permits. And changes in regional averages can show performance regionally or globally on the procedures, where Kyrgyz Republic is keeping up—and where it is time or cost required to deal with construction permits falling behind. (figure 3.3). These benchmarks help show what is Figure 3.3 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2013 Kyrgyz Republic 28 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 29 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Kyrgyz Republic (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has Kyrgyz Republic made dealing with construction permits easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. The Kyrgyz Republic introduced a one-stop shop for the pre- design and building permit approval stages that relieved companies and individuals of the burden of dealing with multiple agencies at the stages of obtaining designing permit DB2009 (APZ), construction license, and occupancy permit. Also, the new laws provide for stricter definition of time-limits backed by silence-is-consent rule. The clarification of responsibilities of construction authorities and local municipalities significantly reduces the need for overlapping procedures. The Kyrgyz Republic has eased the process of dealing with construction permits by streamlining the fee structure, introducing a risk-based system of approval and building DB2010 control, allowing for low risk projects to undertake their internal building control process, and simplifying the process of obtaining utilities connections. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 30 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Kyrgyz Republic BUILDING A WAREHOUSE are based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business City : Bishkek through information collected from experts in construction licensing, including architects, Estimated construction lawyers, construction firms, utility KGS 13,220,367 Warehouse Value : service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and that apply to a company and structure matching cost, are summarized below. the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Kyrgyz Republic —and the time and cost Time to No. Procedure Cost to complete complete File application-intention and obtain City Planning Regulation of Architectural Planning Conditions (A??) from the unit of State Department for Architecture and Construction Supervision In accordance with the Regulation ―On Order for Issuing Permits for Project Designs, Construction and Real Estate Modification and Order for Commissioning Completed Building the Kyrgyz Republic‖ approved by Government of KR on May 30, 2008, by Resolution # 252, the issuance of Architectural Planning Terms (APU) shall be conducted according to One-Stop-Shop principle. The list of documents required for issuance of APU was reduced. In particular, a business is only expected to fill up an established application which contains information on the type of upcoming construction and submit it along with the following documents: copy of the land title that verifies that a land plot was purchased or leased, letter of attorney, invoice on advanced payment (advance payment is required while obtaining an 28 days KGS 18,500 1 APU, the remainder is paid after a business receives the APU). A territorial architecture and construction body, within 3 business days, performs the check for compliance of an application form with requirements set by urban planning documentation. In case of non- compliance, the territorial architecture and construction body issues a Report on Non-compliance of Construction Intends and returns the application without approval. In each case the body is obliged to indicate the established types of permitted land use pursuant to the urban planning documentation. In case the territorial architecture and construction body approves the application, it submits the application for further approval to the sanitary and epidemiology body, fire authority, and environmental authority. After that the application is forwarded to utilities companies by the main coordinating agency- State Construction Department for Doing Business 2013 Kyrgyz Republic 31 Time to No. Procedure Cost to complete complete obtaining technical terms to install such utility systems as power supply, water supply, sewage system, heating and gas supply using One-Stop- Shop principle without participation of the applicant. The State Construction Department has 20 working days within which it must obtain approvals, internally from all utilities, and other relevant authorities. Resolution # 252 gives all utility providers 10 working days to approve the technical conditions. Moreover, utility providers cannot reject the possibility of connection without providing alternative options. Lack of an opportunity to connect an object to utilities systems may not be a ground for refusal of issuing APU. Meanwhile, the Sanitary, Fire and Environmental Services will also have a 10 working days to grant their approvals, after which a silence-is-consent rule will apply. The payment can be made at the counter of State Architecture Department of Bishkek City. Then the shares of each respective utility provider are transferred without BuildCo visiting each separately. APU is executed in two copies, one of this is issued to the applicant and the other is stored in architecture and construction body. As of February 12, 2009, new Government Resolution# 121 introduced amendments to the Regulation ―On Order for Issuing Permits for Project Designs, Construction and Real Estate Modification and Order for Commissioning Completed Building the Kyrgyz Republic‖ approved by Government of KR on May 30, 2008, by Resolution # 252. There are now only two technical conditions that must be obtained in a compulsory manner -- for water/ sewage and electricity. The remaining communications can be obtained on voluntary basis by applicants and are not linked to obtaining the Architectural Planning Conditions. Meanwhile, if applicant suggests alternative solutions to connecting to engineering facilities, then requests for technical conditions are not filed at all. Based on functional purpose of the building approvals from sanitary and fire authorities are applied using risk based system. Simple objects would not require approvals from these authorities. Additionally, requirements for documents to be submitted along with application have been clarified. These administrative simplifications made the process of issuance of Architectural Planning Conditions faster and possible to comply within the time-limit of 20 working days (28 calendar days). Despite reforms in disclosing the information on fee schedules the process of cost calculation for this procedure remains closed and indiscreet. * Request and obtain technical conditions to connect to networks for telephone line 2 Resolution #252 provides for the State Architecture Department and its 14 days KGS 720 territorial branch in Bishkek to issue the APU without acquiring the technical terms from telephone service providers. For this reason, the procedure is not mandatory and the applicant takes an individual Doing Business 2013 Kyrgyz Republic 32 Time to No. Procedure Cost to complete complete decision on services of which company may be used. The conditions may be requested at any stage of construction. Most applicants request it right before connecting to telephone services. Although, the local telecom market has various companies that provide fixed line services, it is most likely that the natural monopolist -- Kyrgyztelecom would be the one with the widest network services. According to Kyrgyztelecom‘s regulations in order to connect to its services the applicants must obtain technical terms beforehand. * Request and obtain topographic and geological survey conclusions of land from Kyrgyz GIIZ Although there are several licensed companies that provide these services KyrgyzGIIZ has the biggest database of maps back from late Soviet years of the country. Engineering –geological studies have not been done since the collapse of Soviet Union, and any new land developed after it would require BuildCo to request the full study. 14 days KGS 7,500 3 However, there are certain parts of the city that can be considered to have the proper geological study. In that case BuildCo would have to request a certificate on geological survey, assuming that the actual geological survey which is very costly (up to USD 3,000.00), or the survey of adjacent plot has been done. The cost for this certificate can be anywhere between KGS 5.00 to KGS 10,000.00. Kyrgyz GIIZ is the only licensed institution in the country with proper equipment and capacity. Request approval of project, expertise of project documents and obtain building permit This procedure consists of three stages: approval of project documents; expertise of documents; issuance of building permit. All three stages are done under one stop shop principle. A single application is filed by the applicant to obtain all these approvals. The approval of project documents consists of two stages: initial review of drawings and plans, and other relevant chapters of the projects is done by the territorial branch of State Architecture Department. BuildCo submits at this stage its application along with the following documents: 4 • Project documents (drawings, plans); private projects are not required 56 days KGS 25,000 to submit any financial segment of the project (abolished by the Resolution #252) • Engineer-geological study (for expertise) • Copies of letters authorizing persons responsible for construction works: technical supervision, author supervision; and for contractor (for construction permit) • Copies of licenses for construction works (for construction permit) Positive conclusion from respective Institute of State Agency of Architecture and Construction and other licensed agencies which have the right to provide engineering assessment of objects no lower than two stories stating possibility of reconstructing, re-profiling or re- planning of objects (for construction permit). Any other documents are Doing Business 2013 Kyrgyz Republic 33 Time to No. Procedure Cost to complete complete considered illegal. The authority must issue its approval within 10 working days. Following that it will send two copies of all documents for review of State Expertise Authority. According to Resolution #252 (30.05.08), and Government Resolution # 75 as of February 4, 2009, the expertise can be conducted by private companies, but until now there has not been a single license issued for expertise works. The nature of the expert assessment has been changed too. In past, the expert assessment was focused on the cost estimated of the project, which is prohibited by the mentioned above regulation. The expert assessment of the project design documents is conducted by State Expertise Authority and its territorial bodies or privately licensed companies, to check the following aspects: • Compliance of the object with requirements set by Architectural Planning Terms, Project Design Terms and City Planning Documentation • Justification of space-planning and construction decisions, construction materials and equipment, solidity and durability of the bearing structure of buildings • Check the results of geotechnical survey Based on results of the conducted expert assessment, State Expertise Authority prepares a report on compliance of the project design documents with normative requirements. In case of any irregularities, State Expertise Authority prepares another report on bringing the project design documentation in compliance which indicates the said irregularities or a report on refusal of approving the project design. Under current legislation there are categories of objects that do not require state expert assessment. There are notions of mandatory and voluntary expert assessment and possibility for expert assessment of project documentation by private experts or organizations. BuildCo‘s case would qualify for the expert assessment. No later than a day following the approval date, which is 20 working days for projects higher than 1000 sq. m., the report with positive expert assessment is submitted to State Architecture and Construction Supervision for issuing a construction permit. The State Architecture and Construction Supervision has to issue the building permit in 10 working days. Otherwise silence is consent principle applies. Amendments regarding construction supervision process were made to Law ―On Changes to Law of the Kyrgyz Republic‖ #101 as of March 30, 2009, ―On City Construction and Architecture of the Kyrgyz Republic‖ Article 40, and Government Resolution # 95 ―On approving the Order on Classification of Construction Object Characteristics and Order of Conducting State Architecture- Construction Supervision, Reconstruction and Other Real Estate Objects in the Kyrgyz Republic‖. According to these reforms the building Doing Business 2013 Kyrgyz Republic 34 Time to No. Procedure Cost to complete complete supervision process is now based on risk based approach. Compulsory state control over building process is applied for buildings that fall into high-risk category. Low risk categories, buildings exceeding 1,350 sq. m., are now subject to author and technical supervision, and do not require state supervision. Thus, it removes the need for signing a special contract with State Architecture and Construction Supervision and paying respective fees. Both author and technical supervision can be done by BuildCo staff. At the time of issuing the building permit, BuildCo will receive a schedule of inspections to be carried out by State Architecture and Construction Supervision. The inspections will take place three times: foundation works, structure and final one. All inspections can be notified via phone and do not require a special visit. This brings the overall time to 56 calendar days. Request and obtain authorization to conduct earthwork in the road section According to Decision of Bishkek City Council as of February 4, 2009 which eliminated Resolution of Bishkek City Council # 194 as of 9 June 2003, applicants now need to obtain only a warrant (naryad) for 5 days no charge 5 conducting works in public road area. Previous requirement has been eliminated under general administrative simplification process. The authority responsible for issuing this document is now City Road Department under Municipality of Bishkek, formed in August 2008, and replaced the authority of District Administrations. Under the new provision there is no fee related to this procedure. Request and obtain equipment operating authorization Under the existing regulation this authorization is required to allow the use of cranes and excavators, and elevators. Five days before using the equipment BuildCo will file a request, followed by a visit by inspector from the Inspection by Gostechnadzor. The inspector having reviewed the equipment to be used puts a stamp and signs the technical 15 days no charge 6 passport of the new projects. Regulatory simplification reform process also eliminated duplicating legislation concerning the fees for equipment operation authorization. This eliminated the grounds for officers by State Technical Supervision to levy fees. Eliminated fee amount is KGS 1,462.00. Receive connection to water and sewage services 7 10 days KGS 4,253 Connection can be done without prior inspection should the location be with existing utility infrastructure. * Receive connection to telephone 8 10 days KGS 3,380 Connection can be done without prior inspection should the location be with existing utility infrastructure. Request Act of Acceptance of Object for Use 9 1 day no charge Within 10 after completion of construction BuildCo files a request to the State Architecture and Construction Supervision requesting Doing Business 2013 Kyrgyz Republic 35 Time to No. Procedure Cost to complete complete issuance of Act of Acceptance of Object for Use. This approval must be issued within 10 working days. If the Act is not issued within the established time limit, silence is consent rule applied. The Act must be signed by applicant, author of project, general contractor, representative of State Architecture and Construction Supervision‘s regional branch who performed the technical supervision during construction. The Act must be endorsed by the head of territorial branch of State Architecture and Construction Supervision. Government Resolution #121 as of February 12, 2009 removed requirement for participation of fire and sanitary authorities in the final inspection. Receive inspection and obtain the Act of Acceptance of Object for Use The inspection may take place, based on the case. Sometimes, if the 13 days no charge 10 supervising technical inspector provides sound feedback to the regional head office the inspection may not be required. However, a separate visit is paid to obtain the actual copy of Act. The Act is a legal document that allows the immediate use of building. Request and obtain a technical inventory Before registering the building with the real property registry, it is 11 required to obtain a ―technical passport‖. This describes the structure of 6 days KGS 5,100 building, units, dimensions, building layout, and the like. The technical inventory in 10 days costs KGS 2,600.00, and in 4 working days KGS 5,100.00. Register the building with the real estate registry Registration of buildings is a mandatory procedure. BuildCo must provide the following documents to the State Agency for Registration of Real Property Rights: • Application • Documents confirming the ownership title (the plot plan, the local plan, and the ―technical passport‖* of the warehouse) • Receipt of payment for registration • State Certificate on Land Ownership • Occupancy Permit 12 • Power of Attorney 7 days KGS 1,291 After examining the submitted documents, a registrar issues a report for registration of the building, makes a log entry, and issues a registration card, a copy of which is provided to BuildCo. According to amendment to Law ―On State Registration of Rights for immovable property‖ as of March 30, 2009 and State Registration Agency Decree # 80 as of June 11, 2008, effective July 7, 2008, the first time registration is now conducted in 7 working days. Fast track option can be done in 5 days, which includes one day for registration and 4 working days for technical inventory. Doing Business 2013 Kyrgyz Republic 36 Time to No. Procedure Cost to complete complete Legal entities may register the building in 7 days for KGS 677.8.00 and for KGS 1,291.00 in 1 day. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 37 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information  Is located in the economy‘s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials  Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes  Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land.  Is 150 meters long.  Is a new construction being connected to  Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead  Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer‘s private domain is feet). negligible. The electricity connection:  Involves installing one electricity meter. The monthly electricity consumption will be 0.07  Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2013 Kyrgyz Republic 38 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity requires 7 procedures, takes 159 days and costs connection in Kyrgyz Republic? According to data 2428.6% of income per capita (figure 4.1). collected by Doing Business, getting electricity there Figure 4.1 What it takes to obtain an electricity connection in Kyrgyz Republic Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 39 GETTING ELECTRICITY Globally, Kyrgyz Republic stands at 177 in the ranking perspective in assessing how easy it is for an of 185 economies on the ease of getting electricity entrepreneur in Kyrgyz Republic to connect a (figure 4.2). The rankings for comparator economies warehouse to electricity. and the regional average ranking provide another Figure 4.2 How Kyrgyz Republic and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 40 GETTING ELECTRICITY Even more helpful than rankings on the ease of getting performers on these indicators may provide useful electricity may be the indicators underlying those benchmarks. rankings (table 4.1). And regional and global best Table 4.1 The ease of getting electricity in Kyrgyz Republic Best performer in Kyrgyz Republic Kyrgyz Republic Best performer Indicator Eastern Europe & DB2013 DB2012 globally DB2013 Central Asia DB2013 Rank 177 182 Georgia (50) Iceland (1) Procedures (number) 7 7 Georgia (4) Germany (3)* Time (days) 159 247 Kosovo (48) Germany (17) Cost (% of income per capita) 2,428.6 2,545.6 Lithuania (55.4) Japan (0.0) Note: DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. * Two or more economies share the top ranking on this indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 41 GETTING ELECTRICITY Obtaining an electricity connection is essential to safety in the connection process while keeping enable a business to conduct its most basic operations. connection costs reasonable, governments around the In many economies the connection process is world have worked to consolidate requirements for complicated by the multiple laws and regulations obtaining an electricity connection. What reforms in involved—covering service quality, general safety, getting electricity has Doing Business recorded in technical standards, procurement practices and Kyrgyz Republic (table 4.2)? internal wiring installations. In an effort to ensure Table 4.2 How has Kyrgyz Republic made getting electricity easier—or not? By Doing Business report year DB year Reform DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 42 GETTING ELECTRICITY What are the details? The indicators reported here for Kyrgyz Republic are OBTAINING AN ELECTRICITY CONNECTION based on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Bishkek utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: Severelectro verified by electricity regulatory agencies and independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Kyrgyz Republic—and the time and cost Time to No. Procedure Cost to complete complete Submit application to the Department of Architecture and Construction and await technical conditions from Severlelektro The applicant submits an application for connection to the Department of Architecture and Construction which forwards the application to the utility. The Architecture Department has all the construction documents 1 and hence the only required document is the application for connection. 45 calendar days KGS 1,496.0 However, the applicant will most of the time visit Severelectro directly to ensure that the application has been delivered and considered. The payment for technical conditions is also made at Severelektro. The time of the procedure includes a delay due to a moratorium on new connections from February 1, 2012 to June 1, 2012. Await completion of the external electrical project design by a private design firm and its approval After the technical conditions are issued the customer hires a private 2 electrical design firm to prepare a design of the external part of the 19 calendar days KGS 15,000.0 connection. The internal wiring plan can be prepared together with the external design. On behalf of the customer the electrical design firm receives approvals of the plan at the Department of Architecture and Construction. Obtain an excavation permit at the municipality 3 7 calendar days KGS 350.0 Electrical contractor obtains an excavation permit (????? ?? ????????). Await completion of the external connection works by a private 4 electrical contractor 60 calendar days USD 22,000.0 Doing Business 2013 Kyrgyz Republic 43 Time to No. Procedure Cost to complete complete After the electrical plan of the external connection is approve the customer hires a private electrical contractor to carry out all the external connection works. The meter is installed together with the rest of the electrical equipment by the hired private electrical contractor. Await and obtain from Severelektro an inspection of the completed works After the external connection works are completed the electrical installation is checked by various departments of Severelektro during one inspection. After the inspection an operation permit is issued. Both 11 calendar days KGS 121.0 5 the internal wiring and the external works are inspected. The electrical contractor is required to submit documents specifying measurements and tests of the wiring. Someone from the applicant‘s party is required to be present during the inspection. Await and obtain an inspection and a permission from the State Energy Inspectorate 6 3 calendar days no charge After the inspection by Severelektro the State Energy Inspectorate inspects the electrical installation, seals the meter and grants a permission for supplying the building with electricity. Conclude a supply contract with Severelektro and electricity starts flowing 7 After the inspections are completed and an operation permit is issued, a 14 calendar days KGS 484.0 supply contract can be concluded in the contract department of Severelektro. After the conclusion of the supply contract the representative of Severelektro visits the site to turn on the electricity. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 44 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy‘s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer‘s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes  Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned.  Are located in the periurban area of the economy‘s largest business city.  Has no mortgages attached and has been under the same ownership for the past 10  Have 50 employees each, all of whom are years. nationals.  Consists of 557.4 square meters (6,000 square  Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal  Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes.  Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2013 Kyrgyz Republic 45 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in procedures, takes 5 days and costs 1.8% of the Kyrgyz Republic? According to data collected by Doing property value (figure 5.1). Business, registering property there requires 4 Figure 5.1 What it takes to register property in Kyrgyz Republic Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 46 REGISTERING PROPERTY Globally, Kyrgyz Republic stands at 11 in the ranking of and the regional average ranking provide other useful 185 economies on the ease of registering property information for assessing how easy it is for an (figure 5.2). The rankings for comparator economies entrepreneur in Kyrgyz Republic to transfer property. Figure 5.2 How Kyrgyz Republic and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 47 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how the process have changed—and which have not (table easy (or difficult) it is to register property in Kyrgyz 5.1). That can help identify where the potential for Republic today, data over time show which aspects of improvement is greatest. Table 5.1 The ease of registering property in Kyrgyz Republic over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. 16 11 Procedures (number) 7 7 7 7 7 4 4 4 4 Time (days) 8 8 8 8 8 5 5 5 5 Cost (% of property value) 5.9 5.9 5.8 4.6 3.9 2.8 2.3 2.2 1.8 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. For more information on ―no practice‖ marks, see the data notes. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 48 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by (figure 5.3). These benchmarks help show what is the economies that over time have had the best possible in making it easier to register property. And performance regionally or globally on the procedures, changes in regional averages can show where Kyrgyz time or cost required to complete a property transfer Republic is keeping up—and where it is falling behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2013 Kyrgyz Republic 49 REGISTERING PROPERTY Cost (% of property value) Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 50 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Kyrgyz Republic (table 5.2)? Table 5.2 How has Kyrgyz Republic made registering property easier—or not? By Doing Business report year DB year Reform The Kyrgyz Republic made registering property more costly by DB2008 increasing the registration fees. DB2009 No reform as measured by Doing Business. The Kyrgyz Republic further eased the process of property DB2010 registration by simplifying documentation requirements, making surveying requirements and notarization optional. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 51 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer‘s name—identified by Doing Business City: Bishkek through information collected from local property Property Value: KGS 2,337,909 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in Kyrgyz Republic—and the time and cost Time to No. Procedure Cost to complete complete The seller obtains a Registration Certificate from the Gosregister (Land Registry) In case the parties chose to notarize their sale-purchase agreement, the buyer requests the seller to provide him with the Registration Certificate evidencing his rights to the property. This Certificate indicates the owner of the property and provides information on the existence or absence of encumbrances over the property. KGS 188.10 (regular) The documentation shall include: 1 day expedited (3 1 or KGS 327.50 • Application (in the established form); days regular) (expedited) • Copy of ownership document; • Original and a copy of technical passport; • Identification documents; • Copy of resolution of the management body on the sale of the property; The cost of the regular Procedure (3 days) is KZS 188.10 and KZS 327.50 for an expedited Procedure (1 day). A public notary or a lawyer prepares the sale-purchase agreement The Law of the Kyrgyz Republic on Amendments to the Civil Code of the Kyrgyz Republic #104 of 30.03.2009 introduced voluntary notary certification of property disposal (sale and acquisition) contract. KGS 40,000 fixed fee Previously, it was mandatory to notarize the sale-purchase agreement + KGS 350 2 1 day with a public notary. Now, parties have a choice to have notaries register (notarization of such contracts or make a transaction and register it directly with the copies) State Register. 70-80% of parties use notaries' services to help them with the sale- purchase agreements. Around 10% us lawyers' services. Depending on Doing Business 2013 Kyrgyz Republic 52 Time to No. Procedure Cost to complete complete lawyers' qualifications, the fees for sale-purchase agreement preparation vary somewhere between 50 USD to 220 USD for an hour of lawyers' assistance. Should parties chose to notarize the sale-purchase contract, the cost for the Procedure for non-residential properties with a square footage higher than 400 square meters is KZS 40,000 (as prescribed by the Resolution of the Republic of Kyrgyzstan #733 of 19.10.2006 ―O n State duties‖). As of June 2009, around half of property transactions are still being notarized. The parties must also notarize copies of their respective charters and/or foundation agreements and corporate registration certificates (to be later presented to the registrar). Notarization of copies will cost KZS 5 per page plus KZS 10 per one document; total approximately KZS 350. During the notarization, the parties will be required to submit copies of the parties‘ respective charters and foundation agreements, corporate registration certificates, resolutions of the management bodies on the purchase/sale of the property, powers of attorney, a certificate evidencing the balance sheet value of the property, and certain other corporate documents. The seller shall also present the registration certificate evidencing the seller‘s title to the property (obtained in Procedure 1). The buyer applies to Gosregister for registration of the title transfer The buyer appears at the local office of Gosregister and presents all the required documents. The buyer (the seller may pay it upon agreement between the parties) pays the registration fee and delivers to the registrar the receipt evidencing the payment and a formal application for the registration of the title transfer. The notarized sale purchase agreement must be presented to the local office of Gosregister no later than 30 days from the moment of its signing (otherwise a penalty fee is charged). KGS 643.9 (regular The Gosregister issues the receipt about the acceptance of the Procedure - 2 days) documents for the registration and conducts the registration during 2 2 days regular; 1 or KGS 1231 3 days or 1 day, if the Procedure is expedited. The buyer receives his own day expedited (expedited copy of the agreement where the Registry certified the registration, as Procedure - 1 day) well as the copy of record card, where it will be marked that he is the fees for legal entities owner of this property. The buyer must also visit a separate window at the Registry for a separate application (previously BTI Office). This can be done at the same time at the Gosregister. The Land Registry makes correspondent alterations in the inventory file of the building and land plot and provides the buyer with the new cadastral plan of the building and cadastral plan of the land plot. The documentation shall include: • Application (in the established form) • State act on land property right; Doing Business 2013 Kyrgyz Republic 53 Time to No. Procedure Cost to complete complete • Technical original passport; • The signed and notarized sale and purchase agreement (Obtained in Procedure 2); • Powers of attorney (if needed), notarized copies of the buyer charter and/or foundation agreement, corporate registration certificate, resolution of the management body on the purchase of the property. The cost for the Procedures was updated with the Order #80 of June 11, 2008 of the Land Registry (Gosregistr). Thus, the cost for the 2 day registration is KZS 643.9 and for the expedited Procedure is KZS 1231. In practice, the expedited Procedure still takes 2 days. The buyer receives documents of title upon completion of the registration After the registration is completed, the buyer appears at the Gosregister to pick up his copy of the agreement bearing the stamp of the registrar, Already paid in 4 the amended technical passport for the property, and the State act on 1 day Procedure 3 land property right. The documentation shall include: the passport of the buyer, or a power of attorney or other documents confirming the rights of the individual to pick up the documents on behalf of the buyer. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 54 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower‘s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors‘ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors‘ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses case scenarios to determine the scope of the  Has 100 employees. secured transactions system, involving a secured  Is 100% domestically owned, as is the lender. borrower and a secured lender and examining legal The ranking on the ease of getting credit is based on restrictions on the use of movable collateral. These the percentile rankings on the sum of its component scenarios assume that the borrower: indicators: the depth of credit information index and  Is a private, limited liability company. the strength of legal rights index.  Has its headquarters and only base of operations in the largest business city. Doing Business 2013 Kyrgyz Republic 55 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Kyrgyz Republic stands at 12 in the ranking of collateral and bankruptcy laws in Kyrgyz Republic 185 economies on the ease of getting credit (figure facilitate access to credit? The economy has a score of 6.1). The rankings for comparator economies and the 4 on the depth of credit information index and a score regional average ranking provide other useful of 10 on the strength of legal rights index (see the information for assessing how well regulations and summary of scoring at the end of this chapter for institutions in Kyrgyz Republic support lending and details). Higher scores indicate more credit information borrowing. and stronger legal rights for borrowers and lenders. Figure 6.1 How Kyrgyz Republic and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 56 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how where institutions and regulations have been well the credit information system and collateral and strengthened—and where they have not (table 6.1). bankruptcy laws in Kyrgyz Republic support lending That can help identify where the potential for and borrowing today, data over time can help show improvement is greatest. Table 6.1 The ease of getting credit in Kyrgyz Republic over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. 9 12 Strength of legal rights 6 6 7 7 7 10 10 10 10 index (0-10) Depth of credit 0 2 3 3 4 4 4 4 4 information index (0-6) Public registry 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 coverage (% of adults) Private bureau 0.0 0.2 0.4 1.6 3.7 5.9 11.9 18.7 24.6 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 57 GETTING CREDIT One way to put an economy‘s score on the getting 2012 and shows the number of economies with this credit indicators into context is to see where the score in 2012 as well as the regional average score. economy stands in the distribution of scores across Figure 6.3 shows the same thing for the depth of credit economies. Figure 6.2 highlights the score on the information index. strength of legal rights index for Kyrgyz Republic in Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2012 information index (0–6), 2012 Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a public credit registry or a private Source: Doing Business database. credit bureau, to facilitate lending decisions. Regional averages for the depth of credit information index exclude economies with no public registry or private bureau. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 58 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs‘ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Kyrgyz Republic (table 6.2)? Table 6.2 How has Kyrgyz Republic made getting credit easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. The Kyrgyz Republic enhanced access to credit with an amendment to its Civil Code and Pledge Law to make secured lending more flexible, and allow general description of DB2010 encumbered assets, as well as general description of debts and obligations. Furthermore, amendments to the Civil Code provide for an automatic extension of the security right to proceeds of the original asset. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 59 GETTING CREDIT What are the details? The getting credit indicators reported here for Kyrgyz The data on the legal rights of borrowers and lenders Republic are based on detailed information collected are gathered through a survey of financial lawyers and in that economy. The data on credit information verified through analysis of laws and regulations as sharing are collected through a survey of a public well as public sources of information on collateral and credit registry or private credit bureau (if one exists). bankruptcy laws. For the strength of legal rights index, To construct the depth of credit information index, a a score of 1 is assigned for each of 8 aspects related to score of 1 is assigned for each of 6 features of the legal rights in collateral law and 2 aspects in public credit registry or private credit bureau (see bankruptcy law. summary of scoring below). Summary of scoring for the getting credit indicators in Kyrgyz Republic Eastern Europe & OECD high income Indicator Kyrgyz Republic Central Asia average average Strength of legal rights index (0-10) 10 7 7 Depth of credit information index (0-6) 4 5 5 Public registry coverage (% of adults) 0.0 31.9 31.5 Private bureau coverage (% of adults) 24.6 44.8 74.6 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Regional averages for the depth of credit information index exclude economies with no public registry or private bureau. Regional averages for the public registry coverage exclude economies with no public registry. Regional averages for the private bureau coverage exclude economies with no private bureau. Strength of legal rights index (0–10) Index score: 10 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category Yes of movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend Yes automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an Yes electronic database indexed by debtor's names? Doing Business 2013 Kyrgyz Republic 60 Strength of legal rights index (0–10) Index score: 10 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes debtor defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a Yes business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its Yes security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 4 bureau registry Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative data distributed? No No 0 Does the registry distribute credit information from retailers, trade creditors or utility companies as well No No 0 as financial institutions? Are more than 2 years of historical credit information Yes No 1 distributed? Is data on all loans below 1% of income per capita Yes No 1 distributed? Is it guaranteed by law that borrowers can inspect Yes No 1 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms 2,457 0 Number of individuals 887,551 0 Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 61 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors‘ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders‘ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices  Is a publicly traded corporation listed on the economy‘s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns.  Has a board of directors and a chief executive  The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law.  All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer.  Mr. James, a director and the majority  Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2013 Kyrgyz Republic 62 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Kyrgyz index (figure 7.1). While the indicator does not Republic? The economy has a score of 7.7 on the measure all aspects related to the protection of strength of investor protection index, with a higher minority investors, a higher ranking does indicate that score indicating stronger protections (see the an economy‘s regulations offer stronger investor summary of scoring at the end of this chapter for protections against self-dealing in the areas measured. details). Globally, Kyrgyz Republic stands at 13 in the ranking of 185 economies on the strength of investor protection Figure 7.1 How Kyrgyz Republic and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 63 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how the global ranking on the strength of investor well regulations in Kyrgyz Republic protect minority protection index over time shows whether the investors today, data over time show whether the economy is slipping behind other economies in protections have been strengthened (table 7.1). And investor protections—or surpassing them. Table 7.1 The strength of investor protections in Kyrgyz Republic over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 13 13 Extent of disclosure 8 8 8 8 8 8 8 8 index (0-10) Extent of director liability index (0- 1 1 1 7 7 7 7 7 10) Ease of shareholder 9 9 9 8 8 8 8 8 suits index (0-10) Strength of investor protection 6.0 6.0 6.0 7.7 7.7 7.7 7.7 7.7 index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 64 PROTECTING INVESTORS One way to put an economy‘s scores on the protecting and shows the number of economies with this score in investors indicators into context is to see where the 2012 as well as the regional average score. Figure 7.3 economy stands in the distribution of scores across shows the same thing for the extent of director liability economies. Figure 7.2 highlights the score on the index, and figure 7.4 for the ease of shareholder suits extent of disclosure index for Kyrgyz Republic in 2012 index. Figure 7.2 How strong are disclosure requirements? Figure 7.3 How strong is the liability regime for directors? Number of economies with each score on extent of Number of economies with each score on extent of director liability index (0–10), 2012 disclosure index (0–10), 2012 Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. No economy receives a score of 10 on the extent of Source: Doing Business database. director liability index. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 65 PROTECTING INVESTORS Figure 7.4 How easy is access to internal corporate documents? Number of economies with each score on ease of shareholder suits index (0–10), 2012 Note: Higher scores indicate greater powers of shareholders to challenge the transaction. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 66 PROTECTING INVESTORS The scores recorded over time for Kyrgyz Republic on changes over time in the regional average score on the strength of investor protection index may also be this index. revealing (figure 7.5). Equally interesting may be the Figure 7.5 Have investor protections become stronger over time? Strength of investor protection index (0–10) Note: The higher the score, the stronger the investor protections. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 67 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in Kyrgyz Republic (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has Kyrgyz Republic strengthened investor protections—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. The Kyrgyz Republic strengthened investor protections by granting minority investors standing to undertake legal actions DB2009 to protect their rights as shareholders, by requiring an independent assessment of the transaction before its approval and by increasing remedies in case of director negligence. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 68 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for ease of shareholder suits indices, a score is assigned Kyrgyz Republic are based on detailed information for each of a range of conditions relating to disclosure, collected through a survey of corporate and securities director liability and shareholder suits in a standard lawyers as well as on securities regulations, company case study transaction (see the notes at the end of this laws and court rules of evidence. To construct the chapter). The summary below shows the details extent of disclosure, extent of director liability and underlying the scores for Kyrgyz Republic. Summary of scoring for the protecting investors indicators in Kyrgyz Republic Eastern Europe & OECD high income Indicator Kyrgyz Republic Central Asia average average Extent of disclosure index (0-10) 8 7 6 Extent of director liability index (0-10) 7 5 5 Ease of shareholder suits index (0-10) 8 6 7 Strength of investor protection index (0-10) 7.7 5.9 6.1 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Score Score description Extent of disclosure index (0-10) 8 What corporate body provides legally sufficient Shareholders meeting and Mr. James 3 approval for the transaction? is not allowed to vote Whether disclosure of the conflict of interest by Mr. 2 Full disclosure of all material facts James to the board of directors is required? Whether immediate disclosure of the transaction to 0 No disclosure obligation the public and/or shareholders is required? Whether disclosure of the transaction in published Disclosure on the transaction and Mr. 2 periodic filings (annual reports) is required? James' conflict of interest Whether an external body must review the terms of 1 Yes the transaction before it takes place? Extent of director liability index (0-10) 7 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction 1 Yes causes to the company? Doing Business 2013 Kyrgyz Republic 69 Score Score description Whether shareholders can hold Mr. James liable for Liable for unfair/oppressive the damage that the Buyer-Seller transaction causes 2 transaction or prejudicial to minority to the company? shareholders Whether shareholders can hold members of the approving body liable for the damage that the Buyer- 0 Not liable Seller transaction causes to the company? Whether a court can void the transaction upon a Possible when the transaction is unfair 2 successful claim by a shareholder plaintiff? or entails a conflict of interest Whether Mr. James pays damages for the harm caused to the company upon a successful claim by 1 Yes the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 1 Yes shareholder plaintiff? Whether fines and imprisonment can be applied 0 No against Mr. James? Ease of shareholder suits index (0-10) 8 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction documents before 1 Yes filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to investigate the 1 Yes transaction? Whether the plaintiff can obtain any documents from Any information that is relevant to the 3 the defendant and witnesses during trial? subject matter of the claim Whether the plaintiff can request categories of documents from the defendant without identifying 0 No specific ones? Whether the plaintiff can directly question the 2 Yes, without approval from the judge defendant and witnesses during trial? Whether the level of proof required for civil suits is 1 Yes lower than that of criminal cases? Strength of investor protection index (0-10) 7.7 Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 70 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless Tax payments for a manufacturing company complexity in tax rules avoided. According to in 2011 (number per year adjusted for Doing Business data, in economies where it is more electronic or joint filing and payment) difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector — Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures Time required to comply with 3 major taxes the taxes and mandatory contributions that a (hours per year) medium-size company must pay in a given year as well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and Arranging payment or withholding payments as well as time taken to comply with tax laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 1 Profit or corporate income tax being applied to the total tax rate. To make the data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes  TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2010. transactions taxes  The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes  Taxes and mandatory contributions include and mandatory contributions paid during corporate income tax, turnover tax and all the second year of operation are recorded. labor taxes and contributions paid by the  Taxes and mandatory contributions are company. measured at all levels of government.  A range of standard deductions and exemptions are also recorded. 1 The threshold is defined as the highest total tax rate among the top 15% of economies in the ranking on the total tax rate. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an ―optimal tax rate‖ that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year‘s threshold is 25.7%. Doing Business 2013 Kyrgyz Republic 71 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Kyrgyz Republic stands at 168 in the ranking taxes in Kyrgyz Republic—and how much do firms pay of 185 economies on the ease of paying taxes (figure in taxes? On average, firms make 51 tax payments a 8.1). The rankings for comparator economies and the year, spend 210 hours a year filing, preparing and regional average ranking provide other useful paying taxes and pay total taxes amounting to 68.9% information for assessing the tax compliance burden of profit (see the summary at the end of this chapter for businesses in Kyrgyz Republic. for details). Figure 8.1 How Kyrgyz Republic and comparator economies rank on the ease of paying taxes Note: DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.7% applied in DB2013, the total tax rate is set at 25.7% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 72 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how the process have changed — and which have not easy (or difficult) it is to comply with tax rules in Kyrgyz (table 8.1). That can help identify where the potential Republic today, data over time show which aspects of for easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Kyrgyz Republic over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 162 168 Payments (number per 75 75 75 75 75 47 51 51 year) Time (hours per year) 202 202 202 202 202 202 210 210 Total tax rate (% profit) 68.2 67.2 61.4 61.4 59.4 73.2 69.0 68.9 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. DB2013 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 25.7% applied in DB2013, the total tax rate is set at 25.7% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 73 PAYING TAXES Equally helpful may be the benchmarks provided by possible in easing the administrative burden of tax the economies that over time have had the best compliance. And changes in regional averages can performance regionally or globally on the number of show where Kyrgyz Republic is keeping up—and payments or the time required to prepare and file where it is falling behind. taxes (figure 8.2). These benchmarks help show what is Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2013 Kyrgyz Republic 74 PAYING TAXES Total tax rate (% of profit) Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 75 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Kyrgyz Republic (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Kyrgyz Republic made paying taxes easier—or not? By Doing Business report year DB year Reform The Kyrgyz Republic reduced the tax burden for companies by DB2008 reducing the corporate income tax rate and abolishing social security contributions. DB2009 No reform as measured by Doing Business. The Kyrgyz Republic has eased the tax burden on business by DB2010 reducing several taxes including the corporate income tax. DB2011 No reform as measured by Doing Business. The Kyrgyz Republic made paying taxes costlier for firms by DB2012 introducing a real estate tax, though it also reduced the sales tax rate. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 76 PAYING TAXES What are the details? The indicators reported here for Kyrgyz Republic LOCATION OF STANDARDIZED COMPANY are based on a standard set of taxes and contributions that would be paid by the case study company used by Doing Business in collecting the City: Bishkek data (see the section in this chapter on what the indicators cover). Tax practitioners are asked to review standard financial statements as well as a standard list of transactions that the company The taxes and contributions paid are listed in the completed during the year. Respondents are asked summary below, along with the associated number of how much in taxes and mandatory contributions payments, time and tax rate. the business must pay and what the process is for doing so. Summary of tax rates and administrative burden in Kyrgyz Republic Eastern Europe & OECD high income Indicator Kyrgyz Republic Central Asia average average Payments (number per year) 51 28 12 Time (hours per year) 210 260 176 Profit tax (%) 6.2 9.1 15.2 Labor tax and contributions (%) 19.5 22.1 23.8 Other taxes (%) 43.3 9.3 3.7 Total tax rate (% profit) 68.9 40.5 42.7 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Total tax Tax or mandatory Payments Notes on Time Statutory Notes on Tax base rate (% of contribution (number) payments (hours) tax rate total tax rate profit) Sales tax 12 0 2% turnover 35.4 gross Pension fund contributions 12 71 15% 16.9 salaries estimated Tax on property (immovable) 4 0 KGS 14,000 value of 7.5 building Doing Business 2013 Kyrgyz Republic 77 Total tax Tax or mandatory Payments Notes on Time Statutory Notes on Tax base rate (% of contribution (number) payments (hours) tax rate total tax rate profit) taxable Corporate income tax 5 60 10% 6.2 profit Medical insurance gross 0 paid jointly 0 2% 2.5 contributions salaries KGS 2.21 per number of Fuel tax 1 0 0.2 liter liters KGS 2.9 per Land tax 4 0 land area 0.1 square meter Value added tax (VAT) 12 79 12% value added 0 not included book value Tax on property (movable) 1 0 1% 0 of vehicles Totals 51 210 68.9 Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 78 TRADING ACROSS BORDERS In today‘s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing Inland transport and handling a standard shipment of goods by sea transport, and the number of documents necessary to Customs clearance and inspections complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation Does not include sea transport time requirements and procedures at customs and other regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business:  Is of medium size and employs 60 people.  Do not require refrigeration or any other special environment.  Is located in the periurban area of the economy‘s largest business city.  Do not require any special phytosanitary or environmental safety standards other than  Is a private, limited liability company, accepted international standards. domestically owned, formally registered and operating under commercial laws and  Are one of the economy‘s leading export or regulations of the economy. import products. The traded goods:  Are transported in a dry-cargo, 20-foot full container load.  Are not hazardous nor do they include military items. Doing Business 2013 Kyrgyz Republic 79 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Kyrgyz Globally, Kyrgyz Republic stands at 174 in the ranking Republic? According to data collected by Doing of 185 economies on the ease of trading across Business, exporting a standard container of goods borders (figure 9.1). The rankings for comparator requires 8 documents, takes 63 days and costs $4160. economies and the regional average ranking provide Importing the same container of goods requires 10 other useful information for assessing how easy it is for documents, takes 75 days and costs $4700 (see the a business in Kyrgyz Republic to export and import summary of procedures and documents at the end of goods. this chapter for details). Figure 9.1 How Kyrgyz Republic and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 80 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how the process have changed—and which have not (table easy (or difficult) it is to export or import in Kyrgyz 9.1). That can help identify where the potential for Republic today, data over time show which aspects of improvement is greatest. Table 9.1 The ease of trading across borders in Kyrgyz Republic over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. 173 174 Documents to export 14 14 14 14 8 8 8 8 (number) Time to export (days) 64 64 64 64 63 63 63 63 Cost to export (US$ per 2,500 2,500 2,500 3,000 3,000 3,010 3,210 4,160 container) Documents to import 16 16 16 16 10 10 10 10 (number) Time to import (days) 75 75 75 75 72 72 72 75 Cost to import (US$ per 2,450 2,450 2,450 3,250 3,250 3,280 3,450 4,700 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 81 TRADING ACROSS BORDERS Equally helpful may be the benchmarks provided by These benchmarks help show what is possible in the economies that over time have had the best making it easier to trade across borders. And changes performance regionally or globally on the documents, in regional averages can show where Kyrgyz Republic time or cost required to export or import (figure 9.2). is keeping up—and where it is falling behind. Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2013 Kyrgyz Republic 82 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2013 Kyrgyz Republic 83 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 84 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms‘ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Kyrgyz Republic (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has Kyrgyz Republic made trading across borders easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. The Kyrgyz Republic simplified and sped up trading across borders with the elimination of 6 previously required DB2010 documents, and with the simplification of inspection procedures. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 85 TRADING ACROSS BORDERS What are the details? The indicators reported here for Kyrgyz Republic LOCATION OF STANDARDIZED COMPANY are based on a set of specific procedural requirements for trading a standard shipment of goods by ocean transport (see the section in this City: Bishkek chapter on what the indicators cover). Information on the procedures as well as the required documents and the time and cost to complete each The procedural requirements, and the associated time procedure is collected from local freight forwarders, and cost, for exporting and importing a standard shipping lines, customs brokers, port officials and shipment of goods are listed in the summary below, banks. along with the required documents. Summary of procedures and documents for trading across borders in Kyrgyz Republic Eastern Europe & OECD high income Indicator Kyrgyz Republic Central Asia average average Documents to export (number) 8 7 4 Time to export (days) 63 26 10 Cost to export (US$ per container) 4,160 2,134 1,028 Documents to import (number) 10 8 5 Time to import (days) 75 29 10 Cost to import (US$ per container) 4,700 2,349 1,080 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Procedures to export Time (days) Cost (US$) Documents preparation 23 210 Customs clearance and technical control 3 300 Ports and terminal handling 3 150 Inland transportation and handling 34 3,500 Totals 63 4,160 Procedures to import Time (days) Cost (US$) Documents preparation 25 280 Doing Business 2013 Kyrgyz Republic 86 Procedures to import Time (days) Cost (US$) Customs clearance and technical control 11 420 Ports and terminal handling 3 300 Inland transportation and handling 36 3,700 Totals 75 4,700 Documents to export Documents to import Bill of lading Bill of lading Certificate of Origin Certificate of Conformity Commercial Invoice Certificate of origin Customs export declaration Commercial invoice Railway bill (Transport document) Customs import declaration Sales purchase contract Document certifying the cost of transportation Terminal handling receipts Railway bill (Transport document) Transit declaration Sales purchase contract Source: Doing Business database. Terminal handling receipts Transit declaration Doing Business 2013 Kyrgyz Republic 87 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects Time required to complete procedures data relating to the time, cost and procedural (calendar days) complexity of resolving a commercial lawsuit. The ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs assumptions about the case: Enforcement costs  The seller and buyer are located in the economy‘s largest business city.  The buyer orders custom-made goods,  The dispute on the quality of the goods then fails to pay. requires an expert opinion.  The seller sues the buyer before a  The judge decides in favor of the seller; there competent court. is no appeal.  The value of the claim is 200% of income  The seller enforces the judgment through a per capita. public sale of the buyer‘s movable assets.  The seller requests a pretrial attachment to secure the claim. Doing Business 2013 Kyrgyz Republic 88 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Kyrgyz Republic stands at 47 in the ranking of dispute through the courts in Kyrgyz Republic? 185 economies on the ease of enforcing contracts According to data collected by Doing Business, (figure 10.1). The rankings for comparator economies enforcing a contract takes 260 days, costs 29.0% of the and the regional average ranking provide other useful value of the claim and requires 38 procedures (see the benchmarks for assessing the efficiency of contract summary at the end of this chapter for details). enforcement in Kyrgyz Republic. Figure 10.1 How Kyrgyz Republic and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 89 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how time help identify which areas have changed and easy (or difficult) it is to enforce a contract in Kyrgyz where the potential for improvement is greatest (table Republic today, data on the underlying indicators over 10.1). Table 10.1 The ease of enforcing contracts in Kyrgyz Republic over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 48 47 Time (days) 260 260 260 260 260 260 260 260 260 260 Cost (% of claim) 29.0 29.0 29.0 29.0 29.0 29.0 29.0 29.0 29.0 29.0 Procedures (number) 38 38 38 38 38 38 38 38 38 38 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 90 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by help show what is possible in improving the efficiency the economies that over time have had the best of contract enforcement. And changes in regional performance regionally or globally on the number of averages can show where Kyrgyz Republic is keeping steps, time or cost required to enforce a contract up—and where it is falling behind. through the courts (figure 10.2). These benchmarks Figure 10.2 Has enforcing contracts become easier over time? Time (days) Cost (% of claim) Doing Business 2013 Kyrgyz Republic 91 ENFORCING CONTRACTS Procedures (number) Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 92 ENFORCING CONTRACTS Economies in all regions have improved contract periodic reviews to clear inactive cases from the docket enforcement in recent years. A judiciary can be and by making procedures faster. What reforms improved in different ways. Higher-income economies making it easier (or more difficult) to enforce contracts tend to look for ways to enhance efficiency by has Doing Business recorded in Kyrgyz Republic (table introducing new technology. Lower-income economies 10.2)? often work on reducing backlogs by introducing Table 10.2 How has Kyrgyz Republic made enforcing contracts easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. DB2011 No reform as measured by Doing Business. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 93 ENFORCING CONTRACTS What are the details? The indicators reported here for Kyrgyz Republic COMPETENT COURT are based on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this City: Bishkek chapter on what the indicators cover). These procedures, and the time and cost of completing The procedures for resolving a commercial lawsuit, and them, are identified through study of the codes of the associated time and cost, are listed in the summary civil procedure and other court regulations, as well below. as through surveys completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Summary of procedures for enforcing a contract in Kyrgyz Republic—and the time and cost Eastern Europe & OECD high income Indicator Kyrgyz Republic Central Asia average average Time (days) 260 414 510 Filing and service 20 Trial and judgment 90 Enforcement of judgment 150 Cost (% of claim) 29.0 25.8 20.1 Attorney cost (% of claim) 7.0 Court cost (% of claim) 12.0 Enforcement Cost (% of claim) 10.0 Procedures (number) 38 37 31 Note: In cases where an economy‘s regional classification is ―OECD high income,‖ regional averages above are only displayed once. Doing Business 2013 Kyrgyz Republic 94 ENFORCING CONTRACTS No. Procedure Filing and service: 1 Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the contract. Mandatory conciliation or mediation: Plaintiff invites Defendant to settle the dispute. Because conciliation or 2 mediation fails, Plaintiff is required to submit a written document to the judge proving that conciliation or mediation- prior to initiating the lawsuit- has failed. Plaintiff’s filing of summons and complaint: Plaintiff files his summons and complaint with the court, orally or in * writing. * Plaintiff’s payment of court fees: Plaintiff pays court duties, stamp duties, or any other type of court fee. Registration of court case: The court administration registers the lawsuit or court case. This includes assigning a 3 reference number to the lawsuit or court case. Assignment of court case to a judge: The court case is assigned to a specific judge through a random procedure, * automated system, ruling of an administrative judge, court officer, etc. Court scrutiny of summons and complaint: A judge examines Plaintiff's summons and complaint for formal 4 requirements. Judge admits summons and complaint: After verifying the formal requirements, the judge decides to admit * Plaintiff‘s summons and complaint. Delivery of summons and complaint to person authorized to perform service of process on Defendant: The 5 judge or a court officer delivers the summons to a summoning office, officer, or authorized person (including Plaintiff), for service of process on Defendant. Mailing of summons and complaint: Court or process server, including (private) bailiff, mails summons and * complaint to Defendant. First attempt at physical delivery: A first attempt to physically deliver summons and complaint to Defendant is 6 successful in the majority of cases. * Proof of service: Plaintiff submits proof of service to court. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. (see assumption 5) Decision on pre-judgment attachment: The judge decides whether to grant Plaintiff‘s request for pre-judgment * attachment of Defendant‘s property and notifies Plaintiff and Defendant of the decision. This step may include requesting that Plaintiff submit guarantees or bonds to secure Defendant Guarantees securing attached property: Plaintiff typically submits guarantees or bonds to secure Defendant 7 against possible damages to attached property. (see assumption 5) Pre-judgment attachment.: Defendant's property is attached prior to judgment. Attachment is either physical or 8 achieved by registering, marking, debiting or separating assets. (see assumption 5) Doing Business 2013 Kyrgyz Republic 95 No. Procedure Report on pre-judgment attachment: Court enforcement officer or (private) bailiff issues and delivers a report on 9 the attachment of Defendant‘s property to the judge. (see assumption 5) Trial and judgment: Defendant’s filing of defense or answer to Plaintiff’s claim: Defendant files a written pleading which includes his 10 defense or answer on the merits of the case. Defendant's written answer may or may not include witness statements, expert statements, the documents Defendant relies on as evidence and the legal authori Plaintiff’s written response to Defendant's defense or answer: Plaintiff responds to Defendant‘s defense or 11 answer with a written pleading. Plaintiff's answer may or may not include a witness statements or expert (witness) statements. Filing of pleadings: Plaintiff and Defendant file written pleadings and submissions with the court and transmit 12 copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Court appointment of independent expert: Judge appoints, either at the parties' request or at his own initiative, * an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 6-b of this case) Notification of court-appointment of independent expert: The court notifies both parties that the court is 13 appointing an independent expert. (see assumption 6-b of this case) Delivery of expert report by court-appointed expert: The independent expert appointed by the court delivers his * or her expert report to the court. (see assumption 6-b of this case) * Setting of date(s) for oral hearing or trial: The judge sets the date(s) for the oral hearing or trial. Preliminary hearing aimed at preparing for the oral hearing: The judge meets the parties to make practical 14 arrangements for the oral hearing on the merits of the case. * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court. (see assumption 6-a) Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral hearing 15 or trial. (see assumption 6-a) Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the judge. 16 Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. Adjournments: Court proceedings are delayed because one or both parties request and obtain an adjournment 17 during the oral hearing or trial, resulting in an additional or later trial or hearing date. Order for submission of final arguments: The judge sets the deadline for the submission of final factual and legal 18 arguments. Final arguments: The parties present their final factual and legal arguments to the court either by oral presentation * or by a written submission. 19 Judgment date: The judge sets a date for delivery of the judgment. 20 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 21 Writing of judgment: The judge produces a written copy of the judgment. Doing Business 2013 Kyrgyz Republic 96 No. Procedure 22 Registration of judgment: The court office registers the judgment after receiving a written copy of the judgment. Court notification of availability of the written judgment: The court notifies the parties that the written 23 judgment is available at the courthouse. 24 Plaintiff's receipt of a copy of written judgment: Plaintiff receives a copy of the written judgment. Appeal period: By law, Defendant has the opportunity to appeal the judgment during a period specified in the law. 25 Defendant decides not to appeal. Judgment becomes final the day the appeal period ends. Reimbursement by Defendant of Plaintiff's court fees: The judgment obliges Defendant to reimburse Plaintiff for 26 the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff's approaching of court enforcement officer or (private) bailiff to enforce the judgment: To enforce 27 the judgment, Plaintiff approaches a court enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff’s request for enforcement order: Plaintiff applies to the court to obtain the enforcement order ('seal' on * judgment). 28 Plaintiff’s advancement of enforcement fees: Plaintiff pays the fees related to the enforcement of the judgment. Attachment of enforcement order to judgment: The judge attaches the enforcement order (‗seal‘) to the 29 judgment. Delivery of enforcement order: The court's enforcement order is delivered to a court enforcement officer or a * (private) bailiff. Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a (private) 30 bailiff requests Defendant to voluntarily comply with the judgment, giving Defendant a last chance to comply voluntarily with the judgment. Identification of Defendant's assets for attachment by court official or Defendant: Judge, a court enforcement 31 officer, a (private) bailiff or the Defendant himself identifies Defendant's movable assets for attachment. Contestation of selection of assets identified for attachment: The party, Plaintiff or Defendant, who was not 32 involved in the designation of the assets to be attached, contests the selection of assets for attachment. 33 Attachment: Defendant‘s movable goods are attached (physically or by registering, marking or separating assets). Report on execution of attachment: A court enforcement officer or private process server delivers a report on the 34 attachment of Defendant's movable goods to the judge. Valuation or appraisal of attached movable goods: The court or court appointed valuation expert evaluates the 35 attached goods. Enforcement disputes before court: The enforcement of the judgment is delayed because Defendant opposes 36 aspects of the enforcement process before the judge. 37 Sale through public auction: The Defendant‘s movable property is sold at public auction. Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which Plaintiff 38 had advanced previously. 39 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. Doing Business 2013 Kyrgyz Republic 97 * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 98 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers‘ fees proceedings of individuals and financial Assessors‘ and auctioneers‘ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement Official costs of the insolvency proceedings (foreclosure) proceedings. The recovery rate is a are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be recovered business and the case. It assumes that the company:  Is a domestically owned, limited liability company operating a hotel.  Has 201 employees, 1 main secured creditor  Operates in the economy‘s largest business and 50 unsecured creditors. city.  Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2013 Kyrgyz Republic 99 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses sold as piecemeal sale. The average recovery rate is 9.1 characterize the top-performing economies. How cents on the dollar. efficient are insolvency proceedings in Kyrgyz Globally, Kyrgyz Republic stands at 155 in the ranking Republic? According to data collected by Doing of 185 economies on the ease of resolving insolvency Business, resolving insolvency takes 4.0 years on (figure 11.1). The rankings for comparator economies average and costs 15% of the debtor‘s estate, with the and the regional average ranking provide other useful most likely outcome being that the company will be benchmarks for assessing the efficiency of insolvency proceedings in Kyrgyz Republic. Figure 11.1 How Kyrgyz Republic and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 100 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the changed—and where it has not (table 11.1). That can efficiency of insolvency proceedings in Kyrgyz Republic help identify where the potential for improvement is today, data over time show where the efficiency has greatest. Table 11.1 The ease of resolving insolvency in Kyrgyz Republic over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 DB2013 Rank .. .. .. .. .. .. .. .. 153 155 Time (years) 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 Cost (% of estate) 15 15 15 15 15 15 15 15 15 15 Recovery rate (cents on the 14.7 15.9 12.5 14.7 15.6 14.2 14.2 15.3 11.7 9.1 dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings shown are not last year‘s published rankings but comparable rankings for DB2012 that capture the effects of such factors as data corrections and the addition of 2 economies (Barbados and Malta) to the sample this year. ―No practice‖ indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for ―no practice‖ economies is 0. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 101 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by possible in improving the efficiency of insolvency the economies that over time have had the best proceedings. And changes in regional averages can performance regionally or globally on the time or cost show where Kyrgyz Republic is keeping up—and of insolvency proceedings or on the recovery rate where it is falling behind. (figure 11.2). These benchmarks help show what is Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2013 Kyrgyz Republic 102 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: Regional averages on time and cost exclude economies with a “no practice� mark. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 103 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Kyrgyz Republic (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Kyrgyz Republic made resolving insolvency easier—or not? By Doing Business report year DB year Reform DB2008 No reform as measured by Doing Business. DB2009 No reform as measured by Doing Business. DB2010 No reform as measured by Doing Business. The Kyrgyz Republic streamlined insolvency proceedings and updated requirements for administrators, but new formalities DB2011 added to prevent abuse of proceedings made closing a business more difficult. DB2012 No reform as measured by Doing Business. DB2013 No reform as measured by Doing Business. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 104 EMPLOYING WORKERS Doing Business measures flexibility in the regulation of Particular data for Kyrgyz Republic are presented here employment, specifically as it affects the hiring and without scoring. redundancy of workers and the rigidity of working hours. From 2007 to 2011 improvements were made to To make the data on employing workers comparable align the methodology for the employing workers across economies, several assumptions about the indicators with the letter and spirit of the International worker and the business are used. Labour Organization (ILO) conventions. Only 4 of the 188 ILO conventions cover areas measured by Doing The worker: Business: employee termination, weekend work, holiday with pay and night work. The Doing Business  Earns a salary plus benefits equal to the methodology is fully consistent with these 4 economy‘s average wage during the entire conventions. The ILO conventions covering areas period of his employment. related to the employing workers indicators do not  Has a pay period that is the most common for include the ILO core labor standards—8 conventions workers in the economy. covering the right to collective bargaining, the  Is a lawful citizen who belongs to the same elimination of forced labor, the abolition of child labor race and religion as the majority of the and equitable treatment in employment practices. economy‘s population.  Resides in the economy‘s largest business city. Between 2009 and 2011 the World Bank Group worked  Is not a member of a labor union, unless with a consultative group—including labor lawyers, membership is mandatory. employer and employee representatives, and experts from the ILO, the Organisation for Economic Co- The business: operation and Development, civil society and the private sector—to review the employing workers  Is a limited liability company. methodology and explore future areas of research.  Operates in the economy‘s largest business city. A full report with the conclusions of the consultative  Is 100% domestically owned. group is available at http://www.doingbusiness.org/  Operates in the manufacturing sector. methodology/employing-workers.  Has 60 employees.  Is subject to collective bargaining agreements Doing Business 2013 does not present rankings of in economies where such agreements cover economies on the employing workers indicators or more than half the manufacturing sector and include the topic in the aggregate ranking on the ease apply even to firms not party to them. of doing business. The report does present the data on  Abides by every law and regulation but does the employing workers indicators in an annex. Detailed not grant workers more benefits than data collected on labor regulations are available on the mandated by law, regulation or (if applicable) Doing Business website (http://www.doing business.org). collective bargaining agreement. Doing Business 2013 Kyrgyz Republic 105 EMPLOYING WORKERS What do some of the data show? One of the employing workers indicators is the worker in his or her first job. Doing Business data show difficulty of hiring index. This measure assesses, among the trend in the minimum wage applied by Kyrgyz other things, the minimum wage for a 19-year-old Republic (figure 12.1). Figure 12.1 Has the minimum wage for a 19-year-old worker or an apprentice increased over time? Minimum wage (US$ per month) Note: A horizontal line along the x-axis of the figure indicates that the economy has no minimum wage. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 106 EMPLOYING WORKERS Employment laws are needed to protect workers from past 4 years did so in ways that increased labor market arbitrary or unfair treatment and to ensure efficient flexibility. What changes did Kyrgyz Republic adopt contracting between employers and workers. Many that affected the Doing Business indicators on economies that changed their labor regulations in the employing workers (table 12.1)? Table 12.1 What changes did Kyrgyz Republic make in employing workers in 2012? Reform No reform as measured by Doing Business. Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 107 EMPLOYING WORKERS What are the details? The data on employing workers reported here for lawyers and public officials. Employment laws and Kyrgyz Republic are based on a detailed survey of regulations as well as secondary sources are reviewed employment regulations that is completed by local to ensure accuracy. Rigidity of employment index The rigidity of employment index measures 3 areas of labor regulation: difficulty of hiring, rigidity of hours and difficulty of redundancy. Difficulty of hiring index The difficulty of hiring index measures whether fixed- worker. (The average value added per worker is the term contracts are prohibited for permanent tasks; the ratio of an economy‘s gross national income per capita maximum cumulative duration of fixed-term contracts; to the working-age population as a percentage of the and the ratio of the minimum wage for a trainee or total population.) first-time employee to the average value added per Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? Yes Maximum length of a single fixed-term contract (months) 60 - art. 55 Maximum length of fixed-term contracts, including renewals (months) 60 Minimum wage for a 19-year old worker or an apprentice (US$/month) 15.0 Ratio of minimum wage to value added per worker 0.13 Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 108 EMPLOYING WORKERS Rigidity of hours index The rigidity of hours index has 5 components: whether respond to a seasonal increase in production; and there are restrictions on night work; whether there are whether the average paid annual leave for a worker restrictions on weekly holiday work; whether the with 1 year of tenure, a worker with 5 years and a workweek can consist of 5.5 days or is more than 6 worker with 10 years is more than 26 working days or days; whether the workweek can extend to 50 hours or fewer than 15 working days. more (including overtime) for 2 months a year to Rigidity of hours index Data Standard workday in manufacturing (hours) 8 hours 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in production? Maximum working days per week 6.0 Premium for night work (% of hourly pay) in case of continuous 50% operations Premium for work on weekly rest day (% of hourly pay) in case of 100% continuous operations Major restrictions on night work in case of continuous operations? No Major restrictions on weekly holiday in case of continuous operations? No Paid annual leave for a worker with 1 year of tenure (in working days) 20.0 Paid annual leave for a worker with 5 years of tenure (in working days) 20.0 Paid annual leave for a worker with 10 years of tenure (in working days) 20.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 20.0 working days) Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 109 EMPLOYING WORKERS Difficulty of redundancy index The difficulty of redundancy index has 8 components: worker; whether the employer needs approval from a whether redundancy is disallowed as a basis for third party to terminate a group of 9 redundant terminating workers; whether the employer needs to workers; whether the law requires the employer to notify a third party (such as a government agency) to reassign or retrain a worker before making the worker terminate 1 redundant worker; whether the employer redundant; whether priority rules apply for needs to notify a third party to terminate a group of 9 redundancies; and whether priority rules apply for redundant workers; whether the employer needs reemployment. approval from a third party to terminate 1 redundant Difficulty of redundancy index Data Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? No Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? No Third-party approval if 9 workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 110 EMPLOYING WORKERS Redundancy cost The redundancy cost indicator measures the cost of notice requirements and severance payments advance notice requirements, severance payments and applicable to a worker with 1 year of tenure, a worker penalties due when terminating a redundant worker, with 5 years and a worker with 10 years is used to expressed in weeks of salary. The average value of assign the score. Redundancy cost indicator Data Notice period for redundancy dismissal (for a worker with 1 year of tenure, in salary 4.3 weeks) Notice period for redundancy dismissal (for a worker with 5 years of tenure, in 4.3 salary weeks) Notice period for redundancy dismissal (for a worker with 10 years of tenure, in 4.3 salary weeks) Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 4.3 of tenure, in salary weeks) Severance pay for redundancy dismissal (for a worker with 1 year of tenure, in 13.0 salary weeks) Severance pay for redundancy dismissal (for a worker with 5 years of tenure, in 13.0 salary weeks) Severance pay for redundancy dismissal (for a worker with 10 years of tenure, in 13.0 salary weeks) Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 13.0 of tenure, in salary weeks) Source: Doing Business database. Doing Business 2013 Kyrgyz Republic 111 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2013 reports 2011 income per capita property. Second, they gauge the time and cost of as published in the World Bank‘s World Development achieving a regulatory goal or complying with Indicators 2012. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2011 gross contract, go through bankruptcy or trade across national income (GNI) in U.S. dollars is used as the borders. Third, they measure the extent of legal denominator. GNI data were not available from the protections of property, for example, the protections World Bank for Afghanistan; Australia; The Bahamas; of investors against looting by company directors or Bahrain; Barbados; Brunei Darussalam; Cyprus; the range of assets that can be used as collateral Djibouti; Guyana; the Islamic Republic of Iran; according to secured transactions laws. Fourth, a set of Kuwait; Malta; New Zealand; Oman; Puerto Rico indicators documents the tax burden on businesses. (territory of the United States); Sudan; Suriname; the Finally, a set of data covers different aspects of Syrian Arab Republic; Timor-Leste; West Bank and employment regulation. Gaza; and the Republic of Yemen. In these cases GDP or GNP per capita data and growth rates from The data for all sets of indicators in Doing Business the International Monetary Fund‘s World Economic 2 2013 are for June 2012. Outlook database and the Economist Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and The Doing Business data are collected in a income group classifications, available at standardized way. To start, the Doing Business team, http://data.worldbank.org/about/country- with academic advisers, designs a questionnaire. The classifications. The World Bank does not assign questionnaire uses a simple business case to ensure regional classifications to high-income economies. comparability across economies and over time —with For the purpose of the Doing Business report, high- assumptions about the legal form of the business, its income OECD economies are assigned the ―regional‖ size, its location and the nature of its operations. classification OECD high income. Figures and tables Questionnaires are administered through more than presenting regional averages include economies 9,600 local experts, including lawyers, business from all income groups (low, lower middle, upper consultants, accountants, freight forwarders, middle and high income). government officials and other professionals routinely Population administering or advising on legal and regulatory Doing Business 2013 reports midyear 2011 requirements. These experts have several rounds of population statistics as published in World interaction with the Doing Business team, involving Development Indicators 2012. conference calls, written correspondence and visits by the team. For Doing Business 2013 team members visited 24 economies to verify data and recruit The Doing Business methodology offers several respondents. The data from questionnaires are advantages. It is transparent, using factual information subjected to numerous rounds of verification, leading about what laws and regulations say and allowing to revisions or expansions of the information collected. multiple interactions with local respondents to clarify potential misinterpretations of questions. Having 2 The data for paying taxes refer to January – December 2011. Doing Business 2013 Kyrgyz Republic 112 representative samples of respondents is not an issue; 2013 would differ from the recollection of Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business completed subnational comparisons and benchmarks are valid across studies for Indonesia, Kenya, Mexico, the Russian economies. Finally, the data not only highlight the Federation and the United Arab Emirates. Each of extent of specific regulatory obstacles to business but these countries had already asked to have subnational also identify their source and point to what might be data in the past, and this year Doing Business updated reformed. the indicators, measured improvements over time and Information on the methodology for each Doing expanded geographic coverage to additional cities or Business topic can be found on the Doing Business added additional indicators. Doing Business also website at http://www.doingbusiness.org/methodology/. published regional studies for the Arab world, the East African Community and member states of the Organization for the Harmonization of Business Law in Limits to what is measured Africa (OHADA). The Doing Business methodology has 5 limitations that The subnational studies point to differences in should be considered when interpreting the data. First, business regulation and its implementation—as well as the collected data refer to businesses in the economy‘s in the pace of regulatory reform—across cities in the largest business city (which in some economies differs same economy. For several economies subnational from the capital) and may not be representative of studies are now periodically updated to measure regulation in other parts of the economy. To address change over time or to expand geographic coverage this limitation, subnational Doing Business indicators to additional cities. This year that is the case for all the were created (see the section on subnational Doing subnational studies published. Business indicators). Second, the data often focus on a specific business form—generally a limited liability company (or its legal equivalent) of a specified size— Changes in what is measured and may not be representative of the regulation on The ranking methodology for paying taxes was other businesses, for example, sole proprietorships. updated this year. The threshold for the total tax rate Third, transactions described in a standardized case introduced last year for the purpose of calculating the scenario refer to a specific set of issues and may not ranking on the ease of paying taxes was updated. All represent the full set of issues a business encounters. economies with a total tax rate below the threshold Fourth, the measures of time involve an element of (which is calculated and adjusted on a yearly basis) judgment by the expert respondents. When sources receive the same ranking on the total tax rate indicate different estimates, the time indicators indicator. The threshold is not based on any economic reported in Doing Business represent the median theory of an ―optimal tax rate‖ that minimizes values of several responses given under the distortions or maximizes efficiency in the tax system of assumptions of the standardized case. an economy overall. Instead, it is mainly empirical in Finally, the methodology assumes that a business has nature, set at the lower end of the distribution of tax full information on what is required and does not rates levied on medium-size enterprises in the waste time when completing procedures. In practice, manufacturing sector as observed through the paying completing a procedure may take longer if the taxes indicators. This reduces the bias in the indicators business lacks information or is unable to follow up toward economies that do not need to levy significant promptly. Alternatively, the business may choose to taxes on companies like the Doing Business disregard some burdensome procedures. For both standardized case study company because they raise reasons the time delays reported in Doing Business public revenue in other ways—for example, through Doing Business 2013 Kyrgyz Republic 113 taxes on foreign companies, through taxes on sectors investors, paying taxes, trading across borders, other than manufacturing or from natural resources enforcing contracts, and resolving insolvency. The (all of which are outside the scope of the employing workers indicators are not included in this methodology). Giving the same ranking to all year‘s aggregate ease of doing business ranking. In economies whose total tax rate is below the threshold addition to this year‘s ranking, Doing Business presents avoids awarding economies in the scoring for having a comparable ranking for the previous year, adjusted an unusually low total tax rate, often for reasons for any changes in methodology as well as additions of 3 unrelated to government policies toward enterprises. economies or topics. For example, economies that are very small or that are Construction of the ease of doing business index rich in natural resources do not need to levy broad- based taxes. Here is one example of how the ease of doing business index is constructed. In Finland it takes 3 procedures, 14 days and 4% of annual income per capita in fees to Data challenges and revisions register a property. On these 3 indicators Finland ranks in the 6th, 16th and 39th percentiles. So on average Most laws and regulations underlying the Doing Finland ranks in the 20th percentile on the ease of Business data are available on the Doing Business registering property. It ranks in the 30th percentile on website at http://www.doingbusiness.org. All the th starting a business, 28 percentile on getting credit, sample questionnaires and the details underlying the 24th percentile on paying taxes, 13th percentile on indicators are also published on the website. Questions enforcing contracts, 5th percentile on trading across on the methodology and challenges to data can be borders and so on. Higher rankings indicate simpler submitted through the website‘s ―Ask a Question‖ regulation and stronger protection of property rights. function at http://www.doingbusiness.org. The simple average of Finland‘s percentile rankings on all topics is 21st. When all economies are ordered by Ease of doing business and distance to their average percentile rankings, Finland stands at 11 frontier in the aggregate ranking on the ease of doing business. Doing Business 2013 presents results for 2 aggregate measures: the aggregate ranking on the ease of doing More complex aggregation methods—such as business and the distance to frontier measure. The principal components and unobserved components— ease of doing business ranking compares economies yield a ranking nearly identical to the simple average 4 with one another, while the distance to frontier used by Doing Business. Thus, Doing Business uses measure benchmarks economies to the frontier in the simplest method: weighting all topics equally and, regulatory practice, measuring the absolute distance to the best performance on each indicator. Both measures can be used for comparisons over time. 3 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a When compared across years, the distance to frontier comparable time series since the year the relevant economy or topic measure shows how much the regulatory environment was first included in the data set. The time series is available on the for local entrepreneurs in each economy has changed Doing Business website (http://www.doingbusiness.org). Six topics over time in absolute terms, while the ease of doing and more than 50 economies have been added since the inception business ranking can show only relative change. of the project. Earlier rankings on the ease of doing business are therefore not comparable. Ease of doing business 4 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, ―Doing Business Indicators: Why Aggregate, and How to The ease of doing business index ranks economies Do It‖ (World Bank, Washington, DC, 2005). Principal components from 1 to 185. For each economy the ranking is and unobserved components methods yield a ranking nearly calculated as the simple average of the percentile identical to that from the simple average method because both rankings on each of the 10 topics included in the index these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An in Doing Business 2013: starting a business, dealing alternative to the simple average method is to give different weights with construction permits, getting electricity, to the topics, depending on which are considered of more or less registering property, getting credit, protecting importance in the context of a specific economy. Doing Business 2013 Kyrgyz Republic 114 within each topic, giving equal weight to each of the ability of different government agencies to deliver 5 topic components. tangible results in their area of responsibility. If an economy has no laws or regulations covering a Economies that improved the most across 3 or more specific area—for example, insolvency—it receives a Doing Business topics in 2011/12 ―no practice‖ mark. Similarly, an economy receives a Doing Business 2013 uses a simple method to calculate ―no practice‖ or ―not possible‖ mark if regulation exists which economies improved the most in the ease of but is never used in practice or if a competing doing business. First, it selects the economies that in regulation prohibits such practice. Either way, a ―no 2011/12 implemented regulatory reforms making it practice‖ mark puts the economy at the bottom of the easier to do business in 3 or more of the 10 topics ranking on the relevant indicator. 6 included in this year‘s ease of doing business ranking. The ease of doing business index is limited in scope. It Twenty-three economies meet this criterion: Benin, does not account for an economy‘s proximity to large Burundi, Costa Rica, the Czech Republic, Georgia, markets, the quality of its infrastructure services (other Greece, Guinea, Kazakhstan, Korea, the Lao People‘s than services related to trading across borders and Democratic Republic, Liberia, Mongolia, the getting electricity), the strength of its financial system, Netherlands, Panama, Poland, Portugal, Serbia, the the security of property from theft and looting, Slovak Republic, Slovenia, Sri Lanka, Ukraine, the macroeconomic conditions or the strength of United Arab Emirates and Uzbekistan. Second, Doing underlying institutions. Business ranks these economies on the increase in their ranking on the ease of doing business from the Variability of economies‘ rankings across topics previous year using comparable rankings. Each indicator set measures a different aspect of the Selecting the economies that implemented regulatory business regulatory environment. The rankings of an reforms in at least 3 topics and improved the most in economy can vary, sometimes significantly, across the aggregate ranking is intended to highlight indicator sets. The average correlation coefficient economies with ongoing, broad-based reform between the 10 indicator sets included in the programs. aggregate ranking is 0.37, and the coefficients between any 2 sets of indicators range from 0.19 Distance to frontier measure (between dealing with construction permits and A drawback of the ease of doing business ranking is getting credit) to 0.60 (between starting a business that it can measure the regulatory performance of and protecting investors). These correlations suggest economies only relative to the performance of others. that economies rarely score universally well or It does not provide information on how the absolute universally badly on the indicators. quality of the regulatory environment is improving Consider the example of Canada. It stands at 17 in the over time. Nor does it provide information on how aggregate ranking on the ease of doing business. Its large the gaps are between economies at a single ranking is 3 on starting a business, and 4 on both point in time. resolving insolvency and protecting investors. But its The distance to frontier measure is designed to ranking is only 62 on enforcing contracts, 69 on address both shortcomings, complementing the ease dealing with construction permits and 152 on getting of doing business ranking. This measure illustrates the electricity. distance of an economy to the ―frontier,‖ and the Variation in performance across the indicator sets is change in the measure over time shows the extent to not at all unusual. It reflects differences in the degree which the economy has closed this gap. The frontier is of priority that government authorities give to a score derived from the most efficient practice or particular areas of business regulation reform and the highest score achieved on each of the component indicators in 9 Doing Business indicator sets (excluding 5 6 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2013 Kyrgyz Republic 115 the employing workers and getting electricity The maximum (max) and minimum (min) observed indicators) by any economy since 2005. In starting a values are computed for the 174 economies included business, for example, New Zealand has achieved the in the Doing Business sample since 2005 and for all highest performance on the time (1 day), Canada and years (from 2005 to 2012). The year 2005 was chosen New Zealand on the number of procedures required as the baseline for the economy sample because it was (1), Slovenia on the cost (0% of income per capita) and the first year in which data were available for the Australia and 90 other economies on the paid-in majority of economies (a total of 174) and for all 9 minimum capital requirement (0% of income per indicator sets included in the measure. To mitigate the capita). Calculating the distance to frontier for each effects of extreme outliers in the distributions of the economy involves 2 main steps. First, individual rescaled data (very few economies need 694 days to indicator scores are normalized to a common unit: complete the procedures to start a business, but many th except for the total tax rate. To do so, each of the 28 need 9 days), the maximum (max) is defined as the 95 component indicators y is rescaled to (max − y)/(max percentile of the pooled data for all economies and all − min), with the minimum value (min) representing the years for each indicator. The exceptions are the getting frontier—the highest performance on that indicator credit, protecting investors and resolving insolvency across all economies since 2005. For the total tax rate, indicators, whose construction precludes outliers. consistent with the calculation of the rankings, the Take Ghana, which has a score of 67 on the distance to frontier is defined as the total tax rate corresponding th frontier measure for 2012. This score indicates that the to the 15 percentile based on the overall distribution economy is 33 percentage points away from the of total tax rates for all years. Second, for each frontier constructed from the best performances economy the scores obtained for individual indicators across all economies and all years. Ghana was further are aggregated through simple averaging into one from the frontier in 2005, with a score of 54. The distance to frontier score. An economy‘s distance to difference between the scores shows an improvement frontier is indicated on a scale from 0 to 100, where 0 over time. represents the lowest performance and 100 the frontier. The distance to frontier measure can also be used for comparisons across economies in the same year, The difference between an economy‘s distance to complementing the ease of doing business ranking. frontier score in 2005 and its score in 2012 illustrates For example, Ghana stands at 64 this year in the ease the extent to which the economy has closed the gap to of doing business ranking, while Peru, which is 29 the frontier over time. And in any given year the score percentage points from the frontier, stands at 43. measures how far an economy is from the highest performance at that time. Doing Business 2013 Kyrgyz Republic 116 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2013 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 185 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Data http://www.doingbusiness.org/custom-query/ All the data for 185 economies—topic rankings, indicator values, lists of regulatory procedures and Law library details underlying indicators Online collection of business laws and regulations http://www.doingbusiness.org/data/ relating to business and gender issues http://www.doingbusiness.org/law-library/ Reports http://wbl.worldbank.org/ Access to Doing Business reports as well as subnational and regional reports, reform case Contributors studies and customized economy and regional More than 9,600 specialists in 185 economies who profiles participate in Doing Business http://www.doingbusiness.org/reports/ http://www.doingbusiness.org/contributors/doing- business/ Methodology The methodologies and research papers NEW! Entrepreneurship data underlying Doing Business Data on business density for 130 economies http://www.doingbusiness.org/methodology/ http://www.doingbusiness.org/data/exploretopics/e ntrepreneurship Research Abstracts of papers on Doing Business topics and More to come related policy issues Coming soon—information on good practices and http://www.doingbusiness.org/research/ data on transparency and on the distance to frontier Doing Business 2013 Kyrgyz Republic 117