Doing Business Blog - The World Bank Group

Reformers Club 2009: Stimulating growth in difficult times

For the third year running, the Doing Business team has celebrated the top Doing Business reformers from around the world. The Reformers Club this year includes the following countries: Azerbaijan, Albania, Kyrgyz Republic, Belarus, Senegal, Burkina Faso, Botswana, Colombia, Dominican Republic, and Egypt. Representatives of each country received awards at a ceremony held this Wednesday in Vienna.

While Doing Business reforms are a key part of the development agenda in normal times, the tough global macroeconomic environment has made them all that much more important. Colombian Vice Minister Ricardo Duarte explains why after accepting Colombia's award in the video below. Money quote: "In these difficult times, we are convinced that firms are the engine of our economy. They are the ones that create wealth, that create growth."

Singapore Tax Stimulus

Singapore, the top-ranked economy on the ease of Doing Business for three years in a row, and the 5th out of 181 economies on Paying Taxes, announced a S$20.5 billion ($15 billion) Resilience Package to help businesses and workers on January 22, 2009.

The government will provide a 40% property tax rebate for industrial and commercial properties for 2009 and reduce the corporate income tax rate from 18% to 17% from 2010. It will also give a personal income tax rebate of 20% with a cap of S$2,000 for 2009.

Germany Tax Stimulus

On November 5, 2008, the German Federal Cabinet adopted Bundesministerium für Wirtschaft, Beschäftigungssicherung (German, English) to safeguard prospects for economic growth in Germany. According to the package, the federal government will introduce declining balance depreciation at 25% for movable assets for 2 years. In addition, special depreciation allowances for small and medium enterprises will also be temporarily expanded.

On February 13, 2009, a second stimulus package, Der Gesetzentwurf zur Sicherung von Beschäftigung und Stabilität in Deutschland, was approved by the German Bundestag which would provide further tax cuts.

Germany ranks the 25th out of 181 economies on the Ease of Doing Business 2009 and the 80th in Paying Taxes. In 2007, Germany reduced the corporate income tax from 25% to 15%, introduced straight-line depreciation for fixed assets and reduced trade tax while no longer allowing a deduction of the tax for corporate income tax.

Canada Tax Stimulus

On March 12, 2009, the Canadian Bill C-10 received Royal Assent. The Bill is an essential part of the government’s Economic Action Plan, which aims to "stimulate economic growth, restore confidence and support Canadians and their families during the synchronized global recession".

The plan reduces the tax burden on Canadian individuals, families and businesses to provide C$20 billion in additional personal income tax relief over 2008-09 and the next five fiscal years. The government is also committed to "long-term business tax reductions with the general corporate tax rate reduced to 19% as of January 1, 2009".

Canada ranks the 8th out of 181 economies on the ease of Doing Business 2009 and the 28th in Paying Taxes. Just in 2007, Canada reduced the corporate income tax rate, abolished a surtax of 1.12% and increased the depreciation rate for various assets.

Singapore focuses on doing business in APEC

Singapore, ranked 1 out of 181 economies on the ease of Doing Business, is hosting the upcoming Asia Pacific Economic Cooperation (APEC) Conference this spring.  APEC covers 21 countries, and senior APEC officials are making resisting protectionism and accelerating economic integration key priorities for this year’s meeting.

One new feature of the conference is an initiative by Singapore to identify the top areas of regulatory barrier when doing business in economies of APEC. To achieve this, it is introducing an "Ease of Doing Business" survey, based on that of the Doing Business project. It aims to provide suggestions on the areas and types of reforms to regulations that businesses would like to see APEC governments embark on.

Singapore wants to highlight the results from the survey to the APEC governments to help improve the ease of doing business in the 21 member economies. Any business located in one of the 21 APEC countries can complete the survey through this link. 

Australia Tax Stimulus

On February 13, 2009, the Australian parliament approved an A$42.5 billion ($27.06 billion) fiscal stimulus plan designed to retain jobs and protect the economy from the effects of the economic crisis.

Tax bonus and cash payment measures are contained in two Bills: Tax Bonus for Working Australians Bill 2009, and Household Stimulus Package Bill 2009. They provide A$950 bonuses to each low- and middle-income household/individual. The payments will also go to single-income families that currently receive certain tax benefits for families, as well as to farmers, students, and unemployed workers intending to receive education or retraining.

Under the Appropriation (Nation Building and Jobs) Bill (No. 1) 2008-09, tax breaks are also planned for small and general businesses to provide support against loss of jobs.

Australia ranks the 9th out of 181 economies in the Ease of Doing Business 2009 and the 48th on the Paying Taxes indicator.

Argentina Tax Stimulus

As the global economic crisis deepens, economies are introducing tax reforms as a direct stimulus. With a domestic focus, the impact of these plans may be felt across borders. In the next few blogs, I will present some recently implemented tax stimuli in five countries with the objective of offering a global perspective.

Argentina, which improved its Paying Taxes ranking by 12 in Doing Business 2009 compared to 2008, with more reforms now in the works with the objective of promoting employment, production and consumer confidence to counter an economic crisis.

On December 18, 2008, the Argentine National Congress passed Law 26.476. The Law encourages small and medium businesses to register informally paid workers by pardoning back taxes. Companies are only required to pay 50% of related labor taxes the first year and 75% the second year (Capítulo II. Articulo 16). The law also allows individuals and companies to repatriate capital to be invested in Argentina under a preferential tax rate of 1% to 8% (Titulo III. Articulo 27).

A Response to "The Rise of the Underground"

A recent article in the WSJ, The Rise of the Underground touted itself with an interesting lede:

Economists have long thought the underground economy -- the vast, unregulated market encompassing everything from street vendors to unlicensed cab drivers -- was bad news for the world economy. Now it's taking on a new role as one of the last safe havens in a darkening financial climate, forcing analysts to rethink their views.

Apparently, early evidence of the impacts of the global financial crisis "GFC" suggests that the informal sector actually plays a valuable role in absorbing, at least in part, the most vulnerable to the GFC. Mr. Barta suggests that this is a) contrary to the classical view that the transition to formal employment is a key step towards sustainable economic growth and independence, and b) causing economists to reevaluate the informal sector.

We beg to differ on both fronts. Sure, the informal sector provides useful flexibility, doubtlessly more so in times of crisis. But the very reason that the informal sector is booming is its inherently low costs: it doesn’t pay taxes and rarely observes health and safety, labor or consumer protection standards.

Tajikistan, in Reform Mode

In the six-year history of Doing Business, it has become evident that indeed what gets measured gets done. Often, the Doing Business data stimulates debate among policymakers prompting them to address challenges in the regulatory environment in their countries. And policy-makers are often inspired by other reformers. Last year, Kyrgyzstan was the first Central Asian country to make it into the top 10 reformers’ list. This year, two of its neighbors – Kazakhstan and Tajikistan – are also in reform mode.

Earlier in March, a Doing Business reform advisory team visited Tajikistan to support the Government’s business climate reform efforts. Ranked 159th out of 181 economies on the ease of doing business – and last in the Eastern European and Central Asian (ECA) region – Tajikistan seems determined to improve its business climate this year, led by the State Committee on Investments and the President’s Office.