1 alleviating the regulatory burden: thailand case study at regional conference on investment...
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ALLEVIATING THE REGULATORY BURDEN:THAILAND CASE STUDY
at
Regional Conference on Investment Climate and Competitiveness in East Asia- from Diagnostics to Action
November 20-23, 2005Kuala Lumpur, Malaysia
By
Dr. Phanit Laosirirat
Executive Director
Thailand Productivity Institute
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Thailand PICS
The report is based on data from the Productivity and Investment Climate Survey (PICS), a large survey of 1500 establishments in Manufacturing and 100 in ICT, and around 14,000 workers, conducted under the supervision of the Foundation for Thailand Productivity Institute (FTPI) with the help of the World Bank. The National Economic and Social Development Board (NESDB) is the funding agency.
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The regulatory burden is an environment that appears as a severe constraint to firm growth and operations. Regulatory burden is identified by almost 60 percent of firms as a major obstacle to doing business. The specific issues that constitute the regulatory burden concern are “tax regulations and/or high taxes”, “bureaucratic burden”, “labor regulations”, “import regulations”, “foreign exchange regulations”, and “ownership regulations.”
Regulatory Burden
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0 5 10 15 20 25 30 35 40
Cost of Financing
Corruption
Customs and Trade Regulations
Anti-Compet. or Informal Practices
Tax Administration
Tax Rates
Electricity
Economic Policy Uncertainty
Skills and Educ. of Avail. Workers
Macroeconomic Instability
Percent of Firms Identifying Factor as a "Severe" or "Very Severe" Obstacle
Regulatory Burden Appears Among Top 10 ConcernsResults From Closed Question
Tax administration, tax rates, and customs and trade regulations are the top ten obstacles to doing business in Thailand.
5
0 10 20 30 40 50 60 70
Dissatisfaction withEconomic Situation
Infrastructure andSupport Services
Skilled Labor Shortage
Regulatory Burden
Percent of Firms Identifying Issues as One of Three Top Obstacles
Firms’ Concerns about Business Climate – Results from Open-Ended Question
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0 10 20 30 40 50 60
Access to Foreign Credit
Access to Land
Business Licensing and Operating Permits
Crime, Theft and Disorder
Telecommunications
Labor Regulations
Access to Domestic Credit
Transportation
Cost of Financing
Corruption
Customs and Trade Regulations
Anti-Competitive or Informal Practices
Tax Administration
Tax Rates
Electricity
Economic Policy Uncertainty
Skills and Education of Available Workers
Macroeconomic Instability
Thailand Malaysia Indonesia
Comparison of Business Climate Constraints in Thailand, Malaysia and Indonesia
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0
10
20
30
40
50
60
70
Small Medium Large
Percen
t F
irm
s Id
en
tify
ing
Iss
ues
as
Ma
jor T
hree C
on
cern
s
Skilled Labor Shortage Dissatisfaction Economic SituationRegulatory burden Infrastructure and support services
Impact Of Investment Climate Constraints On More Productive Firms
Medium and large firms are more likely to consider regulatory burden a severe constraint to operations.
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0
10
20
30
40
50
60
70
Noncomputerized Machinery Computerized Machinery
Per
cen
t F
irm
s Id
enti
fyin
g I
ssu
es a
s M
ajo
r T
hre
e C
on
cern
s
Skilled Labor Shortage Dissatisfaction Economic SituationRegulatory burden Infrastructure and support services
Firms Using More Computer-controlled Machinery Are More Likely To Consider Regulatory Burden A Major Obstacle To Doing Business
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% of Senior Management's Time Spent Dealing with Regulation
0 2 4 6 8 10 12 14 16
Thailand
Indonesia
Malaysia
Brazil
Philippines
China
India
Number of Days to Clear Customs for Exports
0 2 4 6 8 10
Thailand
Malaysia
Indonesia
India
China
Philippines
Brazil
From an international perspective, Thai firms face a relatively light bureaucratic burden in terms of time spent dealing with regulations and number of days to clear customs for exports.
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Thailand Small Medium Large ExporterNon-
ExporterDomestic
FirmsForeign-
owned Firms
Response from Closed Questions
Tax rates 24.4 23.1 25.4 24.3 25.2 23.5 24.4 24.4
Tax Administration 22.3 21.3 25.4 24.3 25.2 23.5 24.4 24.4
Customs and Trade Regulations 19.8 12.7* 18.8 25.5* 25.1* 13.9* 18.1 25*
Labor Regulations 11.4 10.7 11.4 11.9 12.2 10.5 12.0 9.6
Business Licensing and Operating Permits 7.4 6.1 7.9 7.7 7.5 7.2 7.3 7.6
Response from Open Questions
Tax Regulations and/or High Taxes 27.7 28.8 29.7 25.1 27.4 28.0 26.6 31.1
Bureaucratic Burden 22.7 18.4* 22.1 26.2 25.7 19.5* 20.9 28.2*
Foreign Currency Regulations 9.8 5.2* 11.0 11.7 14.5* 4.6* 8.2 14.8*
Labor Regulations 9.5 6.9 8.3 12.3 11.8 6.9* 9.1 10.5
Import Regulations 7.0 5.2 6.2 9.0 9.6* 4.1* 4.5* 14.5*
Number of Plants 1,385 347 516 522 729 656 1,041 344
Regulatory Burden Constraints to Operation by Type of Firm Percentage of Firms evaluating constraint as “major” or “very severe”
Most Productive Firms (Medium and large, Exporting, Foreign Invested, High-Tech) are the most affected by regulatory burden, the most important investment climate constraint.
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0
5
10
15
20
25
30
Thailand Small Medium Large
% o
f Res
pons
es
Tax rates Tax administrations
Customs and Trade regulations Labor regulations
Business licensing and operation permits
Regulatory Burden by Size of Firms
12
0
5
10
15
20
25
30
Thailand Exporter Non-exporter
% o
f Res
pons
es
Tax rates Tax administrations
Customs and Trade regulations Labor regulations
Business licensing and operation permits
Regulatory Burden by Export and Non-export Firms
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0
5
10
15
20
25
30
Thailand Domestic owned Foreign owned
% o
f Res
pons
es
Tax rates Tax administrations
Customs and Trade regulations Labor regulations
Business licensing and operation permits
Regulatory Burden by Domestic and Foreign Firms
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Number of Days to Obtain Licenses/Permits/Approvals/Certificates to Start a Business
Number of Days to Obtain Different Licenses/Permits/Approvals/ Certificates Avg. St. Dev. Coeff. Variat. Median N. Obs.
Ministry of Commerce 10 20 1.9 2 964
Department of Industrial Works 17 22 1.3 7 926
Immigration Department 10 14 1.4 3 80
Land Office 13 22 1.7 3 131
Local Government 10 15 1.6 2 419
Approval for Construction 36 40 1.1 30 242
Import Permit 13 18 1.4 7 164Operating License 39 58 1.5 30 188
Number of Days to Process Application for Different Export Incentives
Avg. St. Dev. Coeff. Variat. Median N. Obs.
E-commerce Export Promotion 33 145 4.4 7 56Promotion of Thailand Brands 41 61 1.5 30 62Exports Promotion to new market (2003-2005) 18 19 1.0 10 39Distribution Networking 32 48 1.5 23 12Arrange sale promotion with Department store 17 13 0.7 7 11Export one stop service 15 13 0.9 11 14Prime Minister’s Export Award 2003 (PM Award) 21 20 1.0 14 13Deduction on Cost of Developing Websites 28 16 0.6 30 10Tax Incentives for Offshore Trading Via Websites 30 31 1.0 23 8
The issue is less with the time it takes to obtain authorizations, but more with the unpredictability.
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Source: World Bank Doing Business Indicators 2004.
Brazil
Chile
India
Indonesia
Korea
Malaysia
Philippines
SingaporeU.S.
China
Thailand0
20
40
60
80
100
120
140
160
180
200
220
0 200 400 600 800 1000 1200 1400 1600
Days to Solve a Payment Dispute
Days
to R
egis
ter
Pro
per
ty
25th Percentile Registering Property
= 24 Days
25th Percentile Solving Payment Dispute
= 250 Days
Property Registration and Contract Enforcement
Thailand also performs well regarding the time taken for property registration but poorly on contract enforcement.
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Source: World Bank Doing Business Indicators 2004.
Brazil
Chile
India
Indonesia
KoreaMalaysia
Philippines
SingaporeU.S.
China
Thailand
0
20
40
60
80
100
120
140
160
180
200
220
0 10 20 30 40 50 60 70 80 90 100
Index of Overall Restrictiveness of Labor Market Regulations
Day
s to
Sta
rt a
Bu
sin
ess
25th Percentile Start Business = 26 Days
25th Percentile Index of Labor Market
Regulations = 26.2
Regulation of Labor Markets and Regulation of Entry
Labor regulations in Thailand are more restrictive than in key comparator countries such as China and Malaysia.
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0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Hiring procedures forlocal workers
Hiring procedures forforeign workers
Layoff procedures/costof retrenchment
Limits on temporaryhiring
Inflexible salary scalefor skilled workers
Perce
nt
of
Fir
ms
Iden
tify
ing R
egu
lati
on
as
"S
evere"
or "
Very
Sev
ere"
Ob
stacle
Thailand Malaysia
Labor Regulations as an Obstacle to Thai Firm Operations and Growth
Hiring procedures for local workers appears to be a major obstacle in terms of labor regulations for firms in Thailand.
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Unnecessary Burdensome of Regulation
Unnecessarily burdensome regulation and regulatory processes can distort decisions relating to production and marketing, including those made through trade and investment in goods and services, thus limiting the ability of companies to participate effectively in competition. At the national level, this promotes the emergence of informal market mechanisms corrupted practices and could slow economic growth. At the international level, excessive regulations could handicap an economy when reaping the benefits of globalisation and international competition.
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Rule of Law - 2004
IND
ON
ES
IA
PH
ILIP
PIN
ES
CH
INA
BR
AZ
IL
IND
IA
MA
LA
YS
IA
KO
RE
A, S
OU
TH
CH
ILE U
NIT
ED
ST
AT
ES
IRE
LA
ND
SIN
GA
PO
RE
TH
AIL
AN
D
-3
-2
-1
0
1
2
3
208 Countries
No
rma
lized
Ru
le o
f L
aw
In
de
x
HIGH
LOW
Note: Blue dots represent estimates for the 2004 governance indicators. The thin vertical lines represent standard errors around these estimates for each country in world-wide sample. Black dot represents the chosen year comparator - 2002. Dotted line is median.
Source: "Governance Matters IV: Governance Indicators for 1996-2004 " by Daniel Kaufmann, Aart Kraay and Massimo Mastruzzi, 2005.
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Control of Corruption - 2004
IND
ON
ES
IA
PH
ILIP
PIN
ES
CH
INA
IND
IA
BR
AZ
IL
KO
RE
A, S
OU
TH
MA
LA
YS
IA
CH
ILE
IRE
LA
ND
UN
ITE
D S
TA
TE
S
SIN
GA
PO
RE
TH
AIL
AN
D
-3
-2
-1
0
1
2
3
204 Countries
No
rma
lize
d C
on
tro
l o
f C
orr
up
tio
n I
nd
ex HIGH
LOW
Note: Blue dots represent estimates for the 2004 governance indicators. The thin vertical lines represent standard errors around these estimates for each country in world-wide sample. Black dot represents the chosen year comparator - 2002.Dotted line is median.
Source: "Governance Matters IV: Governance Indicators for 1996-2004 " by Daniel Kaufmann, Aart Kraay and Massimo Mastruzzi, 2005.
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Governance Indexes for Thailand: 1996, 1998, 2000, 2002 and 2004
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Regulatory Environment in Thailand
Too detailed a law can leave regulations too rigid, while too lax a law may open the system to the peril of abuse of power and may lead to inconsistency, unpredictability and an unclear decision-making process. Here are some of the characteristics of regulatory environment in Thailand.
• Too much discretion that leads to unpredictable interpretation of regulations, especially in regulations covering competition.
• Inconsistent application of law—some sectors get preferences.• Too little transparency in terms of public hearings, appeals provision, and
notification and publication requirements.• Lack of qualified personnel and professionalism in enforcing the law
especially in the area of the new economy.
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• Firms point to labor regulations, import regulations, and the unpredictability of entry regulations as areas needing government’s close attention.
• The government must establish the confidence among economic actors in the regulatory system that depends on the predictability and accountability, which can be greatly enhanced through mechanisms of transparency and public consultation.
• Even though some real progress has been made in the liberalization of certain sectors. However, this has not fulfilled the government promises in terms of management effectiveness and competition.
• Regulations are not the problem but the way we manage those regulations is more important.
Some Policy Implications
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National Economic and Social Development Board
The World Bank
Thailand Productivity Institute