KUALA LUMPUR: Malaysia has slipped one notch to 23 with an overall distance to frontier (DTF) score of 78.11 in the World Bank’s latest ranking of the ease of doing business, dragged down by the introduction of the goods and services tax (GST) that required more time for maturity as well as creating additional time for compliance.

Malaysia was ranked 22, with a score of 78.18 last year. Initially, the country was ranked 18 in the Doing Business 2016 (DB 2016) report, but the ranking for that year was revised to 22, taking into account some changes in methodology.

New Zealand took the top spot among 190 countries in this year’s ranking of the World Bank’s DB 2017 report that was released yesterday. Singapore came in second.

The decline in Malaysia’s DTF score from 78.18 to 78.11 was mainly due to a drop in performances for the indicator of starting a business, and paying taxes that led to the DTF score declining by 5.64 percentage points to 83.67 and 0.11 percentage points to 79.2 respectively.

The number of procedures to start a business in Malaysia increased from six to 8.5 steps, and the number of days increased from seven to 18.5 days. Malaysia has made starting a business more difficult by requiring that companies with an annual revenue of more than RM500,000 register as a GST payer, according to the report. The starting a business indicator saw a sharp drop in its ranking to 112 in DB 2017 from 59 in DB 2016.

The decline in the DTF for paying taxes was in line with an increase in time taken per year to comply with major taxes from 118 hours to 164 hours.

World Bank private-sector development specialist Joanna Nasr said the introduction of the GST in April 2015 had led to more time required for compliance, being a new tax regime in the country, replacing the previous sales tax and service tax (SST) regime.

She shared that the complexity of the GST is only temporary and should see tax payment being made easy as the system matures and business owners familiarise with the online system introduced.

World Bank country manager for Malaysia Faris H Hadad-Zervos said Malaysia is one of the 17 economies that had implemented reforms in the East Asia and Pacific regions in the past year despite the country’s ranking slipping one notch lower with a slightly lower DTF score.

“The two reforms implemented in the past year included the strengthening of credit reporting by providing consumer credit scores. With this change, Malaysia has attained a perfect score on the depth of credit information index of the doing business indicator of getting credit,” Faris said at a presentation of the DB 2017 report yesterday.

Another reform was the introduction of an online system for filing and paying the GST.

“Now, it takes a medium-sized company only nine payments to comply with taxes, versus 13 payments in the previous year,” he said.

He said that the Malaysian government is steadily working towards improving its business regulatory environment, and that it is encouraging to see these reforms that have eased the process of doing business for entrepreneurs.

Other areas that Malaysia has done well included obtaining construction permits. Malaysia is among the top 15 performers globally, taking only 79 days to meet all the requirements for obtaining a construction permit compared with the global average of 156 days.

Faris also said Malaysia retained its spot this year as the third-best economy in the world in terms of protecting minority investors.

“For example, Malaysia sets the best practice in terms of information that companies must share in order to enter into transactions with interested parties,” he added.

Malaysia was previously ranked sixth in the World Bank Report in 2014 under the old methodology of percentile ranking. However, both the ranking and DTF score have been moving south since 2015.Nonetheless, Malaysia Productivity Corp (MPC) remains optimistic about the country’s target to reach at least the top 10 in the DB report by 2020.

MPC director-general Datuk Mohd Razali Hussain said that focus groups under Pemudah (Special Task Force to Facilitate Business) will try to look into each area and learn from other countries to improve.

“Our focus groups will also work closely with the World Bank too, given that they have set up their office here (in Kuala Lumpur),” he told reporters at a briefing on Tuesday.

Currently, there are 16 focus groups and two task forces under Pemudah.

He said the public sector will be working closely with the private sector.

Mohd Razali is of the view that the implementation of the new Companies Bill 2015, which has been gazetted, will improve Malaysia’s score in the resolving insolvency indicator, the indicator which the country scored the lowest in the report.