KUALA LUMPUR (Oct 26): Malaysia has slipped by one notch to the 23rd spot 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 22nd last year.
New Zealand took the top spot among 190 countries in this year's ranking of the World Bank's Doing Business 2017 (DB 2017) report that was released today. Singapore came in second.
World Bank private sector development specialist Joanna Nasr said the introduction of GST in April 2015 had led to more time required for compliance, being a new tax regime in the country.
She added that GST will be a positive with the introduction of an online system.
Nasr also noted that starting a new business in Malaysia has become slightly more difficult with the additional requirement for companies with an annual revenue of more than RM500,000 to register as a GST payer.
Malaysia's distance to frontier (DTF) score also fell to 78.11 in DB 2017 from 78.18 in DB 2016. A score of 80 would indicate the economy is improving
Despite a lower ranking and slight fall in its DTF score, World Bank country manager for Malaysia Faris H. Hadad-Zervos said Malaysia is one of the 17 economies that implemented reforms in the East Asia and Pacific regions in the past year.
"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 on the DB 2017 report today.
Another reform was the introduction of an online system for filing and paying 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 added that the Malaysian government is steadily working towards improving its business regulatory environment and that it is encouraging to see these reforms which ease the process of doing business for entrepreneurs.
Other areas in which Malaysia has done well include dealing with construction permits. Malaysia is among the top 15 performers globally and it takes only 79 days to complete all 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.
Based on the DB topics covered, Malaysia has been doing very well in the areas of protecting minority investors (ranked third), getting electricity (ranked eighth) and dealing with construction permits (ranked 13th).
Among the topics that Malaysia has the lowest ranking are starting a business, paying taxes and trading across borders. Starting a business topic saw Malaysia at a low of 112th out of 190 countries, while paying taxes was ranked 61st and trading across borders was ranked at 60th.
The World Bank Group is of the view that Malaysia has continued its efforts to improve the business climate for local entrepreneurs despite the drop in its ranking and DTF score.