This is third consecutive year when Pakistan has improved its position on World Bank Ease of Doing Business Index. As per World Bank's latest rankings on ease of doing business for 2020, released on October 24th, Pakistan has improved its position by 28 points from 136 to 108 which is an unprecedented improvement in the history of Pakistan. In last report for the year 2019 Pakistan's ranking improved by 11 points from 147 to 136 mainly due to reforms introduced by the SECP, in two areas i.e. Starting a Business (142 to 130) and Resolving Insolvency (from 82 to 53).
The Securities and Exchange Commission of Pakistan, being the lead agency for three indicators measured by the World Bank Doing Business Report, has played significant role in improving Pakistan's position on ease of doing business index.
The reform drive led by the SECP is reflected in highest ranking in three indicators, out of total 10 areas covered by the report, namely Starting a Business (72), Protecting Minority Investors (28) and Resolving Insolvency (58). These are only indicators where Pakistan is ranked below 100. Besides, out of 6 reform areas acknowledged in 2020 report, the highest improvement of 58 points has been made in Starting a Business area improving our position from 130 to 72. Pakistan is at 2nd position in South Asian countries in terms of ease of starting a business leaving India behind by 64 points.
The SECP launched its eServices in the year 2008 enabling online company registration and filing of statutory returns. During the year 2018-2019, the SECP has integrated its eServices with the Federal Board of Revenue (FBR) and the Employees Old Age Benefits Institution (EOBI) at the Federal level and with Business Registration portals of Punjab and Sindh at the Provincial level. Now an entrepreneur can get registration with 6 agencies i.e. SECP, FBR and registration with EOBI, PESSI/SESSI and labor department and Excise and Taxation Department of Punjab and Sindh by submitting a single online application through SECP eServices.
As a result of this reform, number of procedures to start a business as recorded in the Doing Business Report 2020 have been reduced from 10 to 5 and Pakistan has been able to secure 1st position in South Asia and 6th among the top ten reformers globally. Besides, improvement in ranking, this reform has received overwhelming response from the entrepreneurs. By the end of next year, one-stop-shop facility for company registration will also be extended to Khyber Pakhtunkhwa and Baluchistan.
Besides integration with federal and provincial agencies, the SECP has also introduced various other reforms to simplify the procedures of company incorporation. These reforms include introduction of single application form for company incorporation, simplified combined process for name reservation and incorporation, significant reduction in fees, reduction in time for incorporation to four working hours, payment of fee through mobile and internet banking, provision of complimentary certified copy of incorporation documents and establishment of facilitation desks for entrepreneurs at Islamabad, Karachi and Lahore. SECP has also expanded its outreach by establishing company registration office in Gilgit-Baltistan and a facilitation center in Gwadar.
Automation and extended facilitation services provided by the SECP have greatly facilitated entrepreneurs in registration of their businesses, thereby contributing to the growth of national economy. According to the record, despite recent economic downturn, volume of company registration in 2019 has increased by 27 percent as compared to the last financial year. Besides, ever since the SECP has activated its OSS, the number of National Tax Numbers issued to corporate entities has increased manifold.
In 2016, the Financial Institutions (Secured Transactions) Act, 2016 was enacted to provide an integrated legal framework for creation of security interest over movable assets besides providing for establishment of a Secured Transactions Registry (STR) for unincorporated entities. The objective was to facilitate small borrowers from SME and agriculture sector to secure credit from financial institutions against their movable assets e.g. receivables, intellectual property, inventory, agricultural produce, petroleum or minerals, motor vehicles etc.
However, this law remained ineffective as collateral registry for unincorporated entities, as provided in section 19 of the Act, could not be established. In March 2019, the Federal Government has outsourced the function of STR to SECP. The SECP is already maintaining a registry of charges/security interests created by companies for moveable and immovable assets under the Companies Act, 2017. Establishment of STR and its integration with SECP registry of charges/mortgages, besides improving credit facilities for SMEs, will also improve Pakistan's ranking in getting credit indicator in future.
SECP is not only focusing on facilitating ease of starting and doing business but necessary steps have also been taken to provide legal framework for revival of distressed companies. In this respect, enactment of Corporate Rehabilitation Act, that provides mechanism for rehabilitation of distressed companies, is an important development.
Furthermore, in order to resolve the problems of non-performing loans (NPLs) of corporate sector, legal framework for establishment of corporate restructuring companies has been introduced through Corporate Restructuring Companies Act. Subordinate legislation under the Corporate Rehabilitation Act and the Corporate Restructuring Companies Act are being finalized and will be notified soon.
Pakistan performs best in the area of protecting minority investors with ranking at 28. However, laws relating to corporate governance and related party transactions are being reviewed to further strengthen the legal framework for protection of minority shareholders. In this regard, in July 2019, amendments have been notified in PSX Rule Book for public disclosure of related party transactions.
This is an important development to provide timely disclosure of related party transactions to company's shareholders and potential investors. It will also reflect in improved score in the extent of disclosure index in the next report. The other areas that needs particular focus include disclosure of director's compensation, mechanism for approval of related party transactions, director's liability in related party transactions and ease of shareholder suits index.
SECP's efforts for ease of doing business have also been recognized in Global Competitiveness Report 2019 published by World Economic Forum. While overall ranking on Global Competitiveness Index dropped slightly, indicators relating to SECP show significant improvement. In "Business Dynamics" improvement by 15 points is noted due to reduction in cost & time to start business and improvement in Insolvency regulatory framework. Score in Strength of Auditing and reporting Standards, sub-indicator of Institutions, also improved from 3.9 to 4.
Another important component of SECP future agenda is digitization project namely "LEAP" i.e. Leading Efficiency through Automated Prowess. It is a significant initiative for transforming SECP into a modern and responsive regulator through end-to-end automation of its entire processes in order to completely transform its interaction with the corporate sector. The writer is Registrar of Companies, at Securities and Exchange Commission of Pakistan.
Copyright Business Recorder, 2019
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