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Indonesia Doing Business 2017 SoEconomy Economy Profile 2017 Indonesia 2 Indonesia Doing Business 2017 © 2017 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 19 18 17 16 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) http://creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: World Bank. 2017. Doing Business 2017: Equal Opportunity for All. Washington, DC: World Bank. DOI: 10.1596/978-1-4648-0948-4. License: Creative Commons Attribution CC BY 3.0 IGO Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. . Third-party content—The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third-party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. ISBN (paper): 978-1-4648-0948-4 ISBN (electronic): 978-1-4648-0984-2 DOI: 10.1596/978-1-4648-0948-4 ISSN: 1729-2638 Cover design: Corporate Visions, Inc. 3 Indonesia Doing Business 2017 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 17 Dealing with construction permits ........................................................................................... 36 Getting electricity ....................................................................................................................... 58 Registering property .................................................................................................................. 71 Getting credit .............................................................................................................................. 87 Protecting minority investors ................................................................................................... 94 Paying taxes .............................................................................................................................. 101 Trading across borders ............................................................................................................ 109 Enforcing contracts .................................................................................................................. 116 Resolving insolvency ................................................................................................................ 126 Labor market regulation ......................................................................................................... 133 Distance to frontier and ease of doing business ranking .................................................... 139 Resources on the Doing Business website ............................................................................ 142 4 Indonesia Doing Business 2017 INTRODUCTION Doing Business sheds light on how easy or difficult it is for a local entrepreneur to open and run a small to medium-size business when complying with relevant regulations. It measures and tracks changes in regulations affecting 11 areas in the life cycle of a business: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and labor market regulation. Doing Business 2017 presents the data for the labor market regulation indicators in an annex. The report does not present rankings of economies on labor market regulation indicators or include the topic in the aggregate distance to frontier score or ranking on the ease of doing business. In a series of annual reports Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 190 economies, from Afghanistan to Zimbabwe, over time. The data set covers 48 economies in Sub- Saharan Africa, 32 in Latin America and the Caribbean, 25 in East Asia and the Pacific, 25 in Eastern Europe and Central Asia, 20 in the Middle East and North Africa and 8 in South Asia, as well as 32 OECD high-income economies. The indicators are used to analyze economic outcomes and identify what reforms have worked, where and why. This economy profile presents the Doing Business indicators for Indonesia. To allow useful comparison, it also provides data for other selected economies (comparator economies) for each indicator. The data in this report are current as of June 1, 2016 (except for the paying taxes indicators, which cover the period January– December 2015). The Doing Business methodology has limitations. Other areas important to business—such as an economy’s proximity to large markets, the quality of its infrastructure services (other than those related to trading across borders and getting electricity), the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions or the underlying strength of institutions—are not directly studied by Doing Business. The indicators refer to a specific type of business, generally a local limited liability company operating in the largest business city. Because standard assumptions are used in the data collection, comparisons and benchmarks are valid across economies. The data not only highlight the extent of obstacles to doing business; they also help identify the source of those obstacles, supporting policy makers in designing regulatory reform. More information is available in the full report. Doing Business 2017 presents the indicators, analyzes their relationship with economic outcomes and presents business regulatory reforms. The data, along with information on ordering Doing Business 2017, are available on the Doing Business website at http://www.doingbusiness.org. 5 Indonesia Doing Business 2017 CHANGES IN DOING BUSINESS 2017 As part of a three-year update in methodology, Doing Business 2017 expands further by adding postfiling processes to the paying taxes indicator, including a gender component in three of the indicators and developing a new pilot indicator on selling to the government. Also, for the first time this year Doing Business collects data on Somalia, bringing the total number of economies covered to 190. The paying taxes indicator is expanded this year to include postfiling processes – those processes that occur after a firm complies with its regular tax obligations. These include tax refunds, tax audits and tax appeals. In particular, Doing Business measures the time it takes to get a value added tax (VAT) refund, deal with a simple mistake on a corporate tax return that can potentially trigger an audit and good practices with administrative appeals process. This year’s Doing Business report presents a gender dimension in four of the indicator sets: starting a business, registering property, enforcing contracts and labor market regulation. Three of these areas are included in the distance to frontier score and in the ease of doing business ranking, while the fourth—labor market regulation—is not. Doing Business has traditionally assumed that the entrepreneurs or workers discussed in the case studies were men. This was incomplete by not reflecting correctly the Doing Business processes as applied to women—which in some economies may be different from the processes applied to men. Starting this year, Doing Business measures the starting a business process for two case scenarios: one where all entrepreneurs are men and one where all entrepreneurs are women. In economies where the processes are more onerous if the entrepreneur is a woman, Doing Business now counts the extra procedures applied to roughly half of the population that is female (for example, obtaining a husband’s consent or gender-specific requirements for opening a personal bank account when starting a business). Within the registering property indicators, a gender component has been added to the quality of land administration index. This component measures women’s ability to use, own, and transfer property according to the law. Finally, within the enforcing contracts indicator set, economies will be scored on having equal evidentiary weight of women’s testimony in court. Also for the first time this year Doing Business collects data on Somalia, bringing the total number of economies covered to 190. For more details on the changes, see the “Old and new factors covered in Doing Business” section in the Overview chapter starting on page 1 of the Doing Business 2017 report. For more details on the data and methodology, please see the “Data Notes” chapter starting on page 114 of the Doing Business 2017 report. For more details on the distance to frontier metric, please see the “Distance to frontier and ease of doing business ranking” chapter in this profile. 6 Indonesia Doing Business 2017 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start is to find out how it compares with the regulatory environment in other economiesK Doing Business provides an aggregate ranking on the ease of doing business based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size businesses through their life cycle. Economies are ranked from 1 to 190 by the ease of doing business ranking. Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. Epee the chapter on the distance to frontier and ease of doing business). The ease of doing business ranking compares economies with one another; the distance to frontier score benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best performance on each Doing Business indicator. When compared across years, the distance to frontier score shows how much the regulatory environment for local entrepreneurs in an economy has changed over time in absolute terms, while the ease of doing business ranking can show only how much the regulatory environment has changed relative to that in other economies. The 10 topics included in the ranking in Doing Business 2017: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The labor market regulation indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented in the economy profile. ECONOMY OVERVIEW Region: East Asia & Pacific Income category: Lower middle income Population: 257,563,815 GNI per capita (US$): 3,440 DB2017 rank: 91 DB2016 rank: 106* Change in rank: 15 DB 2017 DTF: 61.52 DB 2016 DTF: 58.51 Change in DTF: 3.01 * DB2016 ranking shown is not last year’s published ranking but a comparable ranking for DB2016 that captures the effects of such factors as data revisions and the changes in methodology. See the data notes starting on page 114 of the Doing Business 2017 report for sources and definitions. Indonesia Doing Business 2017 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Indonesia Doing Business 2017 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy stands in the aggregate ranking on the ease of doing business is useful. Also useful is to know how it ranks relative to comparator economies and relative to the regional average (figure 1.2). The economy’s rankings (figure 1.3) and distance to frontier scores (figure 1.4) on the topics included in the ease of doing business ranking provide another perspective. Figure 1.2 How Indonesia and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2016 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. 9 Indonesia Doing Business 2017 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Indonesia (Scale: Rank 190 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Indonesia (Scale: Score 0 center, Score 100 outer edge) Source: Doing Business database. Note: The rankings are benchmarked to June 2016 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. 10 Indonesia Doing Business 2017 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business tells only part of the story, so do changes in that ranking. Yearly movements in rankings can provide some indication of changes in an economy’s regulatory environment for firms, but they are always relative. Moreover, year-to-year changes in the overall rankings do not reflect how the business regulatory environment in an economy has changed over time—or how it has changed in different areas. To aid in assessing such changes, Doing Business introduced the distance to frontier score. This measure shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator. Comparing the measure for an economy at 2 points in time allows users to assess how much the economy’s regulatory environment as measured by Doing Business has changed over time—how far it has moved toward (or away from) the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Indonesia come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator. Getting credit, protecting minority investors and resolving insolvency had methodology changes in 2014 and thus are only comparable to 2013. Dealing with construction permits, getting electricity and trading across borders had methodology changes in 2015 and thus are only comparable to 2014. Starting a business, registering property, paying taxes and enforcing contracts had methodology changes in 2016 and thus are only comparable to 2015. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2017 report for more details on the distance to frontier score. Source: Doing Business database. 11 Indonesia Doing Business 2017 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of the story (table 1.1). The indicators, on their own or in comparison with the indicators of a good practice economy or those of comparator economies in the region, may reveal bottlenecks reflected in large numbers of procedures, long delays or high costs. Or they may reveal unexpected strengths in an area of business regulation—such as a regulatory process that can be completed with a small number of procedures in a few days and at a low cost. Comparison of the economy’s indicators today with those in the previous year may show where substantial bottlenecks persist—and where they are diminishing. Table 1.1 Summary of Doing Business indicators for Indonesia Indicator Indonesia DB201 7 Indonesia DB201 6 Jakarta DB201 7 Surabaya DB201 7 China DB201 7 India DB201 7 Malaysia DB201 7 Philippines DB201 7 Best performer globally DB201 7 Starting a Business (Rank) 151 167 -- -- 127 155 112 171 1 (New Zealand) Starting a Business (DTF Score) 76.43 67.51 77.50 72.62 81.02 74.31 83.67 68.86 99.96 (New Zealand) Procedure – Men (number) 11.2 12.0 11.0 12.0 9.0 12.9 8.0 16.0 1.0 (New Zealand) Time – Men (days) 24.9 47.8 22.0 35.0 28.9 26.0 18.0 28.0 0.5 (New Zealand) Cost – Men (% of income per capita) 19.4 19.9 19.1 20.3 0.7 13.8 6.2 15.8 0.0 (Slovenia) Procedure – Women (number) 11.2 12.0 11.0 12.0 9.0 12.9 9.0 16.0 1.0 (New Zealand) Time – Women (days) 24.9 47.8 22.0 35.0 28.9 26.0 19.0 28.0 0.5 (New Zealand) Cost – Women (% of income per capita) 19.4 19.9 19.1 20.3 0.7 13.8 6.2 15.8 0.0 (Slovenia) Paid-in min. capital (% of income per capita) 0.0 31.0 0.0 0.0 0.0 0.0 0.0 3.1 0.0 (127 Economies*) Dealing with Construction Permits 116 113 -- -- 177 185 13 85 1 (New Zealand) 12 Indonesia Doing Business 2017 Indicator Indonesia DB201 7 Indonesia DB201 6 Jakarta DB201 7 Surabaya DB201 7 China DB201 7 India DB201 7 Malaysia DB201 7 Philippines DB201 7 Best performer globally DB201 7 (Rank) Dealing with Construction Permits (DTF Score) 65.73 65.26 66.12 64.34 48.52 32.83 81.10 69.45 87.40 (New Zealand) Procedures (number) 17.0 17.0 17.0 17.0 22.0 35.1 15.0 24.0 7.0 (4 Economies*) Time (days) 200.2 200.2 191.0 233.0 244.3 190.0 79.0 98.0 28.0 (Korea, Rep.) Cost (% of warehouse value) 5.1 5.5 5.3 4.3 7.0 25.9 1.4 1.1 0.1 (Trinidad and Tobago) Building quality control index (0-15) 13.0 13.0 13.0 13.0 9.0 11.5 13.0 12.0 15.0 (Luxembourg*) Getting Electricity (Rank) 49 61 -- -- 97 26 8 22 1 (Korea, Rep.) Getting Electricity (DTF Score) 80.92 77.60 79.86 84.68 68.73 85.09 94.34 86.90 99.88 (Korea, Rep.) Procedures (number) 4.8 5.0 5.0 4.0 5.5 5.0 4.0 4.0 3.0 (15 Economies*) Time (days) 57.7 79.0 59.0 53.0 143.2 45.9 31.0 42.0 18.0 (Korea, Rep.*) Cost (% of income per capita) 357.0 383.0 357.0 357.0 390.4 133.2 26.6 25.7 0.0 (Japan) Reliability of supply and transparency of tariff index (0-8) 6.0 6.0 6.0 6.0 6.0 7.0 8.0 6.0 8.0 (26 Economies*) Registering Property (Rank) 118 123 -- -- 42 138 40 112 1 (New Zealand) Registering Property (DTF Score) 55.72 53.24 56.01 54.68 76.15 50.00 76.29 57.54 94.46 (New Zealand) Procedures (number) 5.0 5.0 5.0 5.0 4.0 7.0 8.0 9.0 1.0 (4 Economies*) 13 Indonesia Doing Business 2017 Indicator Indonesia DB201 7 Indonesia DB201 6 Jakarta DB201 7 Surabaya DB201 7 China DB201 7 India DB201 7 Malaysia DB201 7 Philippines DB201 7 Best performer globally DB201 7 Time (days) 27.4 27.4 25.0 36.0 19.5 46.8 13.0 35.0 1.0 (3 Economies*) Cost (% of property value) 10.8 10.8 10.9 10.4 3.4 7.7 3.4 4.3 0.0 (Saudi Arabia) Quality of the land administration index (0- 30) 12.3 9.3 12.5 11.5 18.3 7.0 27.5 12.5 29.0 (Singapore) Getting Credit (Rank) 62 70 -- -- 62 44 20 118 1 (New Zealand) Getting Credit (DTF Score) 60.00 55.00 60.00 60.00 60.00 65.00 75.00 40.00 100.00 (New Zealand) Strength of legal rights index (0-12) 6.0 5.0 6.0 6.0 4.0 6.0 7.0 3.0 12.0 (3 Economies*) Depth of credit information index (0-8) 6.0 6.0 6.0 6.0 8.0 7.0 8.0 5.0 8.0 (30 Economies*) Credit registry coverage (% of adults) 51.8 48.5 51.8 51.8 91.1 0.0 62.4 0.0 100.0 (3 Economies*) Credit bureau coverage (% of adults) 0.0 0.0 0.0 0.0 21.3 21.4 76.4 10.2 100.0 (23 Economies*) Protecting Minority Investors (Rank) 70 69 -- -- 123 13 3 137 1 (New Zealand*) Protecting Minority Investors (DTF Score) 56.67 56.67 56.67 56.67 45.00 73.33 80.00 41.67 83.33 (New Zealand*) Strength of minority investor protection index (0-10) 5.7 5.7 5.7 5.7 4.5 7.3 8.0 4.2 8.3 (New Zealand*) Extent of conflict of interest regulation index (0-10) 5.7 5.7 5.7 5.7 5.0 6.7 8.7 4.0 9.3 (New Zealand*) Extent of shareholder governance index (0-5.7 5.7 5.7 5.7 4.0 8.0 7.3 4.3 8.3 (Norway) 14 Indonesia Doing Business 2017 Indicator Indonesia DB201 7 Indonesia DB201 6 Jakarta DB201 7 Surabaya DB201 7 China DB201 7 India DB201 7 Malaysia DB201 7 Philippines DB201 7 Best performer globally DB201 7 10) Paying Taxes (Rank) 104 115 -- -- 131 172 61 115 1 (United Arab Emirates) Paying Taxes (DTF Score) 69.25 64.47 69.25 69.25 60.46 46.58 79.20 65.74 99.44 (United Arab Emirates) Payments (number per year) 43.0 54.0 43.0 43.0 9.0 25.0 9.0 28.0 3.0 (Hong Kong SAR, China*) Time (hours per year) 221.0 234.0 221.0 221.0 259.0 241.0 164.0 185.6 55.0 (Luxembourg) Total tax rate (% of profit) 30.6 29.7 30.6 30.6 68.0 60.6 40.0 42.9 26.1 (32 Economies*) Postfiling index (0-100) 76.5 76.5 76.5 76.5 48.6 4.3 64.3 49.8 98.5 (Estonia) Trading across Borders (Rank) 108 113 -- -- 96 143 60 95 1 (10 Economies*) Trading across Borders (DTF Score) 65.87 63.53 67.68 59.48 69.13 57.61 82.38 69.39 100.00 (10 Economies*) Time to export: Border compliance (hours) 53 53 48 72 26 106 48 42 0 (18 Economies*) Cost to export: Border compliance (USD) 254 254 250 267 522 413 321 456 0 (18 Economies*) Time to export: Documentary compliance (hours) 61 72 60 66 21 38 10 72 1 (25 Economies*) Cost to export: Documentary compliance (USD) 139 170 130 170 85 92 45 53 0 (19 Economies*) Time to import: Border compliance (hours) 99 99 80 168 92 283 72 72 0 (25 Economies*) 15 Indonesia Doing Business 2017 Indicator Indonesia DB201 7 Indonesia DB201 6 Jakarta DB201 7 Surabaya DB201 7 China DB201 7 India DB201 7 Malaysia DB201 7 Philippines DB201 7 Best performer globally DB201 7 Cost to import: Border compliance (USD) 383 383 384 376 777 574 321 580 0 (28 Economies*) Time to import: Documentary compliance (hours) 133 144 132 136 66 61 10 96 1 (29 Economies*) Cost to import: Documentary compliance (USD) 164 164 160 180 171 135 60 50 0 (30 Economies*) Enforcing Contracts (Rank) 166 171 -- -- 5 172 42 136 1 (Korea, Rep.) Enforcing Contracts (DTF Score) 38.15 35.37 38.86 35.64 77.98 35.19 66.61 49.24 84.15 (Korea, Rep.) Time (days) 471.0 471.0 460.0 510.0 452.8 1420.0 425.0 842.0 164.0 (Singapore) Cost (% of claim) 115.7 115.7 118.1 107.3 16.2 39.6 37.3 31.0 9.0 (Iceland) Quality of judicial processes index (0-18) 7.8 6.3 8.0 7.0 14.3 9.0 12.0 7.5 15.5 (Australia) Resolving Insolvency (Rank) 76 74 -- -- 53 136 46 56 1 (Finland) Resolving Insolvency (DTF Score) 46.46 46.48 45.80 48.82 55.82 32.75 62.49 55.24 93.89 (Finland) Recovery rate (cents on the dollar) 31.2 31.2 29.9 35.5 36.9 26.0 81.3 21.3 92.9 (Norway) Time (years) 1.9 1.9 2.0 1.5 1.7 4.3 1.0 2.7 0.4 (22 Economies*) Cost (% of estate) 21.6 21.6 22.0 20.0 22.0 9.0 10.0 32.0 1.0 (22 Economies*) Strength of insolvency framework index (0-16) 9.5 9.5 9.5 9.5 11.5 6.0 6.0 14.0 15.0 (6 Economies*) Source: Doing Business database. Note: DB2016 rankings shown are not last year’s published rankings but comparable rankings for DB2016 that capture the effects of such factors as data revisions and changes to the methodology. The global best performer on time for paying taxes is defined as the lowest 16 Indonesia Doing Business 2017 time recorded among all economies in the DB2016 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). 17 Indonesia Doing Business 2017 STARTING A BUSINESS Formal registration of companies has many immediate benefits for the companies and for business owners and employees. Legal entities can outlive their founders. Resources are pooled as several shareholders join forces to start a company. Formally registered companies have access to services and institutions from courts to banks as well as to new markets. And their employees can benefit from protections provided by the law. An additional benefit comes with limited liability companies. These limit the financial liability of company owners to their investments, so personal assets of the owners are not put at risk. Where governments make registration easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and generating more revenue for the government. What do the indicators cover? Doing Business records all procedures officially required, or commonly done in practice, for an entrepreneur to start up and formally operate an industrial or commercial business, as well as the time and cost to complete these procedures and the paid- in minimum capital requirement. These procedures include obtaining all necessary licenses and permits and completing any required notifications, verifications or inscriptions for the company and employees with relevant authorities. The ranking of economies on the ease of starting a business is determined by sorting their distance to frontier scores for starting a business. These scores are the simple average of the distance to frontier scores for each of the component indicators. To make the data comparable across economies, several assumptions about the business and the procedures are used. It is assumed that any required information is readily available and that the entrepreneur will pay no bribes. Assumptions about the business:  Is a limited liability company (or its legal equivalent). If there is more than one type of limited liability company in the economy, the limited liability form most common among domestic firms is chosen. Information on the most common form is obtained from incorporation lawyers or the statistical office.  Operates in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city.  Is 100% domestically owned and has five WHAT THE STARTING A BUSINESS INDICATORS MEASURE Procedures to legally start and operate a company (number) Preregistration (for example, name verification or reservation, notarization) Registration in the economy’s largest business city1 Postregistration (for example, social security registration, company seal) Obtaining approval from spouse to start a business, to leave the home to register the company or open a bank account. Obtaining any gender specific document for company registration and operation, national identification card or opening a bank account. Time required to complete each procedure (calendar days) Does not include time spent gathering information Each procedure starts on a separate day (2 procedures cannot start on the same day). Procedures that can be fully completed online are recorded as ½ day. Procedure completed once final document is received No prior contact with officials Cost required to complete each procedure (% of income per capita) Official costs only, no bribes No professional fees unless services required by law or commonly used in practice Paid-in minimum capital (% of income per capita) Deposited in a bank or with a notary before registration (or within 3 months)  The size of the entire office space is approximately 929 square meters (10,000 square feet). 18 Indonesia Doing Business 2017 owners, none of whom is a legal entity  Has start-up capital of 10 times income per capita  Performs general commercial or industrial activities, such as the production or sale to the public of products or services. The business does not perform foreign trade activities and does not handle products subject to a special tax regime, for example, liquor or tobacco. It is not using heavily polluting production processes.  Leases the commercial plant or offices and is not a proprietor of real estate.  The amount of the annual lease for the office space is equivalent to 1 times income per capita  Does not qualify for investment incentives or any special benefits.  Has at least 10 and up to 50 employees one month after the commencement of operations, all of them domestic nationals.  Has a turnover of at least 100 times income per capita.  Has a company deed 10 pages long. The owners:  Have reached the legal age of majority and are capable of making decisions as an adult. If there is no legal age of majority, they are assumed to be 30 years old.  Are sane, competent, in good health and have no criminal record.  Are married, the marriage is monogamous and registered with the authorities.  Where the answer differs according to the legal system applicable to the woman or man in question (as may be the case in economies where there is legal plurality), the answer used will be the one that applies to the majority of the population. 19 Indonesia Doing Business 2017 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Indonesia? According to data collected by Doing Business, starting a business there requires 11.2 procedures , takes 24.9 days, costs 19.4% of income per capita for men, and requires 11.2 procedures , takes 24.9 days, costs 19.4% of income per capita for women. A requirement of paid-in minimum capital of 0.0% of income per capita (figure 2.1) is legally mandatory for both men and women. Most indicator sets refer to a case scenario in the largest business city of an economy, except for 11 economies for which the data are a population-weighted average of the 2 largest business cities. See the chapter on distance to frontier and ease of doing business ranking at the end of this profile for more details. . Figure 2.1 What it takes to start a business in Indonesia - Jakarta Paid-in minimum capital (% of income per capita): 0.0 20 Indonesia Doing Business 2017 What it takes to start a business in Indonesia - Surabaya Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Procedures in light blue are for married women only. 21 Indonesia Doing Business 2017 STARTING A BUSINESS Globally, Indonesia stands at 151 in the ranking of 190 economies on the ease of starting a business (figure 2.2). The rankings for comparator economies and the regional average ranking provide other useful information for assessing how easy it is for an entrepreneur in Indonesia to start a business. Figure 2.2 How Indonesia and comparator economies rank on the ease of starting a business Source: Doing Business database. 22 Indonesia Doing Business 2017 STARTING A BUSINESS Economies around the world have taken steps making it easier to start a business—streamlining procedures by setting up a one-stop shop, making procedures simpler or faster by introducing technology and reducing or eliminating minimum capital requirements. Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been greater firm satisfaction and savings and more registered businesses, financial resources and job opportunities. What business registration reforms has Doing Business recorded in Indonesia (table 2.1)? Table 2.1 How has Indonesia made starting a business easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform DB2011 Indonesia eased business start-up by reducing the cost for company name clearance and reservation and the time required to reserve the name and approve the deed of incorporation. DB2012 Indonesia made starting a business easier by introducing a simplified application process allowing an applicant to simultaneously obtain both a general trading license and a business registration certificate. DB2015 Indonesia made starting a business easier by allowing the Ministry of Law and Human Rights to electronically issue the approval letter for the deed of establishment. This reform applies to both Jakarta and Surabaya. DB2016 Indonesia made starting a business in Jakarta easier by reducing the time needed to register with the Ministry of Manpower. DB2017 Indonesia made starting a business easier by creating a single form to apply for the company registration certificate and trading license. This reform applies to Jakarta. Indonesia also made starting a business easier by abolishing the minimum capital requirement for small and medium-size enterprises and by encouraging the use of an online system to reserve company names. This reform applies to both Jakarta and Surabaya. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. 23 Indonesia Doing Business 2017 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for Indonesia is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new firm. These are identified by Doing Business through collaboration with relevant local professionals and the study of laws, regulations and publicly available information on business entry in that economy. Following is a detailed summary of those procedures, along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). STANDARDIZED COMPANY Legal form: Perseroan Terbatas (PT) Paid-in minimum capital requirement: IDR 0 City: Jakarta, Surabaya Start-up Capital: 10 times GNI per capita Table 2.2 Summary of time, cost and procedures for starting a business in Indonesia - Jakarta No. Procedure Time to complete Cost to complete 1 Pay fee for obtaining clearance of company name The process of company name clearance must be done through a computerized processing system, the reservation and clearance is most commonly done in practice by a notary public. The notary must first pay the fee of IDR 200,000 at a bank before obtaining clearance for the proposed company name. Once the notary pays at a bank, she/he obtains a payment receipt with a code. Agency: Notary 1 day IDR 200,000 2 Obtain clearance for the company's name at the Ministry of Law and Human Rights The notary inserts the code online when reserving the company name as proof of payment. The reserved name will be blocked for 60 days. If the founding shareholders are confident that the same name has not been used by another Indonesian company, this procedure is not necessary. Company must not use a name which: a. has been lawfully used by another company or is similar to the name of another company; b. contravenes public order and/or decency; c. is identical or similar to the name of a state agency, government agency, or international agency, except with their approval; d. does not conform to the purposes and objectives and business activities of the company, or only designates the purposes and Less than one day (online procedure) included in procedure 3 24 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete objectives of the company without having its own name; e. consists of numbers or a set of figures, a letter or a set of letters that do not form any words; or f. means a Company, a legal entity, or a civil enterprise (persekutuan perdata). The Ministry of Law and Human Rights may reject a name application reservation if the requested name is, among others, the same or resembles similarities to name of other companies. According to Article 4 of MoLHR Reg. No. 1/2016, an electronic application must be submitted for the use of the company's name to the Ministry of Law and Human Rights ("Minister of MOLHR") through Legal Entity Administration System / Sistem Administrasi Badan Hukum ("SABH"). Such application shall be performed by filing the Company's Name Application Form which at least contains of the following information: a. payment number of the approval of the use of the company's name from bank; and b. booked name of the company. The approval of the company's name by the Minister of MOLHR shall be given electronically, as regulated under MoLHR Reg. No.1/2016, which at least contains of the following information: a. booking number of the name of the company; b. name of the company which may be used; c. date of booking; d. expiry date; and e. payment code. Agency: Notary 3 Arrange for a notary to obtain the standard form of the company deed and notarize company documents Government Regulation No. 43 of 2011 on Use of Names of Limited Liability Companies also provides that an application to use a name that is the same or similar to a well-known trademark shall be rejected unless approval is obtained from the holder of the trademark. Law No. 30 of 2004 concerning Notaries (Article 36 paragraph 3) stipulates that the maximum notary fee for objects of deed with an economical value of above IDR 100,000,000 up to IDR 1,000,000,000 is 1.5% of the total value of the object of the deed. Agency: Notary 1 day,(simultaneous with previous procedure) See procedure details 25 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete 4 Apply to the Ministry of Law and Human Rights for approval of the deed of establishment Based on Article 9, 10, 29 and 30 Indonesian Company Law No. 40 year 2007, the application for approval of Ministry of Law and Human Rights (the "Ministry of Law") on establishment of company can be filed electronically by attaching with the certificate of bank account and a copy of the relevant bank transmittal advice. The process will be taken as follows: •The application should be filled at the latest 60 days since the date of establishment deed; • Since the application has already fulfilled, the Ministry of Law directly electronically stated no objection on said application. However, if the application is not fulfilled, the Ministry of Law will directly electronically state his objection on said application; • in 30 days since the date of no objection by Ministry of Law, the applicant should submit the original application and supporting documents; • 14 days after fulfillment of above requirements, Ministry of Law will issue the legalization on the establishment of the company; • Data of company which its establishment has been approved by Ministry of Law i.e. name, domicile, object and purpose, period, Capital Company will be inserted into Company Registry. • The Ministry of Law will announce the establishment of company in Supplement State Gazette (TBNRI) within 14 days of the Ministry's Approval Letter. As of March 2014, the Ministry of Law and Human Rights issues the approval of the deed of establishment electronically. The cost of this procedure is based on the Schedule to the Government Regulation Number 38 of 2009 concerning Types and Tariffs on Non- Tax State Revenues Applied for in the Department of Law and Human Rights which comes into effect on 28 May 2009. Agency: Ministry of Law and Human Rights Less than one day (online procedure) included in procedure 7 5 Apply for the Certificate of Company Domicile All Indonesian limited liability companies must have a certificate of company domicile. This certificate is issued by the head of the village (the Lurah) where the company is located or by the building management if office space is leased. There is no official fee for this certificate. This certificate is required for tax registration (NPWP) Agency: municipal 2 days no charge 26 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete 6 Pay the non-tax state revenue (PNBP) fees for legal services at a bank The requirement to pay the non-tax state revenue (PNBP) fee for legal services in relation to the establishment of a PT is obtained from the information stated in the website of the Legal Entity Administration System known as SABH (Sistem Administrasi Badan Hukum) (www.sisminbakum.go.id). The obligation for the company to pay the Non Tax State Revenue/ Penerimaan Negara Bukan Pajak ("PNBP") for the legal services in relation to the establishment of the company is also stated in Article 5 of the MOLHR Reg. No.4/2014. The cost for the PNBP is further regulated under the Government Regulation of the Republic of Indonesia No.45 of 2014 concerning Types and Rates of Non Tax State Revenues Prevailing in the Ministry of Law and Human Rights ("GR No. 45/2014") which comes into effect on 3 June 2014. Cost breakdown: 1,000,000 IDR for validation of company as legal entity 30,000 IDR for publication in State Gazette 550,000 for publication in the Supplement State Gazette Agency: Notary 1 day See procedure details 7 Apply at the Ministry of Trade for the permanent business trading license (Surat Izin Usaha Perdagangan, SIUP) and the company registration certificate (Tanda Daftar Perusahaan/TDP) from the BPTS- OSS for Jakarta The Surat Izin Usaha Perdagangan (SIUP) constitutes the business license for a non-facility company engaging in trading business. The SIUP contains details about the company activities and the person in charge of the company (normally the President Director). The Ministry of Trade, which issues the SIUP for a non-facility company, may require a letter of good conduct from the Indonesian police in support of the person in charge of the company. Normally, the following copy of documents should be attached for the application for a SIUP: • The articles of association (copy). • An attestation of location and address of the company’s offices (building management domicile certificate and certificate of company domicile). • Identity card of the company President Director. • Letter of approval from the Ministry of Law and Human Rights After reviewing the application, the Municipality passes it to the technical agency at the regional office for cooperatives for further review• it takes 2 days to get the signature of the head of that office as the authority is not delegated. Once the application is back, the SUIP is provided. 7 days no charge 27 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete The Trade Minister Regulation No. 36/M-DAG/PER/9/2007 as amended by the Trade Minister Regulation No. 46/M-DAG/PER/12/2011. There are no changes to Article 3 under this new regulation. classified the SIUP based on the enterprises’ net assets as follows: Article 3 (1) Small Scale SIUP must be held by businesses engaging in trade having a net asset of more than Rp. 50.000.000,- (fifty million Rupiah) up to no more than Rp. 500.000.000,- (five hundred million Rupiah) not including land and building on which the business operates; (2) Medium Scale SIUP must be held by businesses engaging in trade having a net asset of more than Rp. 500.000.000,- (five hundred million Rupiah) up to no more than Rp. 10.000.000.000,- (ten billion Rupiah) not including land and building on which the business operates; (3) Large Scale SIUP must be held by businesses engaging in trade having a net asset of more than Rp. 10.000.000.000,- (ten billion Rupiah) not including land and building on which the business operates. As of February 2016, the application for SUIP and TDP have merged into one application in Jakarta. The OSS (BPTS) has the authority to review the application and issue the approval either online or in person. Once the founder returns to the one-stop shop they will receive two separate registration documents. Agency: One Stop Integrated Service Body of SKI Jakarta Provincial Government - Ministry of Trade 8 Register with the Ministry of Manpower Pursuant to Article 6 of the Law No.7 of 1981 concerning Mandatory Labor Affairs Report ("Law No.7/1981"), the company shall be obliged to submit a manpower report in the company to the Ministry of Manpower and Transmigration ("Minister of Manpower") or the appointed officer within a period of no more than 30 days as of the establishment of the company. Such report shall contain the following information: a. company identification; b. manpower relation; c. manpower protection; and d. employment opportunity. The provision regarding the manpower report in the company is further governed under the Regulation of the Ministry of Manpower and Transmigration of the Republic of Indonesia No.PER.14/2006 concerning the Guidelines for the Manpower Report in the Company ("MoMTR No.14/2006"). Pursuant to Article 2 of the MoMTR No.14/2006, the manpower report must be submitted in the form of electronic data compiled in the Company's Manpower Database in the Information System on Company's Manpower Mandatory Reports / 1 day no charge 28 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete Sistem Informasi Wajib Lapor Ketenagakerjaan di Perusahaan ("SINLAPNAKER"). The company which make a use of the Sinlapnaker shall be given an Identity Card from the Directorate General of Development of Labor Supervision. In the event that the region of the company has not yet installed SINLAPNAKER, the report must be submitted in writing and delivered by hand or by registered mail to the government institution having tasks and responsibility in the field of manpower in the Municipality/City where the company is located in accordance with the procedure as stated in Article 5 of the MoMTR No.14/2006. Further, in order to increase the service of the implementation of mandatory labor affairs report, the Minister of Manpower issues the Circular Letter of the Ministry of Manpower and Transmigration of the Republic of Indonesia No.SE.3/MEN/III/2014 concerning the Implementation of Mandatory Labor Affairs Report in the Company ("MoMTCL No.3/2014"). Time: ratification of the registration of mandatory labor affairs report in the company shall be performed within a period of 1 working day as of the receipt of complete application (signed which has been filled in complete and signed with the company stamp (MoMTCL No. 3/2014). Cost: the registration of the mandatory labor affairs report shall not be subject to any fee(s) (MoMTCL No.3/2014). Agency: Ministry of Manpower 9 Apply for the Workers Social Security Program (BPJS Ketenagakerjaan) The Presidential Regulation No. 109 of 2013 on Membership Phasing of Social Security Program regulates that BPJS Ketenagakerjaan covers occupational accident security, old age security, pension security, as well as death security. Under this regulation, every employers have the obligation to register their workers to BPJS Ketenagakerjaan based on their business scale starting from 1 July 2015, which are as follows: 1. Big and medium business scale to participate on programs including occupational accident security, old age security, pension security, and death security program; 2. Small business scale to participate on programs including occupational accident security, old age security, and death security program; and 3. Micro business scale to participate on programs including occupational accident security and death security. The company shall obtain application forms (form 1 for data and form 1A for employees’ data) at the nearest BPJS Ketenagakerjaan office (list of BPJS Ketenagakerjaan in DKI Jakarta: http://www.bpjsketenagakerjaan.go.id/kanwil/903/KANWIL-DKI- JAKARTA.html). The application forms shall be submitted to the BPJS 7 days no charge 29 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete Ketenagakerjaan at the latest 30 (thirty) days after obtaining application forms with following attachments: receipt of first contribution payment, SIUP, company’s NPWP, Deed of Establishment, and employees’ National Identity Card, Photograph, and Family Registration Card. After 7 (seven) days of the submission, BPJS Ketenagakerjaan will issue the membership card and certificate of registration. If there is any changes on the company’s address, business activity, and the amount of employees, as well as employee’s wages, at the latest 7(seven) days following to such changes, the employer is obliged to convey it to BPJS Ketenagakerjaan. Agency: Social Security Administrative Bodies (BPJS Ketenagakerjaan) * 10 Apply for healthcare insurance with BPJS (Badan Penyelenggara Jaminan Sosial) Kesehatan Manual registration is performed by completing the registration form and providing the data of future participants to BPJS Health or through appointed third parties, and then completing the form and submitting the personal data of the participant candidates. During application, the employer must provide at least the following personal data of the candidate participants: - Name; - Date of birth; - Name of the health service provider selected by the employee; and - Other personal information, including: • Employee and his/her family member(s), who will be covered by the health insurance program; • Employee’s salary information; • Information on participation status Agency: Social Security Administrative Bodies (BPJS Kesehatan) 7 days (simultaneous with previous procedure) no charge * 11 Obtain a taxpayer registration number (NPWP) and a VAT collector number (NPPKP) Regulation of Directorate General of Taxation No. Per- 38/PJ/2013 concerning Procedures of Application of Taxpayer Registration and/or Taxable Entrepreneur Number, Amendment of Data and Transfer of Taxpayer and/or Taxable Entrepreneur aimed to enhance the service to the taxpayer. The regulation states that within 1 year as of the issuance of NPWP, the relevant Tax Office will conduct field confirmation regarding the correct data/identity of the taxpayer. 1 day (simultaneous with previous procedure) no charge 30 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete The person/entity can apply for NPWP in the relevant tax office where the company is located or can apply it online through http://www.pajak.go.id, choose e-registration to make account as a taxpayer and then follow the procedures therein, by filling the form and attaching copies of the following - Deed of establishment - Identity card/KTP of one of active Director - Statement letter regarding confirmation on place of business from one of the active Director (form is provided), - POA and identity card/KTP of the authorized. The NPWP card and Registered Statement Letter is obtained within 1 calendar day upon the completeness of the required document without and fee, charge and/or retribution. Agency: Tax Office * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Procedures in light blue are for married women only. Summary of time, cost and procedures for starting a business in Indonesia - Surabaya No. Procedure Time to complete Cost to complete 1 Pay fee for obtaining clearance of company name The process of company name clearance must be done through a computerized processing system, the reservation and clearance is most commonly done in practice by a notary public. The notary must first pay the fee of IDR 200,000 at a bank before obtaining clearance for the proposed company name. Once the notary pays at a bank, she/he obtains a payment receipt with a code. Agency: Notary 1 day IDR 200,000 2 Obtain clearance for the company's name at the Ministry of Law and Human Rights The notary inserts the code online when reserving the company name as proof of payment. The reserved name will be blocked for 60 days. If the founding shareholders are confident that the same name has not been used by another Indonesian company, this procedure is not necessary. Government Regulation No. 43 of 2011 on the same matter (“GR Less than one day (online procedure) included in procedure P 31 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete 43/2011”) Limited Liability Companies, company must not use a name which: a. has been lawfully used by another company or is similar to the name of another company; b. contravenes public order and/or decency; c. is identical or similar to the name of a state agency, government agency, or international agency, except with their approval; d. does not conform to the purposes and objectives and business activities of the company, or only designates the purposes and objectives of the company without having its own name; e. consists of numbers or a set of figures, a letter or a set of letters that do not form any words; or f. means a Company, a legal entity, or a civil enterprise (persekutuan perdata). The Ministry of Law and Human Rights may reject a name application reservation if the requested name is, among others, the same or resembles similarities to name of other companies. Agency: Notary 3 Arrange for a notary to obtain the standard form of the company deed and notarize company documents Once the notary gets the company name approval from the Ministry of Law and Human Rights, the founders can sign the deed of establishment. Standard articles of association are available at the notary office. The notary fees associated with this procedure cover the following services: - Name check - Deed drafting and approval Commonly, local notary associations set the scale of notary fees. In practice, the fee depends on the agreement between notary and client. The average notary fee for Surabaya is IDR 7,000,000. Agency: Notary 1 day see procedure details 4 Pay the non-tax state revenue (PNBP) fees for legal services at a bank The requirement to pay the non-tax state revenue (PNBP) fee for legal services in relation to the establishment of a PT is obtained from the information stated in the website of the Legal Entity Administration System known as SABH (Sistem Administrasi Badan Hukum) (www.sisminbakum.go.id). The obligation for the company to pay the Non Tax State Revenue/ Penerimaan Negara Bukan Pajak (""PNBP"") for the legal services in relation to the establishment of the company is also stated in Article 5 of the MOLHR Reg. No.4/2014. 1 day see procedure details 32 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete The cost for the PNBP is further regulated under the Government Regulation of the Republic of Indonesia No.45 of 2014 concerning Types and Rates of Non Tax State Revenues Prevailing in the Ministry of Law and Human Rights (""GR No. 45/2014"") which comes into effect on 3 June 2014. Cost breakdown: 1,000,000 IDR for validation of company as legal entity 30,000 IDR for publication in State Gazette 550,000 for publication in the Supplement State Gazette Agency: Notary 5 Apply for the Certificate of Company Domicile All Indonesian limited liability companies must have a certificate of company domicile. This certificate is issued by the head of the village (the Lurah) where the company is located or by the building management if office space is leased. There is no official fee for this certificate. This certificate is required for several documents (Ministry of Law and Human Rights approval, SIUP, TDP, etc.) Agency: Municipal 2 days no charge 6 Apply to the Ministry of Law and Human Rights for approval of the deed of establishment Based on Article 9, 10, 29 and 30 Indonesian Company Law No. 40 year 2007, the application for approval of Ministry of Law and Human Right (the ""Ministry of Law"") on establishment of company should be able to file electronically by attaching with the certificate of bank account, and copy of the relevant bank transmittal advice. The process will be taken as follows: •The application should be filled at the latest 60 days since the date of establishment deed; • Since the application has already fulfilled, the Ministry of Law directly electronically stated no objection on said application. However, if the application is not fulfilled, the Ministry of Law will directly electronically state his objection on said application; • in 30 days since the date of no objection by Ministry of Law, the applicant should submit the original application and supporting documents; • 14 days after fulfillment of above requirements, Ministry of Law will issue the legalization on the establishment of the company; • Data of company which its establishment has been approved by Ministry of Law i.e. name, domicile, object and purpose, period, Capital Company will be inserted into Company Registry. • The Ministry of Law will announce the establishment of company in Less than one day (online procedure) included in procedure 1 33 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete Supplement State Gazette (TBNRI) within 14 days of the Ministry's Approval Letter. As of March 2014, the Ministry of Law and Human Rights issues the approval of the deed of establishment electronically. The cost of this procedure is based on the Schedule to the Government Regulation Number 45 of 2014 concerning Types and Tariffs on Non- Tax State Revenues Applied for in the Department of Law and Human Rights which comes into effect on 30 May 2014. Agency: Ministry of Law and Human Rights 7 Obtain a taxpayer registration number (NPWP) and a Value Added Tax (VAT) collector number (NPPKP) from the local Tax Office Maximum one month from the start of business operations, the company must register with the Tax Office. The company must also obtain a VAT collector number (NPPKP) if it anticipates annual revenue of more than IDR 600 million from the sales of goods and services. The company domicile certificate, articles of association, and identity cards of the directors must be submitted to obtain the tax numbers. NPWP and NPPKP can be arranged simultaneously in one package. The applicant submits the required documents to the Tax Office and gets the receipt of application. The Tax Officer will inform the applicant when the NPWP and NPPKP cards are ready for pick up. The NPWP application can also be arranged on-line but the applicant still needs to provide hard copies of documents and visit the Tax Office to pick up the NPWP Card. Most applicants visit the Tax Office in person. In practice, unofficial fees may apply and range from IDR 50,000 to IDR 300,000 specifically for the technical surveyor. Agency: Tax Office 1 day no charge 8 Apply for the permanent business trading license (Surat Izin Usaha Perdagangan, SIUP) at the One Stop Shop (UPTSA) The Surat Izin Usaha Perdagangan (SIUP) constitutes the business license for a non-facility company engaging in trading business. The SIUP contains details about the company activities and the person in charge of the company. The following documents should be attached (based on local regulation No. 1 of 2010, enacted in April 2010): a. Copy of ID Card; b. An attestation from the applicant (stamp duty IDR 6,000) regarding the business area; c. Copy of the deed of company establishment; d. Passport photo size 3 x 4 cm (2 pieces); e. Copy of NPWP. 7 days no charge 34 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete Only the SIUP can be obtained at the one-stop shop. Agency: One Stop Shop 9 Register with the Company Register (Department of Trade) and obtain a registration certificate (Tanda Daftar Perusahaan, TDP) at the City Agency of Trade and Industry Affairs TDP cannot be applied for at the same time as SIUP because SIUP is a pre-requisite for TDP. The following documents should be attached: a. Copy of deed of establishment; b. Copy of ID Card; c. Copy of technical permit related the business; d. Copy of NPWP; e. Copy of SIUP. Based on Mayor Regulation No. 35 of 2010 concerning the business services industry and the trade sector, it is mandatory to register the company no later than 3 months after the business operations started. Agency: City Agency of Trade and Industry Affairs 7 days no charge 10 Register with the Ministry of Manpower at the local Manpower Office According to Law No. 7/1981, companies with more than 10 workers or a monthly payroll of IDR 1 million must register with the Ministry of Manpower. This procedure can be completed concurrently with other post-registration procedures by filing the manpower compulsory report and company regulations with the Ministry of Manpower. Although there is no official fee, there may an unofficial administrative fee that depends on negotiation and usually starts at IDR 100,000. Agency: Ministry of Manpower 14 days no charge * 11 Apply for the Workers Social Security Program (BPJS Ketenagakerjaan) According to legal provisions on workers’ social security (Law No. 3/1992), it is mandatory for every company or individual employing 10 workers or more or generating a monthly payroll of at least IDR 1 million a month to apply for the Workers Social Security Program (BPJS Ketenagakerjaan), operated by the executing agency. This social security program covers occupational accident security, death security and old age security. 7 days (simultaneous with previous procedure) no charge 35 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete A company or an individual is not obligated to enroll its employees in the social security program if it offers an independent employee social security program with benefits comparable or better than those offered by the Package of Basic Health Maintenance Security (according to Government Regulation No. 14/1993, as amended by Government Regulation No. 28 /2002). Agency: Social Security Administrative Bodies (BPJS Ketenagakerjaan) * 12 Apply for healthcare insurance with BPJS (Badan Penyelenggara Jaminan Sosial) Kesehatan Under the enactment President Decree No. 12/2013, as amended by President Decree No. 111/2013 regarding Health Insurance, PT Jamsostek (Persero) will no longer operate the health maintenance security program. As of January 1, 2014 BPJS-Kesehatan has taken on that role. And Jamsostek has changed its name to BPJS Ketenagakerjaan. BPJS health maintenance membership is compulsory starting from 1 July 2015. Agency: Social Security Administrative Bodies (BPJS Kesehatan) 7 days (simultaneous with previous procedure) no charge * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Procedures in light blue are for married women only. 36 Indonesia Doing Business 2017 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the public. But it needs to be efficient, to avoid excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, many builders opt out. They may pay bribes to pass inspections or simply build illegally, leading to hazardous construction that puts public safety at risk. Where compliance is simple, straightforward and inexpensive, everyone is better off. What do the indicators cover? Doing Business records all procedures required for a business in the construction industry to build a warehouse along with the time and cost to complete each procedure. In addition, this year Doing Business introduces a new measure, the building quality control index, evaluating the quality of building regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and professional certification requirements. The ranking of economies on the ease of dealing with construction permits is determined by sorting their distance to frontier scores for dealing with construction permits. These scores are the simple average of the distance to frontier scores for each of the component indicators. To make the data comparable across economies, several assumptions about the construction company, the warehouse project and the utility connections are used. Assumptions about the construction company The construction company (BuildCo):  Is a limited liability company (or its legal equivalent).  Operates in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city.  Is 100% domestically and privately owned.  Has five owners, none of whom is a legal entity.  Is fully licensed and insured to carry out construction projects, such as building warehouses. The construction company (BuildCo) (continued):  Has 60 builders and other employees, all of them nationals with the technical expertise and WHAT THE DEALING WITH CONSTRUCTION PERMITS INDICATORS MEASURE Procedures to legally build a warehouse (number) Submitting all relevant documents and obtaining all necessary clearances, licenses, permits and certificates Submitting all required notifications and receiving all necessary inspections Obtaining utility connections for water and sewerage Registering and selling the warehouse after its completion Time required to complete each procedure (calendar days) Does not include time spent gathering information Each procedure starts on a separate day. Procedures that can be fully completed online are recorded as ½ day Procedure considered completed once final document is received No prior contact with officials Cost required to complete each procedure (% of warehouse value) Official costs only, no bribes Building quality control index (0-15) Sum of the scores of six component indices: Quality of building regulations (0-2) Quality control before construction (0-1) Quality control during construction (0-3) Quality control after construction (0-3) Liability and insurance regimes (0-2) Professional certifications (0-4) 37 Indonesia Doing Business 2017 professional experience necessary to obtain construction permits and approvals.  Has is a licensed architect and a licensed engineer, both registered with the local association of architects or engineers. BuildCo is not assumed to have any other employees who are technical or licensed experts, such as geological or topographical experts.  Has paid all taxes and taken out all necessary insurance applicable to its general business activity (for example, accidental insurance for construction workers and third-person liability).  Owns the land on which the warehouse will be built and will sell the warehouse upon its completion.  Is valued at 50 times income per capita. Assumptions about the warehouse The warehouse:  Will be used for general storage activities, such as storage of books or stationery. The warehouse will not be used for any goods requiring special conditions, such as food, chemicals or pharmaceuticals.  Will have two stories, both above ground, with a total constructed area of approximately 1,300.6 square meters (14,000 square feet). Each floor will be 3 meters (9 feet, 10 inches) high.  Will have road access and be located in the periurban area of the economy’s largest business city (that is, on the fringes of the city but still within its official limits). For 11 economies the data are also collected for the second largest business city.  Will not be located in a special economic or industrial zone. Will be located on a land plot of approximately 929 square meters (10,000 square feet) that is 100% owned by BuildCo and is accurately registered in the cadastre and land registry.  Will be a new construction (there was no previous construction on the land), with no trees, natural water sources, natural reserves or historical monuments of any kind on the plot.  Will have complete architectural and technical plans prepared by a licensed architect. If preparation of the plans requires such steps as obtaining further documentation or getting prior approvals from external agencies, these are counted as procedures.  Will include all technical equipment required to be fully operational.  Will take 30 weeks to construct (excluding all delays due to administrative and regulatory requirements). Assumptions about the utility connections The water and sewerage connections:  Will be 150 meters (492 feet) from the existing water source and sewer tap. If there is no water delivery infrastructure in the economy, a borehole will be dug. If there is no sewerage infrastructure, a septic tank in the smallest size available will be installed or built.  Will not require water for fire protection reasons; a fire extinguishing system (dry system) will be used instead. If a wet fire protection system is required by law, it is assumed that the water demand specified below also covers the water needed for fire protection.  Will have an average water use of 662 liters (175 gallons) a day and an average wastewater flow of 568 liters (150 gallons) a day. Will have a peak water use of 1,325 liters (350 gallons) a day and a peak wastewater flow of 1,136 liters (300 gallons) a day.  Will have a constant level of water demand and wastewater flow throughout the year.  Will be 1 inch in diameter for the water connection and 4 inches in diameter for the sewerage connection. 38 Indonesia Doing Business 2017 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build a warehouse in Indonesia? According to data collected by Doing Business, dealing with construction permits there requires 17.0 procedures, takes 200.2 days and costs 5.1% of the warehouse value (figure 3.1). Most indicator sets refer to a case scenario in the largest business city of an economy, except for 11 economies for which the data are a population-weighted average of the 2 largest business cities. See the chapter on distance to frontier and ease of doing business ranking at the end of this profile for more details. Figure 3.1 What it takes to comply with formalities to build a warehouse in Indonesia - Jakarta 39 Indonesia Doing Business 2017 What it takes to comply with formalities to build a warehouse in Indonesia - Surabaya Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. . 40 Indonesia Doing Business 2017 DEALING WITH CONSTRUCTION PERMITS Globally, Indonesia stands at 116 in the ranking of 190 economies on the ease of dealing with construction permits (figure 3.2). The rankings for comparator economies and the regional average ranking provide other useful information for assessing how easy it is for an entrepreneur in Indonesia to legally build a warehouse. Figure 3.2 How Indonesia and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. 41 Indonesia Doing Business 2017 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Indonesia are based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through information collected from experts in construction licensing, including architects, civil engineers, construction lawyers, construction firms, utility service providers and public officials who deal with building regulations. These procedures are those that apply to a company and structure matching the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). BUILDING A WAREHOUSE Estimated value of warehouse : IDR 2,165,060,274 City : Jakarta, Surabaya The procedures, along with the associated time and cost, are summarized below. Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Indonesia - Jakarta No. Procedure Time to complete Cost to complete 1 Request and obtain notarized copy of land ownership certificate BuildCo must notarize a copy of the land ownership certificate before applying for the building permit. Agency: Notary 1 day IDR 25,000 2 Request city planning permit (KRK) and approval of the architectural drawing Pengesahan Gambar Perencanaan Arsitektur (formerly known as building site plan - RTLB) from City Planning Office BuildCo must submit a completed application form, along with the following documentation to the City Planning Office at the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) in order to obtain the city planning permit (KRK): 1. A copy of land ownership certificate (which has been notarized); 2. A copy of the latest payment receipt for land and building tax; 3. A copy of the identity card (KTP/Driving License) of the authorized representative of the applicant; 4. A copy of the deed of establishment of BuildCo and its amendment (if any); 5. A power of attorney (as necessary). The city planning official at the BPTSP will examine the application and will conduct a land situation measurement (the procedural details of which are elaborated in the next section below).] The KRK is a statement that contains planning information about the plot of land that BuildCo intends to build the warehouse on. 1 day IDR 1,482,000 42 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete The KRK also includes a city planning map scale (1:1000) signed by the Head of Jakarta City Planning Office. The city planning map covers information on: a. Building setback (GSB) - the borders within which BuildCo is allowed to construct the building b. Road border lines (GSJ) - the borders of the front yard or block borders or road control borders c. Land use plan - explanation about the benefits of the land d. Type of building e. Height of building in terms of floors/storey f. Floor area ratio (FAR/KLB) - the multiplication figure used to calculate the total area of building that is permitted g. Building coverage (KDB) h. Blocking - the arrangement of city spaces on certain lanes governing the length and width of the piece of land for which the city planning permit is being applied for BuildCo must also request approval of the architectural drawing Pengesahan Gambar Perencanaan Arsitektur (formerly known as building site plan - RTLB) from the City Planning Office. This plan outlines the exact position of the building on the city planning map and contains the following information (some of which is already contained on the city planning map previously): a. Building setback (GSB) - the borders within which BuildCo is allowed to construct the building b. Road border lines (GSJ) - the borders of the front yard or block borders or road control borders c. Building trace form and location d. Building usage e. Height of building, including KDB (building coverage) and KLB (floor area) f. Building cuts g. Parking lot h. Kelzar circulation/entry of vehicles Once the documents are submitted, BuildCo receives an invoice with the amount of fees that must be paid (SKRD). BuildCo must pay the fees at a local branch of Bank DKI and submit the receipt to the City Planning Office. The total cost to obtain these documents is IDR 1,482,000.00 according to Article 123 of the Regional Regulation No. 1 Year 2006. The following is the detailed calculation: • Land measurement (based on the land certificate, namely 500 - - 1,000 sq. m.) a retribution of IDR 750,000.00 • Print out of the map (scale of 1:1000), a retribution of IDR 1,000.00 per copy x 12 copies or a total of IDR 12,000.00 • KRK for plans to use the land for warehouse construction (Karya pergudangan/Kpg) for a land area of up to 1,000 sq. m. is subject to a fee of IDR 40,000.00 • Pengesahan Gambar Perencanaan Arsitektur (formerly known as building site plan - RTLB) for plans to build warehouse construction is subject to a fee of IDR 40,000.00/100 sq. m. of floor surface, so the total fee for the RTLB: IDR 40,000.00 x 13 (based on a 1,300.6 sq. m. floor surface) = IDR 520,000.00 • Land marking for city planning implementation purposes 43 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete (pematokan penerapan rencana kota) is subject to a fee of IDR 80,000.00 x 2 (because the building exceeds 1,000 sq. m.), or a total of IDR 160,000.00 Agency: Local Administrative Building Office - City Planning Office within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) 3 Receive inspection from City Planning Office The City Planning Office inspects the site to plant the marks on the borders of the building. Agency: Local Administrative Building Office - City Planning Office within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) 1 day no charge 4 Obtain KRK and Pengesahan Gambar Perencanaan Arsitektur (formerly known as RTLB) from City Planning Office After the inspection, the application is forwarded to different offices within the City Planning Office for approval. The location officer, the roads officer and the architectural officer approve the application and will prepare the land measurement letter. When the internal procedure is completed, the builder is notified (by phone, mail or electronically) and can pick up the KRK. The recommendation letter includes the documents listed previously. Agency: Local Administrative Building Office - City Planning Office within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) 20 days no charge 5 Request and obtain the preparation of the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL) Prior to obtaining a UKL-UPL, BuildCo must obtain the KRK and Pengesahan Gambar Perencanaan Arsitektur (formerly known as building site plan - RTLB). BuildCo hires an external consultant that will prepare the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL). When they are ready, BuildCo will submit the documents to the relevant mayor or regent, governor of the DKI Jakarta province, or the Minister of Environment, depending on the location of the activities, to obtain a UKL-UPL recommendation. Agency: External Consultant 30 days IDR 15,000,000 44 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete 6 Request and obtain the approval of the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL) The legal basis for this procedure is: • Law No. 32 of 2009 regarding the Environment • Decision of the Minister of the Environment No 86 of 2002 on Implementation of UKL and UPL Agency: Regional Environmental Control Agency (BPLHD) 10 days no charge 7 Request and obtain building construction permit (IMB) When BuildCo has the complete set of documents (see below) and the application is submitted, the Supervision and Control Office will conduct an inspection. Given that the plot where the warehouse will be built is empty, no representative from BuildCo needs to be present. Officials will only verify that the plot is vacant. The legal basis for this procedure is: • Regulation of the Head of the Local Building Supervision and Control (P2B) Office No. 21 Year 2009, Annex I point I.b • The legal basis for the time to complete this step is 15 days working days pursuant to Regulation 129 of 2012. The supporting documents required are: • Photocopy of the ID Card • Photocopy of the Land Certificate (notarized) • Land use permit (SIPPT) • KRK and Pengesahan Gambar Perencanaan Arsitektur (formerly known as building site plan - RTLB) (description and map of the city, including the complete plan of the building) obtained from the City Planning Office • Architectural, structural, mechnical and electrical as-built drawings (4 sets) • Results of soil investigation (4 sets) • Photocopy of the license to operate as a Building Planner • Photocopy of the license of the supervising director • Photocopy of the license of the architect, the structural engineer, the mechanical engineer and the electrical engineer who prepare the drawings • Statement of uncontested ownership of the land for which IMB is applied • Company’s Deed of Establishment • Company’s tax ID (NPWP) • Completed Application Form • Receipt of UKL-UPL or UKL-UPL •Recommendation from the BPLHD • Copy of evidence of tax payment for the most current year • Budget plan (if required) 42 days IDR 68,281,500 45 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete The Building Supervision and Control Office has 4 different teams that review the architectural, structural, mechanical and electrical drawings. The application is first reviewed by TPAK (the team that reviews the architectural drawings). This can take 3-4 weeks. The application is then forwarded to TPKB (team that reviews the structural drawings) and in parallel to TPIB (team that reviews the mechanical, electrical and plumbing drawings). This also takes about 3-4 weeks on average. According to Bylaw No. 3 on Building Tariff Rates of October 2012, the permit fee is calculated as follows: RPP = L x It x HSbg = 1,300.6 x 2.1 x 25,000 • L = area of the building (1,300.6 sq. m) • It = index that is calculated as follows: Ikg x If x Ik x Iw x Ipt where Ikg = 1 (for a new building); If = 3 (for commercial buildings); Ik = 0.7; Iw = 1 (for permanent buildings); Ipt = 1 (if the building does not have a basement). Therefore, It = 1 x 3 x 0.7 x 1 x 1 = 2.1 • HSbg = IDR 25,000 / sq. m. Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) 8 Receive inspection upon completion of foundation According to the building regulations, the Supervision and Control Office must inspect during the various phases of construction. Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) 1 day no charge 9 Receive inspection upon completion of the structure According to the building regulations, the Supervision and Control Office must inspect during the various phases of construction. Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) 1 day no charge 10 Receive inspection upon completion of roofing According to the building regulations, the Supervision and Control Office must inspect during the various phases of construction. 1 day no charge 46 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) 11 Submit building completion report to Supervision and Control Office The construction completion and compliance report is a prerequisite for obtaining the certificate of proper functioning (SLF) and the usage permit. The party issuing the official report on the completion of the construction and compliance with the building permit is the Supervising Director, who can be an individual, a group of experts, or an entity appointed by the project owner to supervise the construction work. For the Doing Business case study, the supervising director would most likely be in-house. Agency: Local Administrative Building Office - Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) 1 day no charge 12 Receive final inspection from the Fire Department The Fire Department must conduct a final inspection once the building is completed. They will then issue a certificate of fire safety recommendations stating the building was built according to the proper safety standards. This fire safety certificate is needed in order to obtain the SLF. Agency: Fire Department 1 day no charge * 13 Receive final inspection from the Supervision and Control Office Once the Supervising Director has submitted the completion report, the Supervision Office will conduct a final inspection to ensure that the building was built according to the conditions stipulated in the building permit. This can take about 3 - 7 working days. Once the inspection is completed, the Supervision Office will issue an SLF (certificate of proper functioning) within 35 - 38 working days. Agency: Local Administrative Building Office – Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) 1 day no charge 47 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete 14 Obtain water and sewerage connection The application to obtain water and sewerage connection shall be submitted to PAM Jaya through its designated providers, which are PT AETRA Air Jakarta for warehouses located in the North and East regions of Jakarta, and PT PAM Lyonnaise Jaya (PALYJA) for warehouses located in the South, Central, and West regions of Jakarta. The application should be submitted along with the following documents: 1. A copy of land and building tax documents; 2. A copy of the KTP (the identity card) of BuildCo's director or the applicant; 3. A copy of business license of BuildCo; 4. The prediction on water needs. Agency: PAM Jaya 20 days IDR 30,492,880 15 Obtain SLF (certificate of proper functioning) from the Supervision Office The SLF is required under Law No. 25/PRT/M/2007 and Law No. 7/2010 on Buildings. The certificate is a declaration that the building has been built according to the conditions stipulated in the building permit and can be used in accordance with its intended function. BuildCo must submit the following documents in order to obtain the SLF: - Construction completion report from the supervising directors/consultant appointed by BuildCo - Application form - Copy of applicant’s ID card - Copy of notarized proof of land ownership - Copy of the building permit (IMB) - Architectural, structural and mechnical as-built drawings - Map and city plans (which are appended to the IMB) - Photo of the completed building (showing at least 3 sides of the building) - Notarized copy of the license of the supervising engineer, the architect, the structural engineer and mechanical engineer - Insurance of supervising engineer Agency: Local Administrative Building Office – Supervision and Control Office (P2B) within the One-Stop Integrated Service Agency (Badan Pelayanan Terpadu Satu Pintu/BPTSP) 49 days no charge 16 Register the warehouse with the Regional Tax Services Unit After the warehouse is built BuildCo must update its records at the Regional Tax Services Unit. While in theory this update can be done automatically, many builders do it in person to avoid 11 days no charge 48 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete delays. This is critical when a builder wants to sell the property or use it as collateral to obtain a loan. According to the Governor of DKI Jakarta Regulation No. 202 of 2012 on the Registration and Report Procedure as well as the Data Collection of Land and Building Tax for Rural and Urban Area ("Regulation 202/2012"), Regional Regulation of DKI Jakarta No. 16 of 2011 on Land and Building Tax for Rural and Urban Area ("Regulation 16/2011"), the following documents must be submitted by the BuildCo in order to register the warehouse: 1. The completed application form; 2. A copy of identity card of the BuildCo's director who signed the application form or a power of attorney from the director of the BuildCo (if required); 3. A copy of the BuildCo's deed of establishment and its amendments (if any); 4. A copy of the land and/or building certificate of the BuildCo; 5. A copy of building permit (IMB) of the BuildCo; 6. A photo of the building. Agency: Regional Tax Services Unit (Unit Pelayanan Pajak Daerah or UPPD) in the relevant Regional Government Office * 17 Register the warehouse with the Regional Office of the Ministry of Trade In order to register the warehouse with the Ministry of Trade and obtain a warehouse registration certificate (Tanda Daftar Gudang or "TDG"), BuildCo must submit the following documents: 1. A copy of the identity card (KTP) of the owner of or person responsible for BuildCo; 2. A copy of the deed of establishment of BuildCo and its amendments (if any): 3. A copy of building permit (IMB) of the warehouse; and 4. Two photos of the owner of or person responsible for BuildCo with the size 4x6cm. During the submission of the above documents, the applicant must show the original documents to the officer. The holder of warehouse registration certificate is obliged to re-register the certificate every 5 years. Warehouses in a privately owned port, warehouses in a bonded zone, and warehouses adjacent to the plant are exempted from the registration requirement. Agency: Ministry of Trade (Regional Office) 9 days IDR 100,000 49 Indonesia Doing Business 2017 * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for dealing with construction permits in Indonesia - Surabaya No. Procedure Time to complete Cost to complete 1 Request and obtain notarized copy of land ownership certificate BuildCo must notarize a copy of the land ownership certificate before applying for the city planning permit and building permit. Agency: Notary 1 day IDR 25,000 2 Request city planning permit (SKRK) from Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) In order to obtain the city planning permit (SKRK), BuildCo must submit the following documents: a. Application form (available at Surabaya one-stop shop); b. Copy of identity card of the applicants; c. Copy of property tax invoice and receipt; d. Legalized copy of land ownership certificate. e. BuildCo’s deed of establishment f. License of supervising engineer BuildCo can see the map of Surabaya online and click on the location where they intend to build the project. Majority of applicants apply for the city planning permit in person, although it is possible to submit the documents online. Once it submits the documents, BuildCo is interviewed about the project details. After that, the Surabaya one-stop shop checks adherence of the location with master plan and calculates the retribution charges. BuildCo pays the fees at the Surabaya one-stop shop and the file is transferred to the City Planning Agency (Dinas Cipta Karya dan Tata Ruang). City Planning Agency representatives inspect the future building site, measure the location, prepare drawings, and position the future building's plot in technical master plan. They also prepare location drawings (with border, base coefficient, size coefficient, and technical requirements). When all is complete, the City Planning Agency evaluates, registers, and approves the application. Once the application has been approved, the City Planning Agency transfers the file back to the Surabaya one-stop shop which then notifies BuildCo that the statement is ready for pick up. Regulations establish a statutory time of 7 days for the city planning statement to be issued, but it usually takes longer. This procedure is governed by the following regulations: a. Local Regulation No. 7 of 2010 on Buildings b. Local Regulation No. 5 of 2012 On City Maps c. Major Regulation No. 39 of 2012 on Guidelines and Technical Standards of Land Use Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) 1 day IDR 2,822,000 50 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete 3 Receive inspection from City Planning Agency (Dinas Cipta Karya dan Tata Ruang) A technical team of the City Planning Agency inspects the future building site and measures the location in the presence of BuildCo representatives. Agency: City Planning Agency (Dinas Cipta Karya dan Tata Ruang) 1 day no charge 4 Obtain city planning permit (SKRK) from Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) 21 days no charge 5 Request and obtain the preparation of the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL) Prior to obtaining a UKL-UPL, BuildCo must obtain the SKRK. BuildCo hires an external consultant that will prepare the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL). When this is ready BuildCo will submit the documents to the Local Environmental Management Agency (BPLHD) in Surabaya for approval. Agency: External Consultant 45 days IDR 15,000,000 6 Request and obtain the approval (HO – ijin gangguan) for the Environmental Management Plan (UKL) and Environmental Monitoring Plan (UPL) The legal basis for this procedure is: a. Bylaw No. 4 of 2011 on the HO b. Mayor Regulation No. 74 of 2011 on Implementation of Regional Regulation No. 4 of 2011 The local environmental agency (BPLHD) will review the UKL and UPL and conduct the envirnomental impact assessment. But the letter of approval (HO – ijin gangguan) is issued by the one-stop shop. The one-stop shop charges a fee for the approval letter. According to the fee schedule, buildings over 900 sq. m. are charged at a fee of IDR 500 / sq. m. x 1300.6 sq. m. x 2 (location index) x 3 (environmental index) = IDR 3,901,800. Agency: Local Environmental Control Agency (BPLHD) / Surabaya One- 14 days IDR 3,901,800 51 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) 7 Request and obtain building construction permit (IMB) The supporting documents required to apply for a building permit (IMB) are: a. Application form and statement letter of construction requirement adherence; b. Copy of ID card of BuildCo's director; c. Copy of property tax receipt; d. Copy of land ownership certificate; e. City planning permit (SKRK); f. Construction accountability statement, prepared by BuildCo's architect; g. Picture of the site and building plans, prepared by BuildCo's architect. h. Design drawings (3 copies): - Landscaping (scale 1:1000/1:5000), - Lay out (scale 1:100), - Foundation base, roof, sanitation (1:100); i. Structural drawings. j. Copy of UKL / UPL It is possible to submit the required documents online. According to Regulation No. 53 of 2011 and No. 37 of 2012, the legal time limit to issue the IMB is 20 days. But in practice, it takes much longer. Architects and engineers will review all the drawings. There is usually a lot of back and forth interactions between the one-stop shop and the applicant. Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) 45 days IDR 14,225,800 8 Receive inspection upon completion of foundation According to the building regulations, the Local Administrative Building Office must inspect during the various phases of construction, although this rarely happens in practice. Agency: Local Administrative Building Office 1 day no charge 9 Receive inspection upon completion of the structure According to the building regulations, the Local Administrative Building Office must inspect during the various phases of construction, although this rarely happens in practice. 1 day no charge 52 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete Agency: Local Administrative Building Office 10 Receive inspection upon completion of roofing According to the building regulations, the Local Administrative Building Office must inspect during the various phases of construction, although this rarely happens in practice. Agency: Local Administrative Building Office 1 day no charge 11 Submit building completion report to the one-stop shop The construction completion and compliance report is a prerequisite for obtaining the certificate of proper functioning (SLF) and the usage permit. The party issuing the official report on the completion of the construction and compliance with the building permit is the Supervising Director, who can be an individual, a group of experts, or an entity appointed by the project owner to supervise the construction work. Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) 1 day no charge 12 Receive final inspection from the Fire Department The Fire Department must conduct a final inspection once the building is completed. They will then issue a certificate of fire safety recommendations stating the building was built according to the proper safety standards. This fire safety certificate is needed in order to obtain the SLF. Agency: Fire Department 1 day no charge * 13 Receive final inspection from the Administrasi Surabaya & Dinas Cipta Karya dan Tata Ruang (Surabaya Administration and Office of Human Settlements and Spatial Planning) Once the Fire Department has conducted the final inspection and the Supervising Director has submitted the completion report, the Local Administrative Building Office will conduct a final inspection to ensure that the building was built according to the conditions stipulated in the building permit. Once the inspection is completed, the Local Administrative Building Office will issue an SLF (certificate of proper functioning). However, the final inspection does not always occur in practice, although it is legally required. Agency: Local Administrative Building Office 1 day no charge 53 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete 14 Obtain water and sewerage connection The company notifies the industrial manager that the warehouse is ready for utility hook-ups. Agency: PDAM Surya 20 days IDR 57,812,876 15 Obtain SLF (certificate of proper functioning) from the Local Administrative Building Office The SLF is a declaration that the building has been built according to the conditions stipulated in the building permit and can be used in accordance with its intended function. Agency: Local Administrative Building Office 49 days no charge 16 Register warehouse with the Land and Building Tax Office (PBB) After the warehouse is built and the SLF (Certificate of proper functionning ) is obtained, BuildCo needs to update its records at the Land and Building Tax Office. The process can take 1-2 months because the office must appraise the value of the building. Agency: Land and Building Tax Office 30 days no charge * 17 Register the warehouse with Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap) In order to register the warehouse with the one-stop shop, BuildCo must submit the following documents: a. Copy of ID Card; b. Copy of building permit (IMB); c. Copy of certificate of land ownership; d. Copy of business trading license (SIUP) and company registration (TDP); e. BuildCo's director's pictures (2 copies - size 4x6 cm) The legal basis for this procedure is: a. Local Regulation No. 1/2010, regarding warehouse registration charges b. Mayor Regulation No. 35/2010, regarding warehouse registration procedures. Both regulations have been implemented since 2010. Agency: Surabaya One-Stop Shop (Unit Pelayanan Terpadu Satu Atap - UPTSA) 1 day no charge * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. . 54 Indonesia Doing Business 2017 55 Indonesia Doing Business 2017 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index The building quality control index is the sum of the scores on the quality of building regulations, quality control before construction, quality control during construction, quality control after construction, liability and insurance regimes, and professional certifications indices. The index ranges from 0 to 15, with higher values indicating better quality control and safety mechanisms in the construction permitting system. The indicator is based on the same case study assumptions as the measures of efficiency. Table 3.3 Summary of time quality control and safety mechanisms in Indonesia Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) Building quality control index (0-15) 13.0 13.0 Quality of building regulations index (0-2) 1.0 1.0 How accessible are building laws and regulations in your economy? (0-1) Available online; Free of charge. 1.0 Available online. 1.0 Which requirements for obtaining a building permit are clearly specified in the building regulations or on any accessible website, brochure or pamphlet? (0-1) List of required documents; Fees to be paid. 0.0 List of required documents; Fees to be paid. 0.0 Quality control before construction index (0-1) 1.0 1.0 Which third-party entities are required by law to verify that the building plans are in compliance with existing building regulations? (0-1) Licensed architect; Licensed engineer. 1.0 Licensed architect; Licensed engineer. 1.0 Quality control during construction index (0-3) 2.0 2.0 What types of inspections (if any) are required by law to be carried out during construction? (0-2) Inspections by in-house engineer; Inspections at various phases. 1.0 Inspections by in-house engineer; Inspections at various phases. 1.0 Do legally mandated inspections occur in practice during construction? (0-1) Mandatory inspections are always done in practice. 1.0 Mandatory inspections are always done in practice. 1.0 Quality control after construction index (0-3) 3.0 3.0 Is there a final inspection required by law to verify that the building was built in accordance with the approved Yes, final inspection 2.0 Yes, final inspection is 2.0 56 Indonesia Doing Business 2017 Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) plans and regulations? (0-2) is done by government agency; Yes, in-house engineer submits report for final inspection. done by government agency; Yes, in-house engineer submits report for final inspection. Do legally mandated final inspections occur in practice? (0-1) Final inspection always occurs in practice. 1.0 Final inspection always occurs in practice. 1.0 Liability and insurance regimes index (0-2) 2.0 2.0 Which parties (if any) are held liable by law for structural flaws or problems in the building once it is in use (Latent Defect Liability or Decennial Liability)? (0-1) Architect or engineer; Professional in charge of the supervision; Constructio n company. 1.0 Architect or engineer; Professional in charge of the supervision; Construction company. 1.0 Which parties (if any) are required by law to obtain an insurance policy to cover possible structural flaws or problems in the building once it is in use (Latent Defect Liability Insurance or Decennial Insurance)? (0-1) No party is required by law to obtain insurance ; Insurance is commonly taken in practice. 1.0 No party is required by law to obtain insurance ; Insurance is commonly taken in practice. 1.0 Professional certifications index (0-4) 4.0 4.0 What are the qualification requirements for the professional responsible for verifying that the architectural plans or drawings are in compliance with existing building regulations? (0-2) Minimum number of years of experience; University degree in architecture or engineering ; Being a registered architect or engineer. 2.0 Minimum number of years of experience; University degree in architecture or engineering; Being a registered architect or engineer. 2.0 57 Indonesia Doing Business 2017 Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) What are the qualification requirements for the professional who supervises the construction on the ground? (0-2) Minimum number of years of experience; University degree in engineering , constructio n or constructio n manageme nt; Being a registered architect or engineer. 2.0 Minimum number of years of experience; University degree in engineering, construction or construction management; Being a registered architect or engineer. 2.0 Source: Doing Business database. 58 Indonesia Doing Business 2017 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for a customer is always to gain access by obtaining a connection. What do the indicators cover? Doing Business records all procedures required for a local business to obtain a permanent electricity connection and supply for a standardized warehouse, as well as the time and cost to complete them. These procedures include applications and contracts with electricity utilities, clearances from other agencies and the external and final connection works. In addition, this year Doing Business adds two new measures: the reliability of supply and transparency of tariffs index (included in the aggregate distance to frontier score and ranking on the ease of doing business) and the price of electricity (omitted from these aggregate measures). The ranking of economies on the ease of getting electricity is determined by sorting their distance to frontier scores for getting electricity. These scores are the simple average of the distance to frontier scores for each of the component indicators. To make the data comparable across economies, several assumptions are used. Assumptions about the warehouse The warehouse:  Is owned by a local entrepreneur.  Is located in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city.  Is located in an area where similar warehouses are typically located. In this area a new electricity connection is not eligible for a special investment promotion regime (offering special subsidization or faster service, for example).  Is located in an area with no physical constraints. For example, the property is not near a railway.  Is a new construction and is being connected to electricity for the first time. The warehouse (continued): WHAT THE GETTING ELECTRICITY INDICATORS MEASURE Procedures to obtain an electricity connection (number) Submitting all relevant documents and obtaining all necessary clearances and permits Completing all required notifications and receiving all necessary inspections Obtaining external installation works and possibly purchasing material for these works Concluding any necessary supply contract and obtaining final supply Time required to complete each procedure (calendar days) Is at least 1 calendar day Each procedure starts on a separate day Does not include time spent gathering information Reflects the time spent in practice, with little follow-up and no prior contact with officials Cost required to complete each procedure (% of income per capita) Official costs only, no bribes Excludes value added tax The reliability of supply and transparency of tariffs index Sum of the scores of six component indices: Duration and frequency of outages Tools to monitor power outages Tools to restore power supply Regulatory monitoring of utilities’ performance Financial deterrents aimed at limiting outages Transparency and accessibility of tariffs Price of electricity (cents per kilowatt-hour)* Price based on monthly bill for commercial warehouse in case study *Price of electricity is not included in the calculation of distance to frontier nor ease of doing business ranking 59 Indonesia Doing Business 2017  Has two stories, both above ground, with a total surface area of approximately 1,300.6 square meters (14,000 square feet). The plot of land on which it is built is 929 square meters (10,000 square feet).  Is used for storage of goods. Assumptions about the electricity connection The electricity connection:  Is a permanent one.  Is a three-phase, four-wire Y connection with a subscribed capacity of 140-kilo-volt-ampere (kVA) with a power factor of 1, when 1 kVA = 1 kilowatt (kW).  Has a length of 150 meters. The connection is to either the low- or medium-voltage distribution network and is either overhead or underground, whichever is more common in the area where the warehouse is located Requires works that involve the crossing of a 10-meter road (such as by excavation or overhead lines) but are all carried out on public land. There is no crossing of other owners’ private property because the warehouse has access to a road.  Includes only a negligible length in the customer’s private domain.  Does not require work to install the internal wiring of the warehouse. This has already been completed up to and including the customer’s service panel or switchboard and the meter base Assumptions about the monthly consumption  It is assumed that the warehouse operates 30 days a month from 9:00 a.m. to 5:00 p.m. (8 hours a day), with equipment utilized at 80% of capacity on average and that there are no electricity cuts (assumed for simplicity reasons).  The monthly energy consumption is 26,880 kilowatt-hours (kWh); hourly consumption is 112 kWh.  If multiple electricity suppliers exist, the warehouse is served by the cheapest supplier.  Tariffs effective in March of the current year are used for calculation of the price of electricity for the warehouse. Although March has 31 days, for calculation purposes only 30 days are used. 60 Indonesia Doing Business 2017 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection in Indonesia? According to data collected by Doing Business, getting electricity there requires 4.8 procedures, takes 57.7 days and costs 357.0% of income per capita (figure 4.1). Most indicator sets refer to a case scenario in the largest business city of an economy, except for 11 economies for which the data are a population-weighted average of the 2 largest business cities. See the chapter on distance to frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Indonesia - Jakarta 61 Indonesia Doing Business 2017 What it takes to obtain an electricity connection in Indonesia - Surabaya Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. 62 Indonesia Doing Business 2017 GETTING ELECTRICITY Globally, Indonesia stands at 49 in the ranking of 190 economies on the ease of getting electricity (figure 4.2). The rankings for comparator economies and the regional average ranking provide another perspective in assessing how easy it is for an entrepreneur in Indonesia to connect a warehouse to electricity. Figure 4.2 How Indonesia and comparator economies rank on the ease of getting electricity Source: Doing Business database. 63 Indonesia Doing Business 2017 GETTING ELECTRICITY Obtaining an electricity connection is essential to enable a business to conduct its most basic operations. In many economies the connection process is complicated by the multiple laws and regulations involved—covering service quality, general safety, technical standards, procurement practices and internal wiring installations. In an effort to ensure safety in the connection process while keeping connection costs reasonable, governments around the world have worked to consolidate requirements for obtaining an electricity connection. What reforms in getting electricity has Doing Business recorded in Indonesia (table 4.1)? Table 4.1 How has Indonesia made getting electricity easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform DB2012 Indonesia made getting electricity more difficult by increasing connection fees. DB2013 Indonesia made getting electricity easier by eliminating the requirement for new customers applying for an electricity connection to show a neighbor’s electricity bill as a way to help determine their addressK DB2015 In Indonesia the electricity company in Jakarta made getting electricity easier by eliminating the need for electrical contractors to obtain multiple certificates guaranteeing the safety of internal installations—though. The utility in Jakarta and Surabaya also increased the cost by introducing a security deposit for new connectionsK DB2017 Indonesia made the process for getting an electricity connection faster by reducing the time for contractors to perform external work thanks to an increase in the stock of electrical material supplied by the utility. In Surabaya, getting electricity was also made easier after the utility streamlined the process for new connection requests. Source: Doing Business database. 64 Indonesia Doing Business 2017 GETTING ELECTRICITY What are the details? The indicators reported here for Indonesia are based on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— identified by Doing Business. Data are collected from the distribution utility, then completed and verified by electricity regulatory agencies and independent professionals such as electrical engineers, electrical contractors and construction companies. The electricity distribution utility surveyed is the one serving the area (or areas) in which warehouses are located. If there is a choice of distribution utilities, the one serving the largest number of customers is selected. The procedures are those that apply to a warehouse and electricity connection matching the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. OBTAINING AN ELECTRICITY CONNECTION* Name of utility - Jakarta: PT PLN Name of utility - Surabaya: PT Perusahaan Listrik Negara (PLN) Price of electricity (US cents per kWh) - Jakarta: 11.0 Price of electricity (US cents per kWh) - Surabaya: 11.3 City: Jakarta, Surabaya *Price is calculated as a monthly consumption of 26,880 kWh for business customers, based on a standardized case study adopted by the Getting Electricity methodology. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. Table 4.2 Summary of time, cost and procedures for getting electricity in Indonesia No. Procedure Time to complete Cost to complete 1 Obtain inspection and compliance certificate for internal wiring installation The client needs to obtain a certificate that guarantees the proper operation of the internal installation from the Komite Nasional Keselamatan Untuk Instalasi Listrik (KONSUIL), Perkumpulan Perlindungan Instalasi Listrik Nasional (PPILN) or Jasa Sertifikasi Indonesia. KONSUIL, PPILN and JASERINDO act as independent bodies in charge of inspecting and verifying the conformity of the installation works vis-a-vis the norms in place. This is in accordance with articles 21 paragraph (7) and 22 paragraph (2) of the Government Regulation number 3 Year 7 calendar days IDR 2,572,500 65 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete 2005, amending Government Regulation number 10 Year 1989 on the Supply and Electricity Connections. The following documents need to be submitted: • Installation drawings • List of materials used: brand, size / specs After Konsuil/PPILN/Jaserindo certify the installation, then Konsuil/PPILN/Jaserindo will produce an SLO. PLN recommends its client to apply once the installation has already been certified and there is an SLO. Agency: KONSUIL/ PPILN/ JASERINDO 2 Submit connection application to PLN and await approval and estimate The client can apply for a new connection through PLN's web-site www.pln.co.id - or through its call center. The client needs to input the following information with the application: - Identity Card number - Capacity of electricity connection - Address of warehouse - SLO number: PLN recommends its customers to apply once they have already obtained a certificate from KONSUIL/PPILN/Jaserindo As part of the application process, PLN may carry-out an external site inspection in Jakarta. This is the case for most locations in West Jakarta like the Tegal Alur area where PLN has to ensure that the existing network can take an additional load and if a new transformer needs to be installed. Upon his application, the client receives a registration number. The registration number is a code with which the client can pay the connection fee and the security deposit charge. The payment can be done through most local banks and their delivery channels (e.g. ATM, e- banking). As the payment is then processed, one of the vendors of PLN will be informed that the external works can commence. Agency: PT Perusahaan Listrik Negara (PLN) 9 calendar days IDR 152,017,987.99 * 3 Receive external inspection by PLN An inspection of the site is needed to carry out a technical study of the connection works. Agency: PT Perusahaan Listrik Negara (PLN) 1 calendar day IDR 0 66 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete 4 Obtain external works from PLN's contractor The external works consist of expanding the distribution network by installing an overhead transformer and connecting the warehouse to the network. PLN will typically contract-out the external works to approved vendors, but it provides the main materials needed (e.g. transformer, cables). Agency: PT Perusahaan Listrik Negara (PLN)'s contractor 40 calendar days IDR 0 5 Obtain final connection from PLN Once the works are finished, the PLN officer who monitored the external works informs PLN's inspection body. The inspection body then comes to check the technical readiness of the installation until the connection (meter) point, after which the electricity can be turned on. The client needs to be present when the installation gets energized. Agency: PT Perusahaan Listrik Negara (PLN) 3 calendar days IDR 0 * Takes place simultaneously with previous procedure. Source: Doing Business database. Summary of time, cost and procedures for getting electricity in Indonesia - Surabaya No. Procedure Time to complete Cost to complete 1 Obtain inspection and compliance certificate for internal wiring installation The client needs to obtain a certificate that guarantees the proper operation of the internal installation from the Komite Nasional Keselamatan Untuk Instalasi Listrik (KONSUIL), Perkumpulan Perlindungan Instalasi Listrik Nasional (PPILN) or Jasa Sertifikasi Indonesia (JASERINDO). KONSUIL, PPILN and JASERINDO act as independent bodies in charge of inspecting and verifying the conformity of the installation works vis-a-vis the norms in place. This is in accordance with articles 21 paragraph (7) and 22 paragraph (2) of the Government Regulation number 3 Year 2005, amending Government Regulation number 10 Year 1989 on the Supply and Electricity Connections. The following documents need to be submitted: • Installation drawings 7 calendar days IDR 2,572,500 67 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete • List of materials used: brand, size / specs After Konsuil/PPILN/Jaserindo certify the installation, then Konsuil/PPILN/Jaserindo will produce an SLO. PLN recommends its client to apply once the installation has already been certified and there is an SLO. Agency: KONSUIL/ PPILN/ JASERINDO 2 Submit connection application to PLN and await approval and estimate The client can apply for a new connection through PLN's web-site www.pln.co.id - or through its call center. The client needs to input the following information with the application: - Identity Card number - Capacity of electricity connection - Address of warehouse (the client can show the exact location by tagging a map on PLN's website) - SLO number: PLN recommends its customers to apply once they have already obtained a certificate from KONSUIL/PPILN/Jaserindo Upon his application, the client receives a registration number. The registration number is a code with which the client can pay the connection fee and the security deposit charge. The payment can be done through most local banks and their delivery channels (e.g. ATM, e- banking). As the payment is then processed, one of the vendors of PLN will be informed that the external works can commence. On-site external inspections are no-longer carried-out by PLN thanks to a GIS system. Agency: PT Perusahaan Listrik Negara (PLN) 3 calendar days IDR 152,017,987.99 3 Obtain external works from PLN's contractor The external works consist of expanding the distribution network by installing an overhead transformer and connecting the warehouse to the network. PLN will typically contract-out the external works to approved vendors, but it provides the main materials needed (e.g. transformer, cables). Agency: PT Perusahaan Listrik Negara (PLN) 's contractor 40 calendar days IDR 0 4 Obtain final connection from PLN Once the works are finished, the PLN officer who monitored the external works informs PLN's inspection body. The inspection body then comes to check the technical readiness of the installation until the connection (meter) point, after which the electricity can be turned on. The client 3 calendar days IDR 0 68 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete needs to be present when the installation gets energized. Agency: PT Perusahaan Listrik Negara (PLN) * Takes place simultaneously with previous procedure. Source: Doing Business database. 69 Indonesia Doing Business 2017 GETTING ELECTRICITY Reliability of supply and transparency of tariffs index The reliability of supply and transparency of tariffs index encompasses quantitative data on the duration and frequency of power outages as well as qualitative information on the mechanisms put in place by the utility for monitoring power outages and restoring power supply, the reporting relationship between the utility and the regulator for power outages, the transparency and accessibility of tariffs and whether the utility faces a financial deterrent aimed at limiting outages (such as a requirement to compensate customers or pay fines when outages exceed a certain cap). The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Doing Business uses the system average interruption duration index (SAIDI) and the system average interruption frequency index (SAIFI) to measure the duration and frequency of power outages in the largest business city of each economy (for 11 economies the data are also collected for the second largest business city). SAIDI is the average total duration of outages over the course of a year for each customer served, while SAIFI is the average number of service interruptions experienced by a customer in a year. Annual data (covering the calendar year) are collected from distribution utility companies and national regulators on SAIDI and SAIFI. Both SAIDI and SAIFI estimates include load shedding. Table 4.3 Reliability of Supply and Transparency of Tariff Index in Indonesia Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) Reliability of supply and transparency of tariff index (0-8) 6.0 6.0 Total duration and frequency of outages per customer a year (0-3) 2.0 2.0 System average interruption duration index (SAIDI) 2.61 2.34 System average interruption frequency index (SAIFI) 1.72 1.39 Mechanisms for monitoring outages (0-1) 1.0 1.0 Does the distribution utility use automated tools to monitor outages? Yes Yes Mechanisms for restoring service (0-1) 1.0 1.0 Does the distribution utility use automated tools to restore service? Yes Yes Regulatory monitoring (0-1) 1.0 1.0 Does a regulator—that is, an entity separate from the utility—monitor the utility’s performance on reliability of supply? Yes Yes Financial deterrents aimed at limiting outages (MJ1) 1.M 1.M 70 Indonesia Doing Business 2017 Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) Does the utility either pay compensation to customers or face fines by the regulator (or both) if outages exceed a certain cap? Yes Yes Communication of tariffs and tariff changes (0-1) 0.0 0.0 Are effective tariffs available online? Yes Yes Link to the website, if available online www.pln.co.id /blog/tarif- tenaga-listrik www.pln.co .id/blog/tar if-tenaga- listrik Are customers notified of a change in tariff ahead of the billing cycle? No No Answer (Jakarta) Answer (Surabaya) Price of electricity (US cents per kWh) 11.0 11.3 Source: Doing Business database. Note: If data on power outages is not collected or if the SAIFI index or SAIDI index are above the threshold of 100, the economy is not eligible to obtain a score in the Reliability of Supply and Transparency of Tariff Index. If SAIDI and SAIFI are 12 (equivalent to an outage of one hour each month) or below, a score of 1 is assigned. If SAIDI and SAIFI are 4 (equivalent to an outage of one hour each quarter) or below, 1 additional point is assigned. Finally, if SAIDI and SAIFI are 1 (equivalent to an outage of one hour per year) or below, 1 more point is assigned. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. The price of electricity is measured in cents per kilowatt-hour. On the basis of the assumptions about monthly consumption, a monthly bill for a commercial warehouse in the largest business city of the economy is computed for the month of March (for 11 economies the data are also collected for the second largest business city). As noted, the warehouse uses electricity 30 days a month, from 9:00 a.m. to 5:00 p.m., so different tariff schedules may apply if a time-of- use tariff is available. 71 Indonesia Doing Business 2017 REGISTERING PROPERTY Ensuring formal property rights is fundamental. Effective administration of land is part of that. If formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly administered, it has little chance of being accepted as collateral for loans—limiting access to finance. What do the indicators cover? Doing Business records the full sequence of procedures necessary for a business to purchase property from another business and transfer the property title to the buyer’s name. The transaction is considered complete when it is opposable to third parties and when the buyer can use the property, use it as collateral for a bank loan or resell it. In addition, this year Doing Business adds a new measure to the set of registering property indicators, an index of the quality of the land administration system in each economy. The ranking of economies on the ease of registering property is determined by sorting their distance to frontier scores for registering property. These scores are the simple average of the distance to frontier scores for each of the component indicators. To make the data comparable across economies, several assumptions about the parties to the transaction, the property and the procedures are used. The parties (buyer and seller):  Are limited liability companies, 100% domestically and privately owned and perform general commercial activities in the economy’s largest business city.  Have 50 employees each, all of whom are nationals. The property (fully owned by the seller):  Has a value of 50 times income per capita. The sale price equals the value and entire property will be transferred.  Is registered in the land registry or cadastre, or both, and is free of title disputes.  Is located in a periurban commercial zone, and no rezoning is required. WHAT THE REGISTERING PROPERTY INDICATORS MEASURE Procedures to legally transfer title on immovable property (number) Preregistration (for example, checking for liens, notarizing sales agreement, paying property transfer taxes) Registration in the economy’s largest business city2 Postregistration (for example, filing title with the municipality) Time required to complete each procedure (calendar days) Does not include time spent gathering information Each procedure starts on a separate day. Procedures that can be fully completed online are recorded as ½ day. Procedure considered completed once final document is received No prior contact with officials Cost required to complete each procedure (% of property value) Official costs only, no bribes No value added or capital gains taxes included Quality of land administration index (0-30) .  Has no mortgages attached, has been under the same ownership for the past 10 years.  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story warehouse of 929 square meters (10,000 square feet). The warehouse is in good condition and complies with all safety standards, building codes and legal requirements. There is no heating system. 72 Indonesia Doing Business 2017 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Indonesia? According to data collected by Doing Business, registering property there requires 5.0 procedures, takes 27.4 days and costs 10.8% of the property value (figure 5.1). The score on the quality of land administration index is 12.3 Most indicator sets refer to a case scenario in the largest business city of an economy, except for 11 economies for which the data are a population-weighted average of the 2 largest business cities. See the chapter on distance to frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in Indonesia - Jakarta 73 Indonesia Doing Business 2017 What it takes to register property in Indonesia - Surabaya Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. 74 Indonesia Doing Business 2017 REGISTERING PROPERTY Globally, Indonesia stands at 118 in the ranking of 190 economies on the ease of registering property (figure 5.2). The rankings for comparator economies and the regional average ranking provide other useful information for assessing how easy it is for an entrepreneur in Indonesia to transfer property. Figure 5.2 How Indonesia and comparator economies rank on the ease of registering property Source: Doing Business database. 75 Indonesia Doing Business 2017 REGISTERING PROPERTY Economies worldwide have been making it easier for entrepreneurs to register and transfer property—such as by computerizing land registries, introducing time limits for procedures and setting low fixed fees. Many have cut the time required substantially—enabling buyers to use or mortgage their property earlier. What property registration reforms has Doing Business recorded in Indonesia (table 5.1)? Table 5.1 How has Indonesia made registering property easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform DB2017 Indonesia made it easier to register property by digitizing its cadastral records and setting up a geographic information system. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. 76 Indonesia Doing Business 2017 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, notaries and property registries. These procedures are those that apply to a transaction matching the standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. STANDARD PROPERTY TRANSFER Property value: IDR 2,165,060,274 City: Jakarta, Surabaya Table 5.2 Summary of time, cost and procedures for registering property in Indonesia Jakarta No. Procedure Time to complete Cost to complete 1 Land certificate examination at the Land Office A land certificate examination is carried out by a Land Deed Official. If the land book concerned is available at the Land Office, it usually takes a few hours to 1 day. However, sometimes the land book is unavailable, misplaced or being used by another division of the Land Office, so then the examination process will be pending and it usually takes a few days to obtain the information from the Land Office. The land title search would also involve a check at the local city planning office located at the local government office to determine the intended use of the said plot of land, whether for residences, industry or green belt. No written statement is given, but a note made on the certificate saying 'Has been examined and in accordance with the register at the Land Office'. The cost for this procedure is IRD 50,000. The PPAT pays this fee at a bank and brings the payment receipt to the Land Office for the examination to start. Agency: Land Office 3 days Rp. 50,000 2 Payment of the transfer and acquisition taxes The seller must pay the Transfer Tax prior to the execution of the transfer deed. The tax on Transfer of Land and Building (Transfer Tax) in the amount of 5% which is calculated on the sale or transfer value. In case the sale value is higher than the Sales Value of the Tax Object ("NJOP"), then the sale value will be used. If the sale value is lower than the NJOP, then the NJOP value will be used. The Transfer Tax is paid to a Bank Persepsi - bank appointed by the Ministry of Finance to accept tax payments. Tax to the local government is paid at the Local Government Bank (Bank Badan Usaha Milik Daerah) 1 day 5% of the property price (Transfer Tax) + 5% of the property price minus Rp. 80,000,000 which is tax-free (Tax on Acquisition of Land and Building) 77 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete and/or other private commercial bank (Article 4.2 of Law No. 7/1983, amended by Law No. 10/1994 and Law 17/2000 concerning Income Tax) and Parts 2.1 and 5.1 of the Director General of Taxation Circular No. SE- 04/P.J.33/1996 dated August 26, 1996. The buyer pays the Tax on Acquisition of Land and Building (BPHTB) in the amount of 5% of the sale value or transfer value. The BPHTB Formula: The buyer pays the BPHTB in the amount of 5% x Sale value or Transfer value or Nilai Perolehan Obyek Pajak or NPOP – Non-Taxable Sale Value or Nilai Perolehan Obyek Pajak Tidak Kena Pajak or NPOPTKP, which is determined regionally. (According to Article 7 of Law No. 20/2000 concerning the amendment of law No. 21/1997 concerning the Tax on Acquisition of Land and Building). In Jakarta, the NPOPTKP is Rp. 80,000,000 (according to Article 5 paragraph 7 of the Regional Decree of Special Province of Jakarta No. 18/2010 concerning the Tax on Acquisition of Land and Building (BPHTB). This tax is paid at a Bank Persepsi, appointed by the State Treasury to accept tax payments, or at a post office where the land is located. Agency: Bank 3 Execution of sale and purchase of Land Deed by a PPAT official The execution of the sale and purchase of Land Deed is made before Land Officials (who are often public notaries as well) appointed by the Head of the National Land Office (PPAT) or a local Head of a District (Camat PPAT), after the taxes in Procedures 3 and 4 have been paid. For convenience, those payments are usually made by the notary three days before the execution of the sale-purchase deed. The PPAT obtains an appointment with the Land Office using the online platform (loket.bpn.go.id) to register the land deed. The documentation shall include: (i) Original land certificate (ii) Evidence of the latest payment of Tax on Land and Building (PBB). Every year, the local PBB Tax Office issues a tax assessment to land owners. By custom, the buyer usually wants to obtain the original of the payment of PBB for the past three years and utility bills for the last three months--though in practice the office will check the last 10 years. The Land Deed Officer drawing up the sale and purchase deed will only need to see the most recent PBB while the Land Office will need a copy of the most recent PBB for registering the land into the name of the new owner. (iii) Evidence of payment of Tax on Transfer of Land and Building (Transfer Tax) (iv) Evidence of deed of Company Establishment which was already authorized by the Ministry of Justice (v)Company Tax-Registration Numbers (NPWP) of the seller and the 5 days 1% of the property value 78 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete purchaser (vi) Deed of Establishment and its amendments of both the seller and purchaser; (vii) Corporate approvals of the seller to dispose of the land and the purchaser to acquire the land as required in the Articles of Association of both the seller and purchaser (viii) Advise Planning from the City Administration Institution (ix) Permit for Building Establishment Agency: Land Deed/PPAT Official 4 Registration of the Land Deed at the local Land Office under the name of the buyer Registration of the Land Deed at the local Land Office to have the purchaser’s name registered and recorded in the land certificate. At the latest of 7 (seven) days as of the signing date of the sale and purchase of Land Deed, the notary submits such deed including its supporting documents to the Land Office, but in practice the wait is much longer because of the backlog. (Article 40 sub 1 of Government Regulation No. 24/1997 concerning the Land Registration). In theory, the registration process should be completed within the 5 days statutory time limit. The Land Office crosses out the name of the previous owner and inserts the name of the buyer, stamps and signs it. Agency: Land Office 15 days 1/1000 of the property value + Rp. 50,000 (administrative fee) + Stamp duty of Rp. 6,000 per document (2 required) 5 Registration of the Land Deed at the Jakarta Regional Government Revenue Office under the name of a buyer In connection to the registration of the Land Deed at the Tax on Land and Building Office, the change of ownership must be registered with the Tax Office. The taxpayer should report manually to the Tax Office with regard to the transfer of land title. Agency: Jakarta Regional Government Revenue Office ("Regional Tax Office") 1 day no cost * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for registering property in Indonesia Surabaya No. Procedure Time to complete Cost to complete 79 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete 1 Land certificate examination at the local Land Office (BPN) A land certificate examination is carried out by a Land Deed Official. If the land book concerned is available at the Land Office, it usually takes 1 day. However, sometimes the land book is unavailable, misplaced or being used by another division of the Land Office, so then the examination process will be pending and it usually takes a few days to obtain the information from the Land Office. The Regulation of the National Land Agency Number 1 of 2010 stipulates that the requirements to examine the land certificate include the following: a. Land Ownership Certificate; b. Copy of the applicant’s identification or its proxy; c. Letter of request from the Land Deed Official (PPAT) for the transfer of rights by virtue of the Deed of the Land Deed Officer. The land title search would also involve a check at the local City Planning Office, located at the local government office, to determine the intended use of the said plot of land, whether for residences, industry or green belt. No written statement is given, but a note made on the certificate saying 'Has been examined and according to the Land Registry/ Land Book at the Land Office, dated_______, time ________' and initialed by the officer at the Land Office. Agency: Land Office 3 days (simultaneous with procedure 2) IDR 50,000 * 2 Payment of the transfer and acquisition tax The seller pays the Tax on Transfer of Land and Building (Transfer Tax) in the amount of 5% which is calculated on the transfer value. Taxes to the central government can be paid at any commercial bank. The buyer pays the Tax on Acquisition of Land and Building (BPHTB) in the amount of 5% x [(transfer value or sale value or Nilai Perolehan Obyek Pajak (NPOP)) – (non-taxable sale value or Nilai Perolehan Obyek Pajak Tidak Kena Pajak (NPOPTKP))]. According to the law on Local Tax (Law No. 28/2009), the BPHTB belongs to the local government. Taxes to the local government are paid at a Local Government Bank (as per Article 4.2 of Law No. 7/1983, amended by Law No. 10/1994 and Law 17/2000 concerning Income Tax and Parts 2.1 and 5.1 of the Director General of Taxation Circular No. SE-04/P.J.33/1996 dated August 26, 1996). Article 87 point 4 of the Law sets a minimum value for the NPOPTKP at IDR 60,000,000. For Surabaya, the local regulation (Perda No. 11/2010) stipulates a NPOPTKP of IDR 75,000,000. Agency: Commercial Bank 1 day (simultaneous with procedure 1) Seller pays 5% of property value and buyer pays 5% of property minus IDR 75 million, which is tax free 80 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete 3 Execution of sale and purchase agreement of Land Deed by a Land Deed Official (PPAT) appointed by the Head of the National Land Office or a local Head of a Sub-District The execution of the sale and purchase of the Land Deed is made before Land Officials, namely a Land Deed Official (PPAT) appointed by the Head of the National Land Office after the taxes in procedures 3 and 4 have been paid.The documentation shall include: a. Original land certificate; b. Evidence of the latest payment of Tax on Land and Building (PBB). Every year, the local PBB Tax Office issues a tax assessment to land owners. By custom, the buyer usually wants to obtain the original of the payment of PBB for the past three years and utility bills for the last three months--though in practice the office will check the last 10 years. The Land Deed Officer drawing up the sale and purchase deed will only need to see the most recent PBB while the Land Office will need a copy of the most recent PBB for registering the land into the name of the new owner; c. Evidence of payment of the Tax on Transfer of Land and Building (Transfer Tax) (obtained in Procedure 2); d. Evidence of payment of the Tax on Acquisition of Land and Building (BPHTB) (obtained in Procedure 3); e. Evidence of deed of Company Establishment which was already authorized by the Ministry of Law and Human Rights; f. Company Tax-Registration Numbers (NPWP) of the seller and the purchaser g. Deed of Establishment and its amendments of both the seller and purchaser; h. Corporate approvals of the seller to dispose of the land and the purchaser to acquire the land as required in the Articles of Association of both the seller and purchaser; i. Advise Planning from the City Administration Institution; j. Permit for Building Establishment. (h) Copy of buyer and seller’s identification cards Agency: Land deed official 1-3 days 0.5% of property value 4 Registration of the Land Deed at the local Land Office (BPN) under the name of the buyer After the buyer submits the registration of the Land Deed, she/he leaves it there and has to return some days later to pick up the Land Deed that has been registered under the buyer's name. In between submission of 30 days IDR 50000 + 0.1% of property value + IDR 6,000 stamp duty per document (2 81 Indonesia Doing Business 2017 No. Procedure Time to complete Cost to complete the deed and pick-up, the buyer has to phone the Officer at the Land Office to ask about the progress. The Land Office crosses out the name of the previous owner and inserts the name of the buyer, stamps and signs it. Agency: Land Office required) 5 Registration of the Land Deed at the Surabaya Regional Government Revenue Office under the name of a buyer In connection to the registration of the Land Deed, the change of ownership must be registered with the Land and Building Tax Office (PBB).Surabaya Regional Government Revenue Office. The taxpayer reports the transfer of land title. He must present a copy of his identification card and the new land deed. Agency: Regional Government Revenue Office 1 day no cost * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. 82 Indonesia Doing Business 2017 REGISTERING PROPERTY Quality of land administration The quality of land administration index is the sum of the scores on the reliability of infrastructure, transparency of information, geographic coverage and land dispute resolution indices. The index ranges from 0 to 30, with higher values indicating better quality of the land administration system. If private sector entities were unable to register property transfers in an economy between June 2014 and June 2015, the economy receives a “no practice” mark on the procedures, time and cost indicators. A “no practice” economy receives a score of 0 on the quality of land administration index even if its legal framework includes provisions related to land administration. Table 5.3 Summary of quality of land administration in Indonesia Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) Quality of the land administration index (0-30) 12.5 11.5 Reliability of infrastructure index (0-8) 4.0 4.0 What is the institution in charge of immovable property registration? Badan Pertanahan Nasional (BPN, National Land Agency) / Kantor Pertanahan (Land Office) Badan Pertanahan Nasional (BPN, National Land Agency) / Kantor Pertanahan (Land Office) In what format are the majority of title or deed records kept in the largest business city—in a paper format or in a computerized format (scanned or fully digital)? Paper 0.0 Paper 0.0 Is there an electronic database for checking for encumbrances (liens, mortgages, restrictions and the like)? No 0.0 No 0.0 In what format are the majority of maps of land plots kept in the largest business city—in a paper format or in a computerized format (scanned or fully digital)? Computer/Ful ly digital 2.0 Computer/ Fully digital 2.0 Is there an electronic database for recording boundaries, checking plans and providing cadastral information (geographic information system)? Yes 1.0 Yes 1.0 Is the information recorded by the immovable property registration agency and the cadastral or mapping agency kept in a single database, in different but linked Separate databases 0.0 Separate databases 0.0 83 Indonesia Doing Business 2017 Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) databases or in separate databases? Do the immovable property registration agency and cadastral or mapping agency use the same identification number for properties? Yes 1.0 Yes 1.0 Transparency of information index (0–6) 3.5 3.5 Who is able to obtain information on land ownership at the agency in charge of immovable property registration in the largest business city? Anyone who pays the official fee 1.0 Anyone who pays the official fee 1.0 Is the list of documents that are required to complete any type of property transaction made publicly available–and if so, how? Yes, online 0.5 Yes, online 0.5 Link for online access: http://site.bp n.go.id/o/Lay anan- Pertanahan.as px http://site.b pn.go.id/o/ Layanan- Pertanahan. aspx Is the applicable fee schedule for any property transaction at the agency in charge of immovable property registration in the largest business city made publicly available–and if so, how? Yes, online 0.5 Yes, online 0.5 Link for online access: http://www.b pn.go.id/Laya nan- Publik/Standa rd-Layanan http://site.b pn.go.id/o/ Layanan- Pertanahan. aspx Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property ownership within a specific time frame–and if so, how does it communicate the service standard? Yes, online 0.5 Yes, online 0.5 Link for online access: http://site.bp n.go.id/o/Lay anan- Pertanahan.as px http://site.b pn.go.id/o/ Layanan- Pertanahan. aspx Is there a specific and separate mechanism for filing complaints about a problem that occurred at the agency in charge of immovable property registration? No 0.0 No 0.0 84 Indonesia Doing Business 2017 Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) Are there publicly available official statistics tracking the number of transactions at the immovable property registration agency? No 0.0 No 0.0 Number of property transfers in the largest business city in 2015: Who is able to consult maps of land plots in the largest business city? Only intermediarie s and interested parties 0.0 Only intermediar ies and interested parties 0.0 Is the applicable fee schedule for accessing maps of land plots made publicly available—and if so, how? Yes, online 0.5 Yes, online 0.5 Link for online access: http://site.bp n.go.id/o/Ber anda/Layana n- Pertanahan/P ELAYANAN- PENCATATAN -DAN- INFORMASI- PERTANAHA N/INFORMAS I- PERTANAHA N/INFORMAS I-PETA.aspx http://site.b pn.go.id/o/ Beranda/La yanan- Pertanahan /PELAYANA N- PENCATAT AN-DAN- INFORMASI - PERTANAH AN/INFOR MASI- PERTANAH AN/INFOR MASI- PETA.aspx Does the cadastral or mapping agency commit to delivering an updated map within a specific time frame—and if so, how does it communicate the service standard? Yes, online 0.5 Yes, online 0.5 Link for online access: http://site.bp n.go.id/o/Ber anda/Layana n- Pertanahan/P ELAYANAN- PEMELIHARA AN-DATA- PENDAFTARA http://site.b pn.go.id/o/ Beranda/La yanan- Pertanahan /PELAYANA N- PENCATAT AN-DAN- 85 Indonesia Doing Business 2017 Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) N- TANAH/PERA LIHAN-HAK- ATAS- TANAH- DAN- SATUAN- RUMAH- SUSUN/JUAL- BELI.aspx INFORMASI - PERTANAH AN/INFOR MASI- PERTANAH AN/INFOR MASI- PETA.aspx Is there a specific and separate mechanism for filing complaints about a problem that occurred at the cadastral or mapping agency? No 0.0 No 0.0 Geographic coverage index (0–8) 0.0 0.0 Are all privately held land plots in the economy formally registered at the immovable property registry? No 0.0 No 0.0 Are all privately held land plots in the largest business city formally registered at the immovable property registry? No 0.0 No 0.0 Are all privately held land plots in the economy mapped? No 0.0 No 0.0 Are all privately held land plots in the largest business city mapped? No 0.0 No 0.0 Land dispute resolution index (0–8) 5.0 4.0 Does the law require that all property sale transactions be registered at the immovable property registry to make them opposable to third parties? Yes 1.5 Yes 1.5 Is the system of immovable property registration subject to a state or private guarantee? Yes 0.5 Yes 0.5 Is there a specific compensation mechanism to cover for losses incurred by parties who engaged in good faith in a property transaction based on erroneous information certified by the immovable property registry? No 0.0 No 0.0 Does the legal system require a control of legality of the documents necessary for a property transaction (e.g., checking the compliance of contracts with requirements of the law)? Yes 0.5 Yes 0.5 86 Indonesia Doing Business 2017 Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) If yes, who is responsible for checking the legality of the documents? Registrar; Notary. Registrar; Notary. Does the legal system require verification of the identity of the parties to a property transaction? Yes 0.5 Yes 0.5 If yes, who is responsible for verifying the identity of the parties? Registrar; Notary. Registrar; Notary. Is there a national database to verify the accuracy of identity documents? Yes 1.0 Yes 1.0 For a standard land dispute between two local businesses over tenure rights of a property worth 50 times gross national income (GNI) per capita and located in the largest business city, what court would be in charge of the case in the first instance? District Court District Court How long does it take on average to obtain a decision from the first-instance court for such a case (without appeal)? Between 2 and 3 years 1.0 More than 3 years 0.0 Are there any statistics on the number of land disputes in the first instance? No 0.0 No 0.0 Number of land disputes in the largest business city in 2015: Equal access to property rights index (-2–0) 0.0 0.0 Do unmarried men and unmarried women have equal ownership rights to property? Yes 0.0 Yes 0.0 Do married men and married women have equal ownership rights to property? Yes 0.0 Yes 0.0 Source: Doing Business database. 87 Indonesia Doing Business 2017 GETTING CREDIT Two types of frameworks can facilitate access to credit and improve its allocation: credit information systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view and consider a potential borrower’s financial history (positive or negative) when assessing risk and they allow borrowers to establish a good credit history that will facilitate their access to credit. Sound collateral laws enable businesses to use their assets, especially movable property, as security to generate capital—while strong creditors’ rights have been associated with higher ratios of private sector credit to GDP. What do the indicators cover? Doing Business assesses the sharing of credit information and the legal rights of borrowers and lenders with respect to secured transactions through 2 sets of indicators. The depth of credit information index measures rules and practices affecting the coverage, scope and accessibility of credit information available through a credit registry or a credit bureau. The strength of legal rights index measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a secured borrower and a secured lender and examining legal restrictions on the use of movable collateral (for more details on each case, see the Data Notes section of the Doing Business 2017 report). These scenarios assume that the borrower:  Is a domestic limited liability company.  Has its headquarters and only base of operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. WHAT THE GETTING CREDIT INDICATORS MEASURE Strength of legal rights index (0–12) Rights of borrowers and lenders through collateral laws Protection of secured creditors’ rights through bankruptcy laws Depth of credit information index (0–8) Scope and accessibility of credit information distributed by credit bureaus and credit registries Credit bureau coverage (% of adults) Number of individuals and firms listed in largest credit bureau as percentage of adult population Credit registry coverage (% of adults) Number of individuals and firms listed in credit registry as percentage of adult population  Has up to 50 employees.  Is 100% domestically owned, as is the lender. The ranking of economies on the ease of getting credit is determined by sorting their distance to frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal rights index and the depth of credit information index. 88 Indonesia Doing Business 2017 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral and bankruptcy laws in Indonesia facilitate access to credit? The economy has a score of 6.0 on the depth of credit information index and a score of 6.0 on the strength of legal rights index (see the summary of scoring at the end of this chapter for details). Higher scores indicate more credit information and stronger legal rights for borrowers and lenders. Globally, Indonesia stands at 62 in the ranking of 190 economies on the ease of getting credit (figure 6.1). The rankings for comparator economies provide useful information for assessing how well regulations and institutions in Indonesia support lending and borrowing. Figure 6.1 How Indonesia and comparator economies rank on the ease of getting credit Source: Doing Business database. 89 Indonesia Doing Business 2017 GETTING CREDIT One way to put an economy’s score on the getting credit indicators into context is to see where the economy stands in the distribution of scores across economies. Figure 6.2 highlights the score on the strength of legal rights index for Indonesia and shows the scores for comparator economies as well as the regional average score. Figure 6.3 shows the same for the depth of credit information index. Figure 6.2 How strong are legal rights for borrowers and lenders? Figure 6.3 How much credit information is shared— and how widely? Economy scores on strength of legal rights index Source: Doing Business database. Note: Higher scores indicate that collateral and bankruptcy laws are better designed to facilitate access to credit. Source: Doing Business database. Economy scores on depth of credit information index Source: Doing Business database. Note: Higher scores indicate the availability of more credit information, from either a credit registry or a credit bureau, to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. 90 Indonesia Doing Business 2017 GETTING CREDIT When economies strengthen the legal rights of lenders and borrowers under collateral and bankruptcy laws, and increase the scope, coverage and accessibility of credit information, they can increase entrepreneurs’ access to credit. What credit reforms has Doing Business recorded in Indonesia (table 6.1)? Table 6.1 How has Indonesia made getting credit easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform DB2014 Indonesia improved its credit information system through a new regulation setting up a legal framework for establishing credit bureaus. DB2016 Indonesia improved access to credit by enabling searches of the collateral registry by the debtor’s name. This reform applies to both Jakarta and Surabaya. DB2017 Indonesia strengthened access to credit by establishing a modern collateral registry. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. 91 Indonesia Doing Business 2017 GETTING CREDIT What are the details? The getting credit indicators reported here for Indonesia are based on detailed information collected in that economy. The data on credit information sharing are collected through a survey of a credit registry and/or credit bureau (if one exists). To construct the depth of credit information index, a score of 1 is assigned for each of 8 features of the credit registry or credit bureau (see summary of scoring below). The data on the legal rights of borrowers and lenders are gathered through a survey of financial lawyers and verified through analysis of laws and regulations as well as public sources of information on collateral and bankruptcy laws. For the strength of legal rights index, a score of 1 is assigned for each of 10 aspects related to legal rights in collateral law and 2 aspects in bankruptcy law. Strength of legal rights index (0–12) Jakarta Index score: 6.0 Surabaya Index score: 6.0 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable assets exist in the economy? 0 0 Does the law allow businesses to grant a non possessory security right in a single category of movable assets, without requiring a specific description of collateral? 1 1 Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without requiring a specific description of collateral? 0 0 May a security right extend to future or after-acquired assets, and may it extend automatically to the products, proceeds or replacements of the original assets? 1 1 Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement include a maximum amount for which the assets are encumbered? 1 1 Is a collateral registry in operation for both incorporated and non- incorporated entities, that is unified geographically and by asset type, with an electronic database indexed by debtor's name? 1 1 Does a notice-based collateral registry exist in which all functional equivalents can be registered? 0 0 Does a modern collateral registry exist in which registrations, amendments, cancellations and searches can be performed online by any interested third party? 1 1 Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor defaults outside an insolvency procedure? 0 0 92 Indonesia Doing Business 2017 Strength of legal rights index (0–12) Jakarta Index score: 6.0 Surabaya Index score: 6.0 Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is liquidated? 0 0 Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by providing clear grounds for relief from the stay and/or sets a time limit for it? 1 1 Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? 0 0 Depth of credit information index (0–8) Credit bureau Credit registry Index score: 6.0 Are data on both firms and individuals distributed? No Yes 1 Are both positive and negative credit data distributed? No Yes 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - distributed? No No 0 Are at least 2 years of historical data distributed? (Credit bureaus and registries that erase data on defaults as soon as they are repaid or distribute negative information more than 10 years after defaults are repaid receive a score of 0 for this component.) No Yes 1 Are data on loan amounts below 1% of income per capita distributed? No Yes 1 By law, do borrowers have the right to access their data in the credit bureau or credit registry? No Yes 1 Can banks and financial institutions access borrowers’ credit information online (for example, through an online platform, a system-to-system connection or both)? No Yes 1 Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions assess the creditworthiness of borrowers? No No 0 Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. 93 Indonesia Doing Business 2017 Coverage Credit bureau Credit registry Number of individuals 0 88,916,927 Number of firms 0 602,452 Total 0 89,519,379 Total percentage of adult population 0.0 51.8 Source: Doing Business database. 94 Indonesia Doing Business 2017 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, innovate, diversify and compete. Effective regulations define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the company and set detailed standards of accountability for company insiders. What do the indicators cover? Doing Business measures the protection of minority investors from conflicts of interest through one set of indicators and shareholders’ rights in corporate governance through another. The ranking of economies on the strength of minority investor protections is determined by sorting their distance to frontier scores for protecting minority investors. These scores are the simple average of the distance to frontier scores for the extent of conflict of interest regulation index and the extent of shareholder governance index. To make the data comparable across economies, a case study uses several assumptions about the business and the transaction. The business (Buyer):  Is a publicly traded corporation listed on the economy’s most important stock exchange If the number of publicly traded companies listed on that exchange is less than 10, or if there is no stock exchange in the economy, it is assumed that Buyer is a large private company with multiple shareholders.  Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not specifically required by law.  Has a supervisory board (applicable to economies with a two-tier board system) on which 60% of the shareholder-elected members have been appointed by Mr. James, who is Buyer’s controlling shareholder and a member of Buyer’s board of directors.  Has not adopted any bylaws or articles of association that differ from default minimum standards and does not follow any nonmandatory codes, principles, recommendations or guidelines relating to corporate governance. WHAT THE PROTECTING MINORITY INVESTORS INDICATORS MEASURE Extent of disclosure index (0–10) Review and approval requirements for related-party transactions; Disclosure requirements for related- party transactions Extent of director liability index (0–10) Ability of minority shareholders to sue and hold interested directors liable for prejudicial related- party transactions; Available legal remedies (damages, disgorgement of profits, fines, imprisonment, rescission of the transaction) Ease of shareholder suits index (0–10) Access to internal corporate documents; Evidence obtainable during trial and allocation of legal expenses Extent of conflict of interest regulation index (0–10) Simple average of the extent of disclosure, extent of director liability and ease of shareholder indices Extent of shareholder rights index (0-10) Shareholders’ rights and role in major corporate decisions Extent of ownership and control index (0-10) Governance safeguards protecting shareholders from undue board control and entrenchment Extent of corporate transparency index (0-10) Corporate transparency on ownership stakes, compensation, audits and financial prospects Extent of shareholder governance index (0–10) Simple average of the extent of shareholders rights, extent of ownership and control and extent of corporate transparency indices Strength of minority investor protection index (0–10) Simple average of the extent of conflict of interest regulation and extent of shareholder governance indices 95 Indonesia Doing Business 2017  Is a manufacturing company with its own distribution network. The transaction involves the following details:  Mr. James owns 60% of Buyer and elected two directors to Buyer’s five-member board.  Mr. James also owns 90% of Seller, a company that operates a chain of retail hardware stores. Seller recently closed a large number of its stores Mr. James proposes that Buyer purchase Seller’s unused fleet of trucks to expand Buyer’s distribution of its food products, a proposal to which Buyer agrees. The price is equal to 10% of Buyer’s assets and is higher than the market value.  The proposed transaction is part of the company’s ordinary course of business and is not outside the authority of the company.  Buyer enters into the transaction. All required approvals are obtained, and all required disclosures made (that is, the transaction is not fraudulent).  The transaction causes damages to Buyer. Shareholders sue Mr. James and the other parties that approved the transaction. 96 Indonesia Doing Business 2017 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against self-dealing in Indonesia? The economy has a score of 5.7 on the strength of minority investor protection index, with a higher score indicating stronger protections. Globally, Indonesia stands at 70 in the ranking of 190 economies on the strength of minority investor protection index (figure 7.1). While the indicator does not measure all aspects related to the protection of minority investors, a higher ranking does indicate that an economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Figure 7.1 How Indonesia and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. 97 Indonesia Doing Business 2017 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the protecting minority investors indicators into context is to see where the economy stands in the distribution of scores across comparator economies. Figure 7.2 highlights the scores on the various minority investor protection indices for Indonesia. A summary of scoring for the protecting minority investors indicators at the end of this chapter provides details on how the indices were calculated. Figure 7.2 Summary of the various minority investor protection indices for Indonesia and comparator economies. Source: Doing Business database. 98 Indonesia Doing Business 2017 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported here for Indonesia are based on detailed information collected through a survey of corporate and securities lawyers about securities regulations, company laws and court rules of evidence and procedure. To construct the six indicators on minority investor protection, scores are assigned to each based on a range of conditions relating to disclosure, director liability, shareholder suits, shareholder rights, ownership and control and corporate transparency in a standard case study (for more details, see the Data Notes section of the Doing Business 2017 report). The summary below shows the details underlying the scores for Indonesia. Table 7.2 Summary of scoring for the protecting minority investors indicators in Indonesia Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) Strength of minority investor protection index (0-10) 5.7 5.7 Extent of conflict of interest regulation index (0-10) 5.7 5.7 Extent of disclosure index (0-10) 10.0 10.0 Which corporate body is legally sufficient to approve the Buyer-Seller transaction? (0-3) Shareholders excluding interested parties 3.0 Shareholders excluding interested parties 3.0 Must Mr. James disclose his conflict of interest to the board of directors? (0-2) Full disclosure of all material facts 2.0 Full disclosure of all material facts 2.0 Must Buyer disclose the transaction in published periodic filings (annual reports)? (0-2) Disclosure on the transaction and on the conflict of interest 2.0 Disclosure on the transaction and on the conflict of interest 2.0 Must Buyer immediately disclose the transaction to the public and/or shareholders? (0-2) Disclosure on the transaction and on the conflict of interest 2.0 Disclosure on the transaction and on the conflict of interest 2.0 Must an external body review the terms of the transaction before it takes place? (0-1) Yes 1.0 Yes 1.0 Extent of director liability index (0-10) 5.0 5.0 Can shareholders representing 10% of Buyer's share capital sue directly or derivatively for the damage the transaction caused to Buyer? (0-1) Yes 1.0 Yes 1.0 Can shareholders hold the interested director liable for the damage the transaction caused to Buyer? (0-2) Liable if negligent 1.0 Liable if negligent 1.0 Can shareholders hold the other directors liable for the damage the transaction caused to Buyer (0-2) Not liable 0.0 Not liable 0.0 Must Mr. James pay damages for the harm caused to Buyer upon a successful claim by shareholders? (0-1) Yes 1.0 Yes 1.0 Must Mr. James repay profits made from the transaction upon a successful claim by shareholders? (0-1) No 0.0 No 0.0 Is Mr. James disqualifed or fined and imprisoned upon a No 0.0 No 0.0 99 Indonesia Doing Business 2017 successful claim by shareholders? (0-1) Can a court void the transaction upon a successful claim by shareholders? (0-2) Voidable if unfair or prejudicial 2.0 Voidable if unfair or prejudicial 2.0 Ease of shareholder suits index (0-10) 2.0 2.0 Before suing can shareholders representing 10% of Buyer's share capital inspect the transaction documents? (0-1) Yes 1.0 Yes 1.0 Can the plaintiff obtain any documents from the defendant and witnesses at trial? (0-3) No 0.0 No 0.0 Can the plaintiff request categories of documents from the defendant without identifying specific ones? (0-1) No 0.0 No 0.0 Can the plaintiff directly question the defendant and witnesses at trial? (0-2) Preapproved questions only 1.0 Preapproved questions only 1.0 Is the level of proof required for civil suits lower than that of criminal cases? (0-1) No 0.0 No 0.0 Can shareholder plaintiffs recover their legal expenses from the company? (0-2) At the discretion of the court 0.0 At the discretion of the court 0.0 Extent of shareholder governance index (0-10) 5.7 5.7 Extent of shareholder rights index (0-10) 6.0 6.0 Does the sale of 51% of Buyer's assets require shareholder approval? Yes 1.0 Yes 1.0 Can shareholders representing 10% of Buyer's share capital call for an extraordinary meeting of shareholders? Yes 1.0 Yes 1.0 Must Buyer obtain its shareholders’ approval every time it issues new shares? Yes 1.0 Yes 1.0 Do shareholders automatically receive preemption rights every time Buyer issues new shares? No 0.0 No 0.0 Must shareholders approve the election and dismissal of the external auditor? No 0.0 No 0.0 Are changes to the rights of a class of shares only possible if the holders of the affected shares approve? No 0.0 No 0.0 Assuming that Buyer is a limited company, does the sale of 51% of its assets require member approval? Yes 1.0 Yes 1.0 Assuming that Buyer is a limited company, can members representing 10% call for an extraordinary meeting of members? Yes 1.0 Yes 1.0 Assuming that Buyer is a limited company, must all members consent to add a new member? No 0.0 No 0.0 Assuming that Buyer is a limited company, must a member first offer to sell his interest to the existing members before selling to a non-member? Yes 1.0 Yes 1.0 Extent of ownership and control index (0-10) 6.0 6.0 Is it forbidden to appoint the same individual as CEO and chair of the board of directors? Yes 1.0 Yes 1.0 Must the board of directors include independent and nonexecutive board members? No 0.0 No 0.0 Can shareholders remove members of the board of directors without cause before the end of their term? Yes 1.0 Yes 1.0 Must the board of directors include a separate audit committee exclusively comprising board members? No 0.0 No 0.0 Must a potential acquirer make a tender offer to all Yes 1.0 Yes 1.0 100 Indonesia Doing Business 2017 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by law after the declaration date? Yes 1.0 Yes 1.0 Is a subsidiary prohibited from acquiring shares issued by its parent company? Yes 1.0 Yes 1.0 Assuming that Buyer is a limited company, is there a management deadlock breaking mechanism? Yes 1.0 Yes 1.0 Assuming that Buyer is a limited company, must a potential acquirer make a tender offer to all shareholders upon acquiring 50% of Buyer? No 0.0 No 0.0 Assuming that Buyer is a limited company, must Buyer distribute profits within a maximum period set by law after the declaration date? No 0.0 No 0.0 Extent of corporate transparency index (0-10) 5.0 5.0 Must Buyer disclose direct and indirect beneficial ownership stakes representing 5%? No 0.0 No 0.0 Must Buyer disclose information about board members’ other directorships as well as basic information on their primary employment? Yes 1.0 Yes 1.0 Must Buyer disclose the compensation of individual managers? Yes 1.0 Yes 1.0 Must a detailed notice of general meeting be sent 21 days before the meeting? No 0.0 No 0.0 Can shareholders representing 5% of Buyer’s share capital put items on the agenda for the general meeting? Yes 1.0 Yes 1.0 Must Buyer's annual financial statements be audited by an external auditor? Yes 1.0 Yes 1.0 Must Buyer disclose its audit reports to the public? Yes 1.0 Yes 1.0 Assuming that Buyer is a limited company, must members meet at least once a year? No 0.0 No 0.0 Assuming that Buyer is a limited company, can members representing 5% put items on the meeting agenda? No 0.0 No 0.0 Assuming that Buyer is a limited company, must Buyer's annual financial statements be audited by an external auditor? No 0.0 No 0.0 Source: Doing Business database. 101 Indonesia Doing Business 2017 PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax rules avoided. Firms in economies that rank better on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax administration as less of an obstacle to business according to the World Bank Enterprise Survey research. What do the indicators cover? Using a case scenario, Doing Business records the taxes and mandatory contributions that a medium- size company must pay in a given year as well as measures of the administrative burden of paying taxes and contributions and dealing with postfiling processes. This case scenario uses a set of financial statements and assumptions about transactions made over the year. Information is also compiled on the frequency of filing and payments, time taken to comply with tax laws, time taken to comply with the requirements of postfiling processes and time waiting for these processes to be completed. The ranking of economies on the ease of paying taxes is determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are the simple average of the distance to frontier scores for each of the four component indicators – number of tax payments. time, total tax rate and postfiling index – with a threshold and a nonlinear transformation applied to one of the component indicators, the total tax rateN. If both VAT (or GST) and corporate income tax apply, the postfiling index is the simple average of the distance to frontier scores for each of the four components: the time to comply with a VAT or GST refund, the time to obtain a VAT or GST refund, the time to comply with a corporate income tax audit and the time to complete a corporate income tax audit. If only VAT (or GST) or corporate income tax applies, the postfiling index is the simple average of the scores for only the two components pertaining to the applicable tax. If neither VAT (or GST) nor corporate income tax WHAT THE PAYING TAXES INDICATORS MEASURE Tax payments for a manufacturing company in 2015 (number per year adjusted for electronic and joint filing and payment) Total number of taxes and contributions paid, including consumption taxes (value added tax, sales tax or goods and service tax) Method and frequency of filing and payment Time required to comply with 3 major taxes (hours per year) Collecting information and computing the tax payable Completing tax return forms, filing with proper agencies Arranging payment or withholding Preparing separate tax accounting books, if required Total tax rate (% of profit before all taxes) Profit or corporate income tax Social contributions and labor taxes paid by the employer Property and property transfer taxes Dividend, capital gains and financial transactions taxes Waste collection, vehicle, road and other taxes Postfiling Index The time to comply with a VAT or GST refund The time to receive a VAT or GST refund The time to comply with a corporate income tax audit The time to complete a corporate income tax audit 1 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax rate below this threshold receive the same score as the economy at the threshold. 102 Indonesia Doing Business 2017 applies, the postfiling index is not included in the ranking of the ease of paying taxes. Taxes and mandatory contributions include corporate income tax, turnover tax and all labor taxes and contributions paid by the company. A range of standard deductions and exemptions are also recorded. All financial statement variables are proportional to 2012 income per capita. To make the data comparable across economies, several assumptions are used. TaxpayerCo is a medium-size business that started operations on January 1, 2014. The business starts from the same financial position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded. Taxes and mandatory contributions are measured at all levels of government. Assumptions about the VAT refund process:  In June 2015, TaxpayerCo. makes a large capital purchase: one additional machine for manufacturing pots.  The value of the machine is 65 times income per capita of the economy.  Sales are equally spread per month (that is, 1,050 times income per capita divided by 12).  Cost of goods sold are equally expensed per month (that is, 875 times income per capita divided by 12).  The seller of the machinery is registered for VAT or general sales tax (GST).  Excess input VAT incurred in June will be fully recovered after four consecutive months if the VAT or GST rate is the same for inputs, sales and the machine and the tax reporting period is every month. . Assumptions about the corporate income tax audit process:  An error in the calculation of the income tax liability (for example, use of incorrect tax depreciation rates, or incorrectly treating an expense as tax deductible) leads to an incorrect income tax return and consequently an underpayment of corporate income tax.  TaxpayerCo. discovered the error and voluntarily notified the tax authority of the error in the corporate income tax return. 103 Indonesia Doing Business 2017 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with tax obligations and postfiling processes in Indonesia—and how much do firms pay in taxes? Globally, Indonesia stands at in the ranking of 190 economies on the ease of paying taxes (figure 8.1). The rankings for comparator economies and the regional average ranking provide other useful information for assessing the tax compliance burden for businesses in (see table 8.2 and table 8.3 at the end of this chapter for details). Most indicator sets refer to a case scenario in the largest business city of an economy, except for 11 economies for which the data are a population-weighted average of the 2 largest business cities. See the chapter on distance to frontier and ease of doing business ranking at the end of this profile for more details. . Figure 8.1 How Indonesia and comparator economies rank on the ease of paying taxes Source: Doing Business database. 104 Indonesia Doing Business 2017 PAYING TAXES Economies around the world have made paying taxes faster, easier and less costly for businesses—such as by consolidating payments and filings of taxes, offering electronic systems for filing and payment, establishing taxpayer service centers or allowing for more deductions and exemptions. Many have lowered tax rates. Changes have brought concrete results. Some economies simplifying tax payment and reducing rates have seen tax revenue rise. What tax reforms has Doing Business recorded in Indonesia (table 8.1)? Table 8.1 How has Indonesia made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform DB2011 Indonesia reduced its corporate income tax rate. DB2015 Indonesia made paying taxes less costly for companies by reducing employers’ health insurance contribution rate. This reform applies to both Jakarta and Surabaya. DB2016 Indonesia made paying taxes easier and less costly for companies by introducing an online system for paying social security contributions and by reducing both the rate paid by employers and the ceiling for the contributions. This reform applies to both Jakarta and Surabaya. DB2017 Indonesia made paying taxes easier by introducing an online system for filing and paying health contributions. Indonesia also made paying taxes more costly by levying a new pension contribution at a rate of 2% paid by employers. These reforms apply to both Jakarta and Surabaya. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. 105 Indonesia Doing Business 2017 PAYING TAXES What are the details? The indicators reported here for Indonesia are based on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company completed during its 2nd year of operation. Respondents are asked how much taxes and mandatory contributions the business must pay how these taxes are filed and paid, how much time taxpayers spend preparing, filing and paying three major taxes (profit taxes, labor taxes including mandatory contributions and consumption taxes) and how much time taxpayers spend complying with postfiling processes and waiting for these processes to be completed. LOCATION OF STANDARDIZED COMPANY City: Jakarta, Surabaya The taxes and contributions paid are listed in table 8.2 below, along with the associated number of payments, time and tax rate. The postfiling index is based on four components—the time to comply with a VAT or GST refund, the time to obtain a VAT or GST refund, the time to comply with a corporate income tax audit and the time to complete a corporate income tax audit (table 8.3). These components are based on expanded case study assumptions. If only VAT (or GST) or corporate income tax applies for an economy, the postfiling index is the simple average of the scores for only the two components pertaining to the applicable tax. If neither VAT (or GST) nor corporate income tax applies, the postfiling index is not included in the ranking of the ease of paying taxes. Table 8.2 Summary of tax rates and administration Jakarta: Tax or mandatory contribution Payments (number) Notes on payments Time (hours) Statutory tax rate Tax base Total tax rate (% of profit) Notes on total tax rate Employer paid - Social security contributions 1 Online 56 6% (2% pension contributio n as of July 1, 2015) gross salary 5.91 Employer paid - Health insurance contributions 1 online 4% gross salary 4.38 Capital gains tax 1 5% proceed 3.03 Corporate income tax 13 75 12.5% - 25% * taxable income 16.90 106 Indonesia Doing Business 2017 Jakarta: Tax or mandatory contribution Payments (number) Notes on payments Time (hours) Statutory tax rate Tax base Total tax rate (% of profit) Notes on total tax rate Property tax 1 0.2% value of the land and building determine d by the governme nt 0.29 Vehicle registration tax 1 1% sales price and weight 0.08 Value added tax (VAT) 12 90 10% transactio n value 0.00 not included Employee paid - Social security contributions 0 Jointly 2% gross salary 0.00 withheld Employee paid - Payroll tax on employee 12 5% - 30% gross salary 0.00 withheld Employee paid - Health Care contributions 0 Jointly 0.5% gross salary 0.00 withheld Stamp duty 1 Rp 6,000 fixed fee 0.00 Totals 43.0 221.0 30.6 Surabaya: Tax or mandatory contribution Payments (number) Notes on payments Time (hours) Statutory tax rate Tax base Total tax rate (% of profit) Notes on total tax rate Employer paid - Social security contributions 1 online 56 4.24% gross salary 5.91 Employer paid - Health insurance contributions 1 online 4% gross salary 4.38 Capital gains tax 1 5% proceed 3.03 Corporate income tax 13 75 12.5% - 25% * taxable income 16.90 107 Indonesia Doing Business 2017 Surabaya: Tax or mandatory contribution Payments (number) Notes on payments Time (hours) Statutory tax rate Tax base Total tax rate (% of profit) Notes on total tax rate Property tax 1 0.2% value of the land and building determine d by the governme nt 0.29 Vehicle registration tax 1 1% sales price and weight 0.08 Value added tax (VAT) 12 90 10% transactio n value 0.00 not included Employee paid - Social security contributions 0 Joint 2% gross salary 0.00 withheld Employee paid - Payroll tax on employee 12 5% - 30% gross salary 0.00 withheld Employee paid - Health Care contributions 0 Joint 0.5% gross salary 0.00 withheld Stamp duty 1 Rp 6,000 fixed fee 0.00 Totals 43.0 221.0 30.6 Source: Doing Business database. Table 8.3 Summary of details of postfiling index in Indonesia Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) Postfiling index (0-100) 76.5 76.5 VAT refunds 64.0 64.0 Does VAT/GST exist? Yes Yes Frequency of VAT/GST refund submission monthly monthly Does a VAT/GST refund process exist per the case study? Yes Yes Restrictions on VAT refund process None None Likelihood of VAT audit Highly likely Highly likely Time to comply with VAT refund (hours) 18.0 64.0 18.0 64.0 108 Indonesia Doing Business 2017 Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) Time to obtain a VAT refund (weeks) 30.9 46.6 30.9 46.6 Corporate income tax audits 95.4 95.4 Does corporate income tax exist? yes yes Likelihood of corporate income tax audit Unlikely Unlikely Time to comply with a corporate income tax audit (hours) 4.0 95.4 4.0 95.4 Time to complete a corporate income tax audit (weeks) 0.0 100.0 0.0 100.0 Administrative appeal process First level administrative appeal authority Regional Tax Office (RTO) Regional Tax Office (RTO) Is the appeal authority independent? Independent department within tax office Independe nt departmen t within tax office Are appeal guidelines accessible to the public? Yes Yes Source of appeal guidelines Online/in printed publication Online/in printed publication Is there a legal time limit for the appeal authority to issue a decision on the tax appeal? Yes Yes Legal time limit 1 year 1 year Source: Doing Business Note: The postfiling index is the average of the scores on time to comply with VAT refund, time to obtain a VAT refund, time to comply with a corporate income tax audit and time to complete a corporate income tax audit. N/A = Not applicable. 109 Indonesia Doing Business 2017 TRADING ACROSS BORDERS In today’s globalized world, making trade between economies easier is increasingly important for business. Excessive use of paper documents, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to extra costs and delays for exporters and importers, stifling trade potential. What do the indicators cover? Doing Business records the time and cost associated with the logistical process of exporting and importing goods. Under the new methodology introduced this year, Doing Business measures the time and cost (excluding tariffs) associated with three sets of procedures— documentary compliance, border compliance and domestic transport—within the overall process of exporting or importing a shipment of goods. The ranking of economies on the ease of trading across borders is determined by sorting their distance to frontier scores for trading across borders. These scores are the simple average of the distance to frontier scores for the time and cost for documentary compliance and border compliance to export and import (domestic transport is not used for calculating the ranking). To make the data comparable across economies, a few assumptions are made about the traded goods and the transactions: Time  Time is measured in hours, and 1 day is 24 hours (for example, 22 days are recorded as 22 × 24 = 528 hours). If customs clearance takes 7.5 hours, the data are recorded as is. Alternatively, suppose that documents are submitted to a customs agency at 8:00 a.m., are processed overnight and can be picked up at 8:00 a.m. the next day. In this case the time for customs clearance would be recorded as 24 hours because the actual procedure took 24 hours. WHAT THE TRADING ACROSS BORDERS INDICATORS MEASURE FOR IMPORT & EXPORT Documentary compliance – cost & time Obtain, prepare and submit documents: -During transport, clearance, inspections and port or border handling in origin economy -Required by origin, destination and transit economies Covers all documents by law and in practice Border compliance – cost & time Customs clearance and inspections Inspections by other agencies if applied to more than 10% of shipments) Port or border handling Processing documents during clearance, inspections and port or border handling Domestic transport* Loading and unloading of shipment Transport between warehouse and terminal/port Transport between terminal/port and border Traffic delays and road police checks while shipment is en route * Although Doing Business collects and publishes data on the time and cost for domestic transport, it does not use these data in calculating the distance to frontier score for trading across borders or the ranking on the ease of trading across borders. Cost  Insurance cost and informal payments for which no receipt is issued are excluded from the costs recorded. Costs are reported in U.S. dollars. Contributors are asked to convert local currency into U.S. dollars based on the exchange rate prevailing on the day they answer the questionnaire. 110 Indonesia Doing Business 2017 Assumptions of the case study  For each of the 190 economies covered by Doing Business, it is assumed that a shipment travels from a warehouse in the largest business city of the exporting economy to a warehouse in the largest business city of the importing economy. For 11 economies the data are also collected, under the same case study assumptions, for the second largest business city.  The import and export case studies assume different traded products. It is assumed that each economy imports a standardized shipment of 15 metric tons of containerized auto parts (HS 8708) from its natural import partner—the economy from which it imports the largest value (price times quantity) of auto parts. It is assumed that each economy exports the product of its comparative advantage (defined by the largest export value) to its natural export partner—the economy that is the largest purchaser of this product. Special products such as precious metal and gems, live animals and pharmaceuticals are excluded from the list of possible export products. However, the second largest product category is considered as needed.  A shipment is a unit of trade. Export shipments do not necessarily need to be containerized, while import shipments of auto parts are assumed to be containerized.  If government fees are determined by the value of the shipment, the value is assumed to be $50,000.  The product is new, not secondhand or used merchandise.  The exporting firm is responsible for hiring and paying for a freight forwarder or customs broker (or both) and pays for all costs related to international shipping, domestic transport, clearance and mandatory inspections by customs and other government agencies, port or border handling, documentary compliance fees and the like for exports. The importing firm is responsible for the above costs for imports.  The mode of transport is the one most widely used for the chosen export or import product and the trading partner, as is the seaport, airport or land border crossing.  All electronic submissions of information requested by any government agency in connection with the shipment are considered to be documents obtained, prepared and submitted during the export or import process.  A port or border is defined as a place (seaport, airport or land border crossing) where merchandise can enter or leave an economy.  Government agencies considered relevant are agencies such as customs, port authorities, road police, border guards, standardization agencies, ministries or departments of agriculture or industry, national security agencies and any other government authorities. 111 Indonesia Doing Business 2017 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Borders indicator refers to a case study scenario of a warehouse in the largest business city of an economy (except for 11 economies for which the data are a population-weighted average of the 2 largest business cities) trading with the main import and export partner through the economy’s main border crossing. Globally, Indonesia stands at 108 in the ranking of 190 economies on the ease of trading across borders (figure 9.1). While not included in the distance to frontier or ease of doing business ranking, data on domestic transportation is also recorded for all economies and provided in Table 9.3. Figure 9.1 How Indonesia and comparator economies rank on the ease of trading across borders Source: Doing Business database. 112 Indonesia Doing Business 2017 TRADING ACROSS BORDERS In economies around the world, trading across borders as measured by Doing Business has become faster and easier over the years. Governments have introduced tools to facilitate trade—including single windows, risk- based inspections and electronic data interchange systems. These changes help improve the trading environment and boost firms’ international competitiveness. What trade reforms has Doing Business recorded in Indonesia (table 9.1)? Table 9.1 How has Indonesia made trading across borders easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform DB2011 Indonesia reduced the time to export by launching a single- window service. DB2015 In Indonesia trading across borders became more difficult because of insufficient infrastructure at the Tanjung Priok Port Jakarta. This change applies to both Jakarta and Surabaya. DB2017 Indonesia made exporting and importing easier by improving the customs services and document submission functions of the Indonesia National Single Window. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. 113 Indonesia Doing Business 2017 TRADING ACROSS BORDERS What are the details? The indicators reported here for Indonesia are based on a set of specific predefined procedures for trading a shipment of goods by the most widely used mode of transport (whether sea or land). The information on the time and cost to complete export and import is collected from local freight forwarders, customs brokers and traders. LOCATION OF STANDARDIZED COMPANY City: Jakarta, Surabaya The details on the predefined set of procedures, and the associated time and cost, for exporting and importing a shipment of goods are listed in the summary bellow, along with the required documents. Table 9.2 Summary of export and import time and cost for trading across borders in Indonesia Jakarta Surabaya East Asia & Pacific Time to export: Border compliance (hours) 48 72 57 Cost to export: Border compliance (USD) 250 267 402 Time to export: Documentary compliance (hours) 60 66 73 Cost to export: Documentary compliance (USD) 130 170 132 Time to import: Border compliance (hours) 80 168 71 Cost to import: Border compliance (USD) 384 376 436 Time to import: Documentary compliance (hours) 132 136 71 Cost to import: Documentary compliance (USD) 160 180 128 Source: Doing Business database. Table 9.3 Summary of trading details, transport time and documents for trading across borders in Indonesia Jakarta Surabaya Export Import Export Import Product HS 15 : Animal or vegetable fats and oils and their HS 8708: Parts and accessories of motor vehicles HS 15 : Animal or vegetable fats and oils and their HS 8708: Parts and accessories of motor vehicles 114 Indonesia Doing Business 2017 Jakarta Surabaya Export Import Export Import cleavage products; prepared edible fats; animal or vegetable waxes cleavage products; prepared edible fats; animal or vegetable waxes Trade partner India Japan India Japan Border Jakarta port Jakarta port Surabaya port Surabaya port Distance (km) 21 21 15 15 Domestic transport time (hours) 7 7 5 5 Domestic transport cost (USD) 198 198 138 138 Source: Doing Business database. Documents used to export Bill of lading Commercial invoice Packing list Customs export declaration Documents used to import Bill of lading Cargo release order Commercial invoice Insurance documentation Packing list Customs import declaration (PIB) Terminal handling receipts Proof of payments of Customs Excise and Taxation (SSPCP) Source: Doing Business database. Note: Doing Business continues to collect data on the number of documents needed to trade internationally. Unlike in previous years, however, these data are excluded from the calculation of the distance to frontier score and ranking. The time and cost for documentary compliance serve as better measures of the overall cost and complexity of compliance with documentary requirements than does the number of documents required. 115 Indonesia Doing Business 2017 Figure 9.2 Summary of Indonesia on the ease of trading across borders Export (Jakarta) Import (Jakarta) Export (Surabaya) Import (Surabaya) Source: Doing Business database. 116 Indonesia Doing Business 2017 ENFORCING CONTRACTS Effective commercial dispute resolution has many benefits. Courts are essential for entrepreneurs because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because businesses know they can rely on the courts if a new customer fails to pay. Speedy trials are essential for small enterprises, which may lack the resources to stay in business while awaiting the outcome of a long court dispute. What do the indicators cover? Doing Business measures the time and cost for resolving a standardized commercial dispute through a local first-instance court. In addition, this year it introduces a new measure, the quality of judicial processes index, evaluating whether each economy has adopted a series of good practices that promote quality and efficiency in the court system. This new index replaces the indicator on procedures, which was eliminated this year. The ranking of economies on the ease of enforcing contracts is determined by sorting their distance to frontier scores. These scores are the simple average of the distance to frontier scores for each of the component indicators. The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The dispute concerns a lawful transaction between two businesses (Seller and Buyer), both located in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city.  The buyer orders custom-made goods, then fails to pay.  The value of the dispute is 200% of the income per capita or the equivalent in local currency of USD 5,000, whichever is greater.  The seller sues the buyer before the court with jurisdiction over commercial cases worth 200% of income per capita or $5,000. WHAT THE ENFORCING CONTRACTS INDICATORS MEASURE Time required to enforce a contract through the courts (calendar days) Time to file and serve the case Time for trial and to obtain the judgment Time to enforce the judgment Cost required to enforce a contract through the courts (% of claim) Attorney fees Court fees Enforcement fees Quality of judicial processes index (0-18) Court structure and proceedings (0-6) Case management (0-6) Court automation (0-4) Alternative dispute resolution (0-3)  The seller requests a pretrial attachment to secure the claim.  The dispute on the quality of the goods requires an expert opinion.  The judge decides in favor of the seller; there is no appeal.  The seller enforces the judgment through a public sale of the buyer’s movable assets. 117 Indonesia Doing Business 2017 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial dispute through the courts in Indonesia? According to data collected by Doing Business, contract enforcement takes 471.0 days and costs 115.7% of the value of the claim. Most indicator sets refer to the largest business city of an economy, except for 11 economies for which the data are a population-weighted average of the 2 largest business cities. See the chapter on distance to frontier and ease of doing business ranking at the end of this profile for more details. Globally, Indonesia stands at 166 in the ranking of 190 economies on the ease of enforcing contracts (figure 10.1). The rankings for comparator economies and the regional average ranking provide other useful benchmarks for assessing the efficiency of contract enforcement in Indonesia. Figure 10.1 How Indonesia and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. 118 Indonesia Doing Business 2017 ENFORCING CONTRACTS Economies in all regions have improved contract enforcement in recent years. A judiciary can be improved in different ways. Higher-income economies tend to look for ways to enhance efficiency by introducing new technology. Lower-income economies often work on reducing backlogs by introducing periodic reviews to clear inactive cases from the docket and by making contract enforcement faster. What reforms making it easier (or more difficult) to enforce contracts has Doing Business recorded in Indonesia (table 10.1)? Table 10.1 How has Indonesia made enforcing contracts easier—or not? By Doing Business report year from DB2011 to DB2017 DB year Reform DB2017 Indonesia made enforcing contracts easier by introducing a dedicated procedure for small claims that allows for parties’ selfJrepresentation.This reform applies to both Jakarta and SurabayaK Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. 119 Indonesia Doing Business 2017 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for Indonesia are built by following the step-by-step evolution of a commercial sale dispute within the court, under the assumptions about the case described above (figure 10.2). The time and cost of resolving the standardized dispute are identified through study of the codes of civil procedure and other court regulations, as well as through questionnaires completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). ECONOMY DETAILS Claim value - Jakarta: IDR 80,706,641 Claim value - Surabaya: IDR 80,706,641 Court name - Jakarta: Jakarta District Court Court name - Surabaya: Surabaya District Court City: Jakarta, Surabaya 120 Indonesia Doing Business 2017 Figure 10.2 Time and cost of contract enforcement in Indonesia and comparator economies Source: Doing Business database. 121 Indonesia Doing Business 2017 Table 10.2 Details on time and cost for enforcing contracts in Indonesia Indicator Jakarta Surabaya East Asia & Pacific average Time (days) 460.0 510.0 560 Attorney fees 90.0 75.0 39 Filing and service 60 60 45 Cost (% of claim) 118.1 107.3 49.1 Court fees 3.1 2.3 4 Trial and judgment 220 180 328 Enforcement fees 25.0 30.0 5 Enforcement of judgment 180 270 195 Court structure and proceedings (0-5) 3.0 3.0 3 Case management (0-6) 2.0 1.0 2 Court automation (0-4) 0.5 0.5 1 Alternative dispute resolution (0-3) 2.5 2.5 2 Source: Doing Business database. 122 Indonesia Doing Business 2017 ENFORCING CONTRACTS Quality of judicial processes index The quality of judicial processes index measures whether each economy has adopted a series of good practices in its court system in four areas: court structure and proceedings, case management, court automation and alternative dispute resolution. The score on the quality of judicial processes index is the sum of the scores on these 4 sub-components. The index ranges from 0 to 18, with higher values indicating better, more efficient judicial processes. The scores reported here show which of these good practices are available in Indonesia (figure 10.3). This methodology was initially developed by Djankov and others (2003) and is adopted here with several changes. The quality of judicial processes index was introduced in Doing Business 2016. The good practices tested in this index were developed on the basis of internationally recognized good practices promoting judicial efficiency. Figure 10.3 Quality of judicial processes index in Indonesia and comparator economies Source: Doing Business database. 123 Indonesia Doing Business 2017 Table 10.3 Details of the quality of judicial processes index in Indonesia Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) Quality of judicial processes index (0-18) 8.0 7.0 Court structure and proceedings (0-5) 3.0 3.0 1. Is there a court or division of a court dedicated solely to hearing commercial cases? No 0.0 No 0.0 2. Small claims court 1.5 1.5 2.a. Is there a small claims court or a fast-track procedure for small claims? Yes Yes 2.b. If yes, is self-representation allowed? Yes Yes 3. Is pretrial attachment available? Yes 1.0 Yes 1.0 4. Are new cases assigned randomly to judges? Yes, but manual 0.5 Yes, but manual 0.5 5. Does a woman's testimony carry the same evidentiary weight in court as a man's? Yes 0.0 Yes 0.0 Case management (0-6) 2.0 1.0 1. Time standards 1.0 1.0 1.a. Are there laws setting overall time standards for key court events in a civil case? Yes Yes 1.b. If yes, are the time standards set for at least three court events? Yes Yes 1.c. Are these time standards respected in more than 50% of cases? Yes Yes 2. Adjournments 0.0 0.0 2.a. Does the law regulate the maximum number of adjournments that can be granted? No No 2.b. Are adjournments limited to unforeseen and exceptional circumstances? No No 2.c. If rules on adjournments exist, are they respected in more than 50% of cases? n.a. n.a. 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) clearance rate report; (iii) age of pending cases report; and (iv) single case progress report? Yes 1.0 No 0.0 4. Is a pretrial conference among the case management techniques used before the competent No 0.0 No 0.0 124 Indonesia Doing Business 2017 Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) court? 5. Are there any electronic case management tools in place within the competent court for use by judges? No 0.0 No 0.0 6. Are there any electronic case management tools in place within the competent court for use by lawyers? No 0.0 No 0.0 Court automation (0-4) 0.5 0.5 1. Can the initial complaint be filed electronically through a dedicated platform within the competent court? No 0.0 No 0.0 2. Is it possible to carry out service of process electronically for claims filed before the competent court? No 0.0 No 0.0 3. Can court fees be paid electronically within the competent court? No 0.0 No 0.0 4. Publication of judgments 0.5 0.5 4.a Are judgments rendered in commercial cases at all levels made available to the general public through publication in official gazettes, in newspapers or on the internet or court website? No No 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made available to the general public through publication in official gazettes, in newspapers or on the internet or court website? Yes Yes Alternative dispute resolution (0-3) 2.5 2.5 1. Arbitration 1.5 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or section of the applicable code of civil procedure encompassing substantially all its aspects? Yes Yes 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy— that cannot be submitted to arbitration? No No 1.c. Are valid arbitration clauses or agreements usually enforced by the courts? Yes Yes 2. Mediation/Conciliation 1.0 1.0 2.a. Is voluntary mediation or conciliation available? Yes Yes 125 Indonesia Doing Business 2017 Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or section of the applicable code of civil procedure encompassing substantially all their aspects? Yes Yes 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or conciliation is successful, a refund of court filing fees, income tax credits or the like)? No No Source: Doing Business database. 126 Indonesia Doing Business 2017 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, ensuring the survival of economically efficient companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses to normal operation and increase returns to creditors. By clarifying the expectations of creditors and debtors about the outcome of insolvency proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable businesses and sustainably grow the economy. What do the indicators cover? Doing Business studies the time, cost and outcome of insolvency proceedings involving domestic legal entities. These variables are used to calculate the recovery rate, which is recorded as cents on the dollar recovered by secured creditors through reorganization, liquidation or debt enforcement (foreclosure or receivership) proceedings. To determine the present value of the amount recovered by creditors, Doing Business uses the lending rates from the International Monetary Fund, supplemented with data from central banks and the Economist Intelligence Unit. To make the data on the time, cost and outcome comparable across economies, several assumptions about the business and the case are used:  A hotel located in the largest city (or cities) has 201 employees and 50 suppliers. The hotel experiences financial difficulties.  The value of the hotel is 100% of the income per capita or the equivalent in local currency of USD 200,000, whichever is greater.  The hotel has a loan from a domestic bank, secured by a mortgage over the hotel’s real estate. The hotel cannot pay back the loan, but makes enough money to operate otherwise. In addition, Doing Business evaluates the adequacy and integrity of the existing legal framework applicable to liquidation and reorganization proceedings through the strength of insolvency framework index. The index tests whether economies adopted internationally accepted good practices in four areas: commencement of proceedings, management of debtor’s assets, reorganization proceedings and creditor participation. WHAT THE RESOLVING INSOLVENCY INDICATORS MEASURE Time required to recover debt (years) Measured in calendar years Appeals and requests for extension are included Cost required to recover debt (% of debtor’s estate) Measured as percentage of estate value Court fees Fees of insolvency administrators Lawyers’ fees Assessors’ and auctioneers’ fees Other related fees Outcome Whether business continues operating as a going concern or business assets are sold piecemeal Recovery rate for creditors Measures the cents on the dollar recovered by secured creditors Outcome for the business (survival or not) determines the maximum value that can be recovered Official costs of the insolvency proceedings are deducted Depreciation of furniture is taken into account Present value of debt recovered Strength of insolvency framework index (0- 16) Sum of the scores of four component indices: Commencement of proceedings index (0-3) Management of debtor’s assets index (0-6) Reorganization proceedings index (0-3) Creditor participation index (0-4) 127 Indonesia Doing Business 2017 RESOLVING INSOLVENCY Where does the economy stand today? Globally, Indonesia stands at 76 in the ranking of 190 economies on the ease of resolving insolvency (figure 11.1). The ranking of economies on the ease of resolving insolvency is determined by sorting their distance to frontier scores for resolving insolvency. These scores are the simple average of the distance to frontier scores for the recovery rate and the strength of insolvency framework index. The Resolving Insolvency indicator does not measure insolvency proceedings of individuals and financial institutions. The data are derived from questionnaire responses by local insolvency practitioners and verified through a study of laws and regulations as well as public information on bankruptcy systems. Figure 11.1 How Indonesia and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. 128 Indonesia Doing Business 2017 RESOLVING INSOLVENCY Recovery of debt in insolvency Data on the time, cost and outcome refer to the most likely in-court insolvency procedure applicable under specific case study assumptions. According to data collected by Doing Business, resolving insolvency takes 1.9 years on average and costs 21.6% of the debtor’s estate. The average recovery rate is 31.2 cents on the dollar. Most indicator sets refer to a case scenario in the largest business city of an economy, except for 11 economies for which the data are a population-weighted average of the 2 largest business cities. Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in Indonesia and comparator economies. Source: Doing Business database. Note: The recovery rate is calculated based on the time, cost and outcome of insolvency proceedings involving domestic legal entities and is recorded as cents on the dollar recovered by secured creditors. The calculation takes into account the outcome: whether the business emerges from the proceedings as a going concern or the assets are sold piecemeal. Then the costs of the proceedings are deducted. Finally, the value lost as a result of the time the money remains tied up in insolvency proceedings is taken into account. The recovery rate is the present value of the remaining proceeds, based on end-2015 lending rates. 129 Indonesia Doing Business 2017 Table 11.1 Summary of data for the strength of insolvency framework index Indonesia Answer Explanation Proceeding Jakarta, Surabaya foreclosure After a maximum of 90 days since the declaration of bankruptcy is made or when the insolvency condition (rejection of the composition plan) starts, Mirage is entitled to initiate the enforcement of a deed of mortgage which is carried out through an Indonesian district court by a motion to foreclose and a court- supervised public auction conducted by the SAO (State Auction Office). Outcome Jakarta, Surabaya piecemeal sale After the suspension of payment period, BizBank would gain possession of Mirage's assets and sell them piecemeal in a public auction. Time (in years) Jakarta, Surabaya 2.0 The total foreclosure procedure, which will be suspended temporarily by the initiation of the bankruptcy proceedings, would take approximate 2 years in total. BizBank would initiate foreclosure after Mirage's default on payment. According to Part Six of Law No.37 of 2004 regarding Bankruptcy and Suspension of Obligation for Debt Payment, Mirage would petition to the Commercial Court for a suspension of payments. The foreclosure procedure then gets converted to reorganization. Bankruptcy cases are heard before the Commercial Court. It takes about 2 months from when the case is filed until the first hearing. The Commercial Court must then grant a provisional moratorium, and appoint a supervisory judge and an administrator or receiver to assist the debtor in managing its estate. Provisional moratorium is 90 days, but permanent moratorium, which can be granted as an extension of time is 270 days. During this time, Mirage must propose a composition plan and creditors will decide whether to accept the plan, reject it or proceed to a permanent moratorium. BizBank is likely to vote against the composition plan, which will lead to Mirage being declared bankrupt. At that time, moratorium ends, and BizBank can proceed with foreclosure proceedings. Cost (% of estate) Jakarta, Surabaya 22.0 The costs associated with the case would amount to approximately 22% of the value of the debtor's estate. Cost incurred during the entire insolvency process mainly include court or government agency fees (1%), attorneys’ fees (up to 10%), curator’s fees (up to 10%), fees of accountants, assessors, inspectors (up to P%)K Recovery rate: 31.2 Source: Doing Business database. 130 Indonesia Doing Business 2017 RESOLVING INSOLVENCY Strength of resolving insolvency index The strength of insolvency framework index is the sum of the scores on the commencement of proceedings index, management of debtor’s assets index, reorganization proceedings index and creditor participation index. The index ranges from 0 to 16, with higher values indicating insolvency legislation that is better designed for rehabilitating viable firms and liquidating nonviable ones. Indonesia scores 9.5 out of 16 on the strength of resolving insolvency index. Figure 11.3 Strength of insolvency framework index (0-16) in Indonesia and comparator economies Source: Doing Business database. Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice”. 131 Indonesia Doing Business 2017 Table 11.2 Summary of data for the strength of insolvency framework index Indonesia Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) Strength of insolvency framework index (0-16) 9.5 9.5 Commencement of proceedings index (0-3) 3.0 3.0 What procedures are available to a DEBTOR when commencing insolvency proceedings? (a) Debtor may file for both liquidation and reorganizatio n 1.0 (a) Debtor may file for both liquidation and reorganizati on 1.0 Does the insolvency framework allow a CREDITOR to file for insolvency of the debtor? (a) Yes, a creditor may file for both liquidation and reorganizatio n 1.0 (a) Yes, a creditor may file for both liquidation and reorganizati on 1.0 What basis for commencement of the insolvency proceedings is allowed under the insolvency framework? (a) Debtor is generally unable to pay its debts as they mature 1.0 (a) Debtor is generally unable to pay its debts as they mature 1.0 Management of debtor's assets index (0-6) 5.0 5.0 Does the insolvency framework allow the continuation of contracts supplying essential goods and services to the debtor? Yes 1.0 Yes 1.0 Does the insolvency framework allow the rejection by the debtor of overly burdensome contracts? Yes 1.0 Yes 1.0 Does the insolvency framework allow avoidance of preferential transactions? Yes 1.0 Yes 1.0 Does the insolvency framework allow avoidance of undervalued transactions? Yes 1.0 Yes 1.0 Does the insolvency framework provide for the possibility of the debtor obtaining credit after commencement of insolvency proceedings? Yes 1.0 Yes 1.0 132 Indonesia Doing Business 2017 Answer (Jakarta) Score (Jakarta) Answer (Surabaya) Score (Surabaya) Does the insolvency framework assign priority to post- commencement credit? (c) No priority is assigned to post- commencem ent creditors 0.0 (c) No priority is assigned to post- commence ment creditors 0.0 Reorganization proceedings index (0-3) 0.5 0.5 Which creditors vote on the proposed reorganization plan? (a) All creditors 0.5 (a) All creditors 0.5 Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as what they would obtain in a liquidation? No 0.0 No 0.0 Are the creditors devided into classes for the purposes of voting on the reorganization plan, does each class vote separately and are creditors in the same class treated equally? No 0.0 No 0.0 Creditor participation index (0-4) 1.0 1.0 Does the insolvency framework require approval by the creditors for selection or appointment of the insolvency representative? No 0.0 No 0.0 Does the insolvency framework require approval by the creditors for sale of substantial assets of the debtor? No 0.0 No 0.0 Does the insolvency framework provide that a creditor has the right to request information from the insolvency representative? No 0.0 No 0.0 Does the insolvency framework provide that a creditor has the right to object to decisions accepting or rejecting creditors' claims? Yes 1.0 Yes 1.0 Source: Doing Business database. 133 Indonesia Doing Business 2017 LABOR MARKET REGULATION Doing Business studies the flexibility of regulation of employment, specifically as it relates to the areas of hiring, working hours and redundancy. Doing Business also measures several aspects of job quality such as the availability of maternity leave, paid sick leave and the equal treatment of men and women at the workplace. Doing Business 2017 presents the data for the labor market regulation indicators in an annex. The report does not present rankings of economies on these indicators or include the topic in the aggregate distance to frontier score or ranking on the ease of doing business. Detailed data collected on labor market regulation are available on the Doing Business website (http://www.doingbusiness.org). The data on labor market regulation are based on a detailed questionnaire on employment regulations that is completed by local lawyers and public officials. Employment laws and regulations as well as secondary sources are reviewed to ensure accuracy. To make the data comparable across economies, several assumptions about the worker and the business are used. The worker:  Is a cashier in a supermarket or grocery store, age 19, with one year of work experience.  Is a full-time employee.  Is not a member of the labor union, unless membership is mandatory. The business:  Is a limited liability company (or the equivalent in the economy).  Operates a supermarket or grocery store in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city.  Has 60 employees.  Is subject to collective bargaining agreements if such agreements cover more than 50% of the food retail sector and they apply even to firms that are not party to them.  Abides by every law and regulation but does not grant workers more benefits than those mandated by law, regulation or (if applicable) collective bargaining agreements. 134 Indonesia Doing Business 2017 LABOR MARKET REGULATION What are the details? The data reported here for Indonesia are based on a detailed survey of labor market regulation that is completed by local lawyers and public officials. Employment laws and regulations as well as secondary sources are reviewed to ensure accuracy. Hiring Data on hiring cover five areas: (i) whether fixed-term contracts are prohibited for permanent tasks; (ii) the maximum cumulative duration of fixed-term contracts; (iii) the minimum wage for a cashier, age 19, with one year of work experience; and (iv) the ratio of the minimum wage to the average value added per worker (the ratio of an economy’s GNI per capita to the working-age population as a percentage of the total population). Hiring Jakarta Data Surabaya Data Fixed-term contracts prohibited for permanent tasks? Yes Yes Maximum length of a single fixed-term contract (months) 24 Months extendable for another 12 months (Art. 59 (4)) 24 Months extendable for another 12 months (Art. 59 (4)) Maximum length of fixed-term contracts, including renewals (months) 36.0 36.0 Minimum wage applicable to the worker assumed in the case study (US$/month) 262.6 241.9 Ratio of minimum wage to value added per worker 0.6 0.6 Source: Doing Business database. 135 Indonesia Doing Business 2017 LABOR MARKET REGULATION Working hours Data on working hours cover nine areas: i) the maximum number of working days allowed per week; (ii) the premium for night work (as a percentage of hourly pay); (iii) the premium for work on a weekly rest day (as a percentage of hourly pay); (iv) the premium for overtime work (as a percentage of hourly pay); (v) whether there are restrictions on night work; (vi) whether nonpregnant and nonnursing women can work the same night hours as men; (vii) whether there are restrictions on weekly holiday work; (viii) whether there are restrictions on overtime work; and (ix) the average paid annual leave for workers with 1 year of tenure, 5 years of tenure, and 10 years of tenure. Working Hours Jakarta Data Surabaya Data Maximum number of working days per week 6.0 6.0 Premium for night work (% of hourly pay) 0.0 0.0 Premium for work on weekly rest day (% of hourly pay) 0.0 0.0 Premium for overtime work (% of hourly pay) 75.0 75.0 Restrictions on night work? No No Whether nonpregnant and nonnursing women can work the same night hours as men Yes Yes Restrictions on weekly holiday? No No Restrictions on overtime work? No No Paid annual leave for a worker with 1 year of tenure (working days) 12.0 12.0 Paid annual leave for a worker with 5 years of tenure (working days) 12.0 12.0 Paid annual leave for a worker with 10 years of tenure (working days) 12.0 12.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in working days) 12.0 12.0 Source: Doing Business database. 136 Indonesia Doing Business 2017 LABOR MARKET REGULATION Redundancy rules Data on redundancy cover nine areas: (i) the length of the maximum probationary period (in months) for permanent employees; (ii) whether redundancy is allowed as a basis for terminating workers; (iii) whether the employer needs to notify a third party (such as a government agency) to terminate one redundant worker; (iv) whether the employer needs to notify a third party to terminate a group of nine redundant workers; (v) whether the employer needs approval from a third party to terminate one redundant worker; (vi) whether the employer needs approval from a third party to terminate a group of nine redundant workers; (vii) whether the law requires the employer to reassign or retrain a worker before making the worker redundant; (viii) whether priority rules apply for redundancies; and (ix) whether priority rules apply for reemployment. Difficulty of redundancy index Jakarta Data Surabaya Data Maximum length of probationary period (months) 3.0 3.0 Dismissal due to redundancy allowed by law? Yes Yes Third-party notification if one worker is dismissed? Yes Yes Third-party approval if one worker is dismissed? Yes Yes Third-party notification if nine workers are dismissed? Yes Yes Third-party approval if nine workers are dismissed? Yes Yes Retraining or reassignment obligation before redundancy? Yes Yes Priority rules for redundancies? No No Priority rules for reemployment? No No Source: Doing Business database. 137 Indonesia Doing Business 2017 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice requirements and severance payments due when terminating a redundant worker, expressed in weeks of salary. The average value of notice requirements and severance payments applicable to a worker with 1 year of tenure, a worker with 5 years and a worker with 10 years is considered. One month is recorded as 4 and 1/3 weeks. Redundancy cost indicator (in salary weeks) Jakarta Data Surabaya Data Notice period for redundancy dismissal for a worker with 1 year of tenure 0.0 0.0 Notice period for redundancy dismissal for a worker with 5 years of tenure 0.0 0.0 Notice period for redundancy dismissal for a worker with 10 years of tenure 0.0 0.0 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years of tenure) 0.0 0.0 Severance pay for redundancy dismissal for a worker with 1 year of tenure 17.3 17.3 Severance pay for redundancy dismissal for a worker with 5 years of tenure 60.7 60.7 Severance pay for redundancy dismissal for a worker with 10 years of tenure 95.3 95.3 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years of tenure) 57.8 57.8 Source: Doing Business database. 138 Indonesia Doing Business 2017 LABOR MARKET REGULATION Job quality Doing Business introduced new data on job quality in 2015. Doing Business 2017 covers eight questions on job quality (i) whether the law mandates equal remuneration for work of equal value; (ii) whether the law mandates nondiscrimination based on gender in hiring; (iii) whether the law mandates paid or unpaid maternity leave; (iv) the minimum length of paid maternity leave (in calendar days); (v) whether employees on maternity leave receive 100% of wages; (vi) the availability of five fully paid days of sick leave a year; (vii) whether a worker is eligible for an unemployment protection scheme after one year of service; and (viii) the minimum duration of the contribution period (in months) required for unemployment. Job Quality Jakarta Data Surabaya Data Equal remuneration for work of equal value? No No Gender nondiscrimination in hiring? No No Paid or unpaid maternity leave mandated by law? Yes Yes Minimum length of maternity leave (calendar days)? 90.0 90.0 Receive 100% of wages on maternity leave? Yes Yes Five fully paid days of sick leave a year? Yes Yes Unemployment protection after one year of employment? No No Minimum contribution period for unemployment protection (months)? n.a. n.a. Source: Doing Business database. 139 Indonesia Doing Business 2017 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING Doing Business presents results for two aggregate measures: the distance to frontier score and the ease of doing business ranking, which is based on the distance to frontier score. The ease of doing business ranking compares economies with one another; the distance to frontier score benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best performance on each Doing Business indicator. When compared across years, the distance to frontier score shows how much the regulatory environment for local entrepreneurs in an economy has changed over time in absolute terms, while the ease of doing business ranking can show only how much the regulatory environment has changed relative to that in other economies. Distance to Frontier The distance to frontier score captures the gap between an economy’s performance and a measure of best practice across the entire sample of 36 indicators for 10 Doing Business topics (the labor market regulation indicators are excluded). For starting a business, for example, the former Yugoslav Republic of Macedonia and New Zealand have the smallest number of procedures required (1), and New Zealand the shortest time to fulfill them (0.5 days). Slovenia has the lowest cost (0.0), and Australia, Colombia and 103 other economies have no paid-in minimum capital requirement (table 14.1 in the Doing Business 2016 report). Calculation of the distance to frontier score Calculating the distance to frontier score for each economy involves two main steps. In the first step individual component indicators are normalized to a common unit where each of the 36 component indicators y (except for the total tax rate) is rescaled using the linear transformation (worst − y)/(worst − frontier). In this formulation the frontier represents the best performance on the indicator across all economies since 2005 or the third year in which data for the indicator were collected. Both the best performance and the worst performance are established every five years based on the Doing Business data for the year in which they are established, and remain at that level for the five years regardless of any changes in data in interim years. Thus an economy may set the frontier for an indicator even though it is no longer at the frontier in a subsequent year. For scores such as those on the strength of legal rights index or the quality of land administration index, the frontier is set at the highest possible value. For the total tax rate, consistent with the use of a threshold in calculating the rankings on this indicator, the frontier is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015. For the time to pay taxes the frontier is defined as the lowest time recorded among all economies that levy the three major taxes: profit tax, labor taxes and mandatory contributions, and value added tax (VAT) or sales tax. For the different times to trade across borders, the frontier is defined as 1 hour even though in many economies the time is less than that. In the same formulation, to mitigate the effects of extreme outliers in the distributions of the rescaled data for most component indicators (very few economies need 700 days to complete the procedures to start a business, but many need 9 days), the worst performance is calculated after the removal of outliers. The definition of outliers is based on the distribution for each component indicator. To simplify the process two rules were defined: the 95th percentile is used for the indicators with the most dispersed distributions (including minimum capital, number of payments to pay taxes, and the time and cost indicators), and the 99th percentile is used for number of procedures. No outlier is removed for component indicators bound by definition or construction, including legal index scores (such as the depth of credit information index, extent of conflict of interest regulation index and strength of insolvency framework index) and the recovery rate. In the second step for calculating the distance to frontier score, the scores obtained for individual indicators for each economy are aggregated through simple averaging into one distance to frontier score, first for each topic and then across all 10 topics: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. More complex aggregation methods—such as principal components and unobserved components—yield a ranking nearly 140 Indonesia Doing Business 2017 identical to the simple average used by Doing Business2. Thus Doing Business uses the simplest method: weighting all topics equally and, within each topic, giving equal weight to each of the topic components3. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. All distance to frontier calculations are based on a maximum of five decimals. However, indicator ranking calculations and the ease of doing business ranking calculations are based on two decimals. The difference between an economy’s distance to frontier score in any previous year and its score in 2015 illustrates the extent to which the economy has closed the gap to the regulatory frontier over time. And in any given year the score measures how far an economy is from the best performance at that time. Treatment of the total tax rate The total tax rate component of the paying taxes indicator set enters the distance to frontier calculation in a different way than any other indicator. The distance to frontier score obtained for the total tax rate is transformed in a nonlinear fashion before it enters the distance to frontier score for paying taxes. As a result of the nonlinear transformation, an increase in the total tax rate has a smaller impact on the distance to frontier score for the total tax rate—and therefore on the distance to frontier score for paying taxes—for economies with a below-average total tax rate than it would have had before this approach was adopted in Doing Business 2015 (line B is smaller than line A in figure 14.2 in the Doing Business 2016 report). And for economies with an extreme total tax rate (a rate that is very high relative to the average), an increase has a greater impact on both these distance to frontier scores than it would have had before (line D is bigger than line C in figure 14.2 in the Doing Business 2016 report). 2 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less importance in the context of a specific economy. 3 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned to the strength of legal rights index and 40% to the depth of credit information index. Indicators for all other topics are assigned equal weights The nonlinear transformation is not based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in an economy’s overall tax system. Instead, it is mainly empirical in nature. The nonlinear transformation along with the threshold reduces the bias in the indicator toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). In addition, it acknowledges the need of economies to collect taxes from firms. Calculation of scores for economies with 2 cities covered For each of the 11 economies in which Doing Business collects data for the second largest business city as well as the largest one, the distance to frontier score is calculated as the population-weighted average of the distance to frontier scores for these two cities (table 13.1). This is done for the aggregate score, the scores for each topic and the scores for all the component indicators for each topic. 141 Indonesia Doing Business 2017 Table 13.1 Weights used in calculating the distance to frontier scores for economies with 2 cities covered Source: United Nations, Department of Economic and Social Affairs, Population Division, World Urbanization Prospects, 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Economies that improved the most across 3 or more Doing Business topics in 2014/15 Doing Business 2016 uses a simple method to calculate which economies improved the ease of doing business the most. First, it selects the economies that in 2014/15 implemented regulatory reforms making it easier to do business in 3 or more of the 10 topics included in this year’s aggregate distance to frontier score. Changes making it more difficult to do business are subtracted from the total number of those making it easier to do business. Twenty-four economies meet this criterion: Armenia; Azerbaijan; Benin; Costa Rica; Côte d’Ivoire; Cyprus; Hong Kong SAR, China; Indonesia; Jamaica; Kazakhstan; Kenya; Lithuania; Madagascar; Mauritania; Morocco; Romania; the Russian Federation; Rwanda; Senegal; Togo; Uganda; the United Arab Emirates; Uzbekistan; and Vietnam. Second, Doing Business sorts these economies on the increase in their distance to frontier score from the previous year using comparable data. Selecting the economies that implemented regulatory reforms in at least three topics and had the biggest improvements in their distance to frontier scores is intended to highlight economies with ongoing, broad- based reform programs. The improvement in the distance to frontier score is used to identify the top improvers because this allows a focus on the absolute improvement—in contrast with the relative improvement shown by a change in rankings—that economies have made in their regulatory environment for business. Ease of Doing Business ranking The ease of doing business ranking ranges from 1 to 190. The ranking of economies is determined by sorting the aggregate distance to frontier scores, rounded to 2 decimals. EconomyCity Weight (%) Dhaka78 Chittagong22 São Paulo61 Rio de Janeiro39 Shanghai55 Beijing45 Mum bai47 Delhi53 Jakarta78 Surabaya22 T okyo65 Osaka35 Mexico City83 Monterrey17 Lagos77 Kano23 Karachi65 Lahore35 Moscow70 St. Petersburg30 New York60 Los Angeles40 Mexico Nigeria Pakistan Russian Federation United States Japan Bangladesh Brazil China India Indonesia 142 Indonesia Doing Business 2017 RESOURCES ON THE DOING BUSINESS WEBSITE Current features News on the Doing Business project http://www.doingbusiness.org Rankings How economies rank—from 1 to 190 http://www.doingbusiness.org/rankings Data All the data for 190 economies—topic rankings, indicator values, lists of regulatory procedures and details underlying indicators http://www.doingbusiness.org/data Reports Access to Doing Business reports as well as subnational and regional reports, case studies and customized economy and regional profiles http://www.doingbusiness.org/reports Methodology The methodologies and research papers underlying Doing Business http://www.doingbusiness.org/methodology Research Abstracts of papers on Doing Business topics and related policy issues http://www.doingbusiness.org/research Doing Business reforms Short summaries of DB2017 business regulation reforms and lists of reforms since DB2008 http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Law library Online collection of business laws and regulations relating to business http://www.doingbusiness.org/law-library Contributors More than 11,400 specialists in 190 economies who participate in Doing Business http://www.doingbusiness.org/contributors/doing- business Entrepreneurship data Data on business density (number of newly registered companies per 1,000 working-age people) for 136 economies http://www.doingbusiness.org/data/exploretopics/ent repreneurship Distance to frontier Data benchmarking 190 economies to the frontier in regulatory practice and a distance to frontier calculator http://www.doingbusiness.org/data/distance-to- frontier Information on good practices Showing where the many good practices identified by Doing Business have been adopted http://www.doingbusiness.org/data/good-practice 143 Indonesia Doing Business 2017