Nearshore Americas

World Bank Praises Guatemala for Facilitating Business Process

Guatemala and Brazil were Latin America’s two biggest climbers in the World Bank’s Ease of Doing Business Index from 2013 to 2014, while Colombia was also praised for having made consistent progress in recent years.

Having done more to ease its tax-paying process than any other country on earth, Guatemala advanced 14 places from 93 to 79 and was ranked the tenth most improved country in the index.

Brazil also rose by 14 places from 130 to 116, while Chile was again the highest ranked country in Latin America, having advanced from 37 to 34 in the global index. After Chile, the next highest ranked Latin American states were Peru (42), Colombia (43), Mexico (53) and Panama (55).

The “Doing Business 2014: Understanding Regulations for Small and Medium-Sized enterprises” report says that “On average around the world, starting a business takes seven procedures, 25 days and costs 32% of income per capita in fees.” However, while it takes just seven procedures, five and a half days and 0.7% of income per capita to start a business in Chile, the World Bank notes that in the South American nations of Venezuela and Suriname the process takes 144 days and 208 days respectively.

Guatemala’s Simplified Tax System

Having facilitated the processes of starting a business, dealing with construction permits and paying taxes, Guatemala was ranked the tenth most improved country in the world from the 2012-13 Ease of Doing Business rankings. Guatemala opened an online one-stop shop that allows new companies to register with the commercial registrar, tax authority, social security institute and Ministry of Labor through a single online form, the World Bank noted.

The Central American state also did more than any other country to facilitate the paying of taxes in the past year, according to the report. This improvement began in January 2012 when the Guatemalan tax authority launched its new online system, Declaraguate, for the filing and paying of all taxes (except labor taxes and mandatory contributions).

“The new system allows taxpayers to pay their taxes online without a need to sign a contract and open an account with a specific bank. In addition, Declaraguate has expanded the electronic filing and payment option to such taxes as the solidarity tax,” the report states. As a result of Declaraguarte, the number of payments required has dropped from 21 to seven and the time it takes to comply with tax obligations has fallen by six hours.

Elsewhere in the region, the report notes that Colombia, Mexico, Paraguay and Uruguay have also implemented electronic systems for filing and paying taxes over the past five years. Changes initiated in Colombia in 2010 – which include upgrading its electronic system, to ease e-filing and payment for the corporate income tax and VAT – have since led the amount of time it takes to comply with tax obligations to drop by 15 hours, while the required number of payments has fallen by 11.

Brazil was also praised for the effects that recent tax reforms have had on its formal economy. The SIMPLES reforms reduced the number of taxes and tax procedures for micro and small firms in Brazil, leading to a 13% rise in the number of retail firms becoming officially licensed.

Colombia’s Steady Progress

The report highlights Colombia as the most improved country in Latin America since 2005, having made 27 regulatory reforms in that time. In recent years Colombia has formed regulatory reform committees that report directly to the president, while another reform making bankruptcy laws more efficient has significantly improved the recovery rate of viable firms in the South American country. Colombia has also hosted peer-to-peer learning events in which officials from different governments across the region meet to discuss the challenges of regulatory reforms.

Colombia draws special praise in the report for the Single Window for Foreign Trade it launched in 2005, which has adopted a gradual approach, adding functions and integrating agencies over time.

“The single window has provided benefits to entities involved in trade, increasing efficiency and cutting times and costs,” the report notes. “According to government sources, the system streamlined 135 procedures and 35 forms needed for importing into one step for traders, eliminating the need to visit agencies, reducing reliance on messenger services and minimizing the use of hard copies. The average response time has dropped by about five days for requests made at territorial offices that require approval from an agency linked to the single window. In addition, it takes 30% less time to issue a license requested through the system.”

In the last year Colombia has also improved at enforcing contracts by simplifying and speeding up the proceedings for commercial disputes, as well as making it easier to get electricity by opening a one-stop shop for electricity connections and improving the efficiency of the utility’s internal processes, thus reducing the time it takes to get a connection by 60 days.

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Going Backwards

Paraguay slipped six places in the index, having improved in just one of the World Banks’s 10 barometers: the ease of paying taxes. Mexico, Nicaragua and El Salvador all fell by five places, with Mexico having improved in just three areas: getting electricity, trading across borders and enforcing contracts. Nicaragua only improved in two areas: the ease of starting a business and getting electricity; while El Salvador made it easier to trade across borders, but regressed with regard to taxes, having made it more costly for companies by increasing the corporate income tax rate.

Venezuela remains the worst ranked Latin American country, having fallen one place in the index from 180 to 181. Venezuela did improve access to credit information by starting to collect data on firms from financial institutions, but its rating suffered as a result of increasing company registration fees.

Duncan Tucker

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