Urip Hudiono, Jakarta – The effort to speed up the registration of businesses by delegating powers to the local level appear to have backfired, as the process of starting a business in the regions is now slower, costlier and more difficult, reveals a survey published Tuesday.
A question mark also hangs over improvements in taxation and customs processes, as more businesses now tend to simply bribe their way out of bureaucratic snags, according to the survey, which was conducted by the University of Indonesia's Economic Research Center (LPEM-UI).
The study finds that it now takes 86 calender days – or 62 working days – to get a business up and running with the proper basic licenses, as compared to 80 calender and 57 working days in 2005. The average time to register a limited liability company continues to be 45 working days.
"The additional time results from the delegation of power to register limited liability companies to the provincial offices of the justice ministry," LPEM-UI head Chatib Basri said when presenting the survey to the Coordinating Minister for the Economy Boediono, other relevant ministers and representatives of the domestic and overseas business community.
"The provincial offices lack the internal controls, equipment and skilled staff needed to operate an online system."
Inefficiency in the Justice Ministry offices added more than two weeks to the business start-up process, and led to more face-to-face contacts with officials, thus increasing the likelihood of corruption.
This canceled out the acceleration of between one and two days achieved in the issuing of tax file numbers, residency documents, and financing, and related licenses from local administrations.
As a result, 70 percent of the survey's respondents said they believed setting up a business in Indonesia had become slower, while 44 percent said it was more expensive.
The survey also revealed that more businesses were now willing to pay their way out of tax and customs problems. However, they considered Indonesia's overall economic situation as being better now. Some 38 percent of businesses now occasionally paid bribes, up from 20 percent in 2005, while those who never paid bribes dropped to only 9 percent from 19 percent. More than half said they paid bribes frequently.
However, most businesses said they spent less time dealing with tax problems and customs clearance procedures for exports, with delays in the green-lane channel reduced to 3.1 days from 6.1 days previously.
Bribes now account for 1.3 percent of production costs, compared to 1.7 percent previously, while costs incurred in handling labor problems rose slightly to 4.1 percent from 3.7 percent.
"It is interesting that the time spent on taxes and customs has fallen, while at the same time there are less respondents saying they never pay bribes, which could mean that more bribery is occurring," Chatib said.
The LPEM-UI survey was conducted in June-August on 589 manufacturing firms and 57 notaries' offices in Greater Jakarta, Surabaya, Medan, Semarang and Makassar.
It is the fourth such survey – the first being conducted in April-May 2005. The surveys are carried out every six months and are intended to monitor improvements in the investment climate.