• Stepping Up the Ladder

• A Model for Drug Pricing

• A Taxing Question for Mutual Funds

— By Don Shapiro

Stepping Up the Ladder

Taiwan’s ranking in the World Bank’s annual survey on the ease of doing business rises to 46th place, up 15 rungs from last year. 

Of the various international surveys that annually rate countries in terms of their economic competitiveness, the Doing Business report issued by the World Bank is particularly noteworthy because of the specific and practical nature of the criteria that it examines. For example, it considers the number of days it takes to start a new business or obtain a construction permit, and the degree of difficulty involved in hiring or firing an employee.

Last year Taiwan – unfortunately referred to by the World Bank either as “Taiwan, China” or “Taiwan (China)” – ranked a mediocre 61st out of the 181 economies surveyed. But the government’s Council for Economic Planning and Development (CEPD) took the report seriously, setting up task forces to try to redress problems in the areas where Taiwan had scored the weakest. The effort paid off. In the recently released Doing Business 2010, Taiwan significantly improved its ranking, moving up to 46th place among the 183 economies surveyed.

The biggest gain occurred in the category called “Starting a Business,” where Taiwan rose all the way from 119th place to this year’s 29th. In explaining that progress, the report noted that Taiwan had “eased business start-up by reducing the paid-in minimum capital requirement from NT$1 million to $500,000 in 2008 and abolishing it altogether in April 2009; it also introduced time limits on various procedures.” The number of days required to complete the steps for opening a company was cut from 42 days to only 23.

Another category in which Taiwan received special recognition for improvement was in “Paying Taxes,” where the report cited the tax authority’s decision to make “both e-filing and e-payment applicable to value added tax (VAT).” But even with that positive development, Taiwan still ranked an unimpressive 92nd, brought down by the high total tax rate on businesses, the number of different taxes to be paid, and the amount of time needed to prepare and file tax returns.

The area in which Taiwan did the poorest is the category of “Employing Workers,” where it stood in lowly 153rd place, only slightly better than last year’s 158th. Part of that evaluation is the score on a Rigidity of Employment Index that includes such factors as the flexibility of employment contracts, restrictions on working hours, mandated days of paid annual leave, and legal constraints against the dismissal of workers. In that index, Taiwan – with a score of 46 out of a possible 100 – was more restrictive than most of its regional competitors. In comparison, Hong Kong had a score of 0, Malaysia 10, Japan 16, the Philippines 29, and Korea 38.

Categories in which Taiwan did relatively well were “Closing a Business” (ranking 11th in the world), “Registering Property” (30th), and “Trading Across Borders” (33rd).

For the fourth straight year, Singapore emerged as the easiest place in the world in which to do business, with New Zealand once again coming in second. Hong Kong was third and the United States fourth (switching places from last year), and the United Kingdom displaced Denmark for the fifth spot.

Besides Singapore and Hong Kong, others in the Asia Pacific region that were rated better than Taiwan were Japan (15th), Korea (19th), and Malaysia (23rd). China was number 89. Most of the non-Asian countries listed above Taiwan on the survey were developed industrial economies, but they also included such former Soviet Socialist Republics as Georgia (11th), Lithuania (26th), and Latvia (27th) that have worked hard to make themselves economically competitive.

“The Doing Business report is a very useful yardstick to gauge how business-friendly Taiwan is relative to other countries, and the government is to be congratulated on the improvements made from a year ago,” said AmCham Taipei President Andrea Wu. “The Chamber encourages the CEPD to continue to use the survey results as points of reference in seeking to make the investment climate here ever more attractive.” 

— By Don Shapiro

A Model for Drug Pricing

An economic study may show the way to a pricing policy that helps patients, manufacturers, and the national health system’s finances.

In the ongoing dialogue between the Bureau of National Health Insurance (BNHI) and the pharmaceutical industry over drug-pricing policy, a consensus appears to have developed: as far as is financially feasible, the National Health Insurance program should encourage new and innovative drugs by offering reasonable pricing, thus ensuring that patients have access to the best possible treatment. In the past, manufacturers of patented drugs were often deterred from launching products in Taiwan because of the relatively low reimbursement prices in this market.   

The constructive dialogue that has helped develop that consensus began with the National Drug Policy Conference held on the last day of 2008, and has continued with two Pharmaceutical Innovation & Drug Policy Workshops held on July 22 and October 15.

With the second workshop, the discussion moved beyond forging basic philosophic agreement to deal with some of the practical questions that need to be tackled. How should “innovation” be defined? What would it cost to include these innovative drugs within the NHI program at prices similar to those in 10 benchmark developed countries? Could the healthcare system afford that burden?

To provide actual data to ground that conversation in reality, the International Research-based Pharmaceutical Manufacturers Association (IRPMA) in Taipei – with the assistance of a substantial grant from the Pharmaceutical Research and Manufacturers of America (PhRMA) – sponsored an intensive 17-week project to prepare an economic model showing the likely financial impact of various proposed changes. Healthcare consultancy IMS Health was hired to carry out the project, and it reported on its initial findings at the second Workshop.

The IMS study surveyed companies about the drugs currently in their development pipeline for potential launch in the coming five or six years, and estimated the likely cost of those drugs to the NHI system under several different reimbursement scenarios. According to the preliminary analysis, the BNHI budget over the coming six years should be sufficient under most of the scenarios – without undertaking any additional major price cuts – to provide new and innovative drugs with reimbursement prices at levels that would encourage companies to launch the products in Taiwan. BNHI has committed to increasing its budget for drug expenditure by 4% annually.     

Another finding of the study was that the periodic price cuts undertaken by BNHI have not in fact contributed to holding down drug expenditures. Because hospitals rely heavily on earnings from drug reimbursement after receiving discounts from the manufacturers, they consistently react to NHI price cuts by “re-optimizing” – shifting procurement to higher-priced drugs with better profit margins. 

BNHI has welcomed the industry’s initiative, and is proceeding to analyze the IMS report and the various assumptions on which it was based. A further exchange of views with industry representatives is expected to take place at a third Innovation Workshop, likely to be conducted before the end of the year.

Carol Cheng, IRPMA’s Chief Operating Officer, notes that the economic model is helping to carry the dialogue with BNHI to a more substantive level. “The hope is that this will produce a win-win-win situation that will enable patients get the best possible treatment, BNHI to manage costs, and manufacturers to enjoy a stable market.”      

— By Don Shapiro

A Taxing Question for Mutual Funds

An article in last month’s Taiwan Business TOPICS discussed the concern of AmCham’s Asset Management Committee that Offshore Funds would be unfairly disadvantaged by the Ministry of Finance’s plan to consider investors’ capital income and redemption earnings from those funds as “overseas income” for purposes of calculating Alternative Minimum Tax (AMT). From January 1, 2010, overseas income is scheduled to be counted in AMT assessments for the first time.

The reason for that concern was that equivalent earnings from another category of mutual funds known as Overseas SITE Funds will not be regarded as overseas income – and the difference in tax treatment was seen as potentially inducing investors to switch from one type of fund to the other. The characteristics of Offshore and Overseas SITE Funds are virtually identical except for the nature of the issuer – Offshore Fund institutions for the former and domestic Securities Investment Trust Enterprises for the latter.  

To verify that the two types of business are not materially different, the Asset Management Committee requested a clarification from the industry regulator, the Financial Supervisory Commission (FSC). In a response dated October 23, the FSC confirmed that Offshore funds sold through legitimate local intermediaries should be regarded as “securities” as defined under the Securities Exchange Act – the same as for Overseas SITE Funds.

“The financial regulator has made its view very clear,” said Derek Yung, co-chair of the Asset Management Committee. “Based on that statement, the industry now expects the Ministry of Finance to give equal treatment to the two types of funds under the AMT overseas income regime.”         

— By Don Shapiro