Helping Firms Realize the Benefits of (Partial) Formalization
Developing country governments seek to reduce pervasive informality of firms for multiple reasons: increasing the tax base, helping firms access formal markets and grow, increasing rule of law, and as a means of obtaining data that can be used for...
| Main Authors: | , , |
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| Format: | Brief |
| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/511561539287441679/Helping-Firms-Realize-the-Benefits-of-Partial-Formalization http://hdl.handle.net/10986/30590 |
| Summary: | Developing country governments seek to
reduce pervasive informality of firms for multiple reasons:
increasing the tax base, helping firms access formal markets
and grow, increasing rule of law, and as a means of
obtaining data that can be used for other government
functions. The most common approach towards achieving these
aims has been to make it easier for firms to formalize, most
notably by setting up one-stop shops where firms can
register as a legal entity and for tax purposes all at once.
But past experiments have showed very few informal firms
choose to formalize even after such reforms, and that many
of those who do fail to see any benefits on financial access
or firm growth. An alternative approach, used in much of
Africa, is to separate the process of business registration
from tax registration. Getting firms to register legally may
help governments reduce informality and achieve some of the
aims above, even if it does not raise more taxes. But the
question is then whether firms are interested in even this
more limited form of formalization, and whether they see any
benefits from using it. |
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