# **3.  Conclusions and Policy Implications**

The surveys of formal SMMEs and informal firms may provide useful information to guide the efforts of the National Treasury and SARS to encourage higher rates of voluntary registration among informal firms. Comparing the two surveys, it was noteworthy that firms in Gauteng province appear most oriented toward formality, with relatively low numbers of formal firms reporting they had ever operated informally before registering for tax and relatively high numbers of informal firms reporting they are likely to register for tax soon. This may suggest that formalization is easier to encourage in relatively urbanized settings.

While almost 90% of formal firms reported they had never operated informally before registering for tax, firms in the primary sector (agriculture, forestry, fishing and mining), construction and manufacturing appear relatively more likely to start out informal and to register themselves at some point. By contrast, firms in trade and other services seem either to start out and stay informal or to initiate operation as a formal company registering for tax at the outset.

As expected, businesses that are not registered for tax, but are registered with CIPRO, Chamber of Commerce, or other business associations, are relatively more likely to report they plan to register for tax. Similarly, informal firms with more employees appear more likely to register for tax.

Interestingly, businesses who rent their premises are relatively more likely to register, probably because they anticipate a higher likelihood of coming to the attention of the authorities because their landlords may report the rental income.

Informal businesses who keep financial records are significantly more likely to report they expect to register for tax, as are those who felt confidence in their abilities to do the necessary accounting and fill out tax forms. Those who knew the location of the nearest SARS office (and within that group, those who are closer to the SARS office) were also more likely to register. Informal firms who are concerned about their access to finance were relatively more likely to report they may register for tax. Conversely (but as expected), informal businesses who receive most of their income in cash report they are less likely to register for tax. Perceptions about SARS inspections and penalties did not appear to make statistically significant differences in the reported likelihood for registration, but a perception that many informal businesses are caught by SARS seemed to be associated with a relatively higher likelihood for registration.

Attitudes toward government and perceptions of problems associated with government appear to have a significant influence on the likelihood of informal firms registering for tax. In particular, respondents who believe that government provides good service for taxes paid are significantly more likely to report that they may register for tax in the near future. Similarly, informal firms who believe that everyone should pay some tax (and who believe that most firms do pay taxes) are more likely to report they may register for tax. These attitudes are much more significant than the respondents’ attitude toward the availability of information about tax registration.

Firms complaining about “major problems” associated with crime, infrastructure (telecoms, transportation and electricity) and “skills and education of available workers” were relatively less likely to register for tax than firms who perceived such issues to be less serious problems. Thus 28