(presented in Table A1) depending on the type of status chosen. Most of these potential benefits are related to the possibility to apply for bank services, or to access new markets like government and large companies’ contracts. The _entreprenant_ status gives access to all advantages except the rights to export and to access large public contracts. It explicitly targeted micro and small businesses managing one type of activity with a limited turnover.<sup>3</sup> Businesses with multiple activities or with turnover greater than a threshold in two consecutive years will lose _entreprenant_ status and have to adopt the individual enterprise status.

When they formalize, businesses get a unique fiscal identifier and are registered with the tax administration. Accordingly, the main potential cost of formalization is related to taxes. In Benin, the link between formalization and taxes is complex and varies according to the business. In theory, all businesses with a fixed location would pay taxes even if they were informal. Before the reform of the tax system affecting microentrepreneurs was introduced in 2015,<sup>4</sup> which will be used to calculate the tax owed in 2016, there were four different tax regimes that could apply to informal businesses in Cotonou, depending on their location and economic activity.<sup>5</sup> The regime most commonly applicable to micro, informal businesses was the TPU ( _“Taxe Professionnelle Unique”)_ and was calculated based on the rental value of the business premises. However, in the majority of cases taxpayers did not have a lease contract, the only official and opposable proof of rental value. As a result, the law assigned the tax administration the responsibility for assessing the rental value. This assessment often left a door open for discretion. In practice, tax inspectors estimated businesses’ ability to pay based on their appearance and on discussion with business owners.

Data from our baseline survey (see Table 1) show that more than 70 percent of firms think it is difficult to know in advance how much taxes they will have to pay, with this being the case even for formal firms. Slightly more than half of the informal firms in our study (55 percent)

> 3 The OHADA General Commercial Law defines the _entreprenant_ as having an annual turnover below CFAF  30 million (USD 50,400) for trading activities, CFAF  20 million (USD 33,600) for crafting activities (artisans), and CFAF  10 million (USD 16,800) for services. Once the small business adopts the _entreprenant_ status, the turnover threshold should not be exceeded for more than two consecutive years.

> 4 In December 2014, the Beninese Parliament adopted a new MSE tax regime. This regime introduced the Synthetic Professional Tax (TPS: _Taxe Professionnelle Synthètique_ ) which replaces the four taxes that micro and small businesses were subject to before the reform. This new tax introduces a major shift by changing the basis of tax calculation from the rental value to the use of turnover. This reform creates more predictability and transparency in the calculation of the amount of tax due and prevents small businesses from abuses of tax officers. MSEs will start paying the TPS in 2017 based on their 2016 turnover. All _entreprenants_ will pay the TPS.

> 5 The four tax regimes were the following: “ _Taxe Professionnelle Unique_ ” (TPU), “ _Taxe Unique sur les Transports Routiers_ ” (TUTR), “ _Régime du forfait des revendeurs de tissus et divers_ ”, and “ _Régime du bénéfice réel simplifié_ ”.

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