Policy Issue:
Benin, along with 16 other OHADA countries in Africa, revised its commercial laws to introduce a new status called Entreprenant. This status is designed for micro and small businesses, and makes registering with this new status easy, free of charge and possible in only one business day.
Informality has important implications for government and firms - governments may face difficulties collecting taxes to finance public services, informal firms may not be able to access bank financing, public contracts and government programs and may face more corruption or intimidation from the authorities, and formal firms may suffer from unfair competition by the informal sector and from higher taxes if all the tax burden is supported by the formal sector.
The study pilots a set of intervention that accompanies the introduction of the Entreprenant status. They are 1) an in-person visit explaining the benefits of formalization, 2) facilitated access to government training programs and support in opening a business bank account, in addition to the in-person visit, and 3) support in dealing with tax authorities, in addition to the previous two benefits.
Results:
The study shows that enhancing the benefits of formalization through personalized assistance induces more firms to formalize. However, formalization appears to offer limited benefits to the firms, and the costs of assistance are high, suggesting that such enhanced formalization efforts are unlikely to be cost effective.