Formal Informality : Informal Practices of Formal Firms as a Key Business Constraint
Despite strong economic growth in recent decades led by the resource-based sectors, Lao PDR facessignificant challenges, including high poverty rates and limited productivity. A highly challenging business and investment environment continues to ha...
| Main Author: | |
|---|---|
| Format: | Report |
| Language: | English |
| Published: |
World Bank, Washington, DC
2017
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/979281509632059588/Formal-informality-informal-practices-of-formal-firms-as-a-key-business-constraint http://hdl.handle.net/10986/28833 |
| Summary: | Despite strong economic growth in recent
decades led by the resource-based sectors, Lao PDR
facessignificant challenges, including high poverty rates
and limited productivity. A highly challenging business and
investment environment continues to hamper stronger private
sector-led growth, especially outside the natural resource
sectors, where job creation could be larger. In the still
largely unreformed business and trade environment, the World
Bank’s 2016 Enterprise Survey identified "practices of
firms in the informal sector" as the biggest problem
reported by firms in the country, and addressing these and
other challenges fundamentally will be critical to generate
inclusive growth. Based on interviews with business owners
and top managers, this note finds that there are four main
types of problematic informality in Lao PDR’s business
environment: inadequately registered enterprises that
"fly under the radar"; widespread tax evasion;
irregular adherence to complex and burdensome regulations;
and a culture of noncompliance with basic rules and
standards. Fully registered and formalized firms incur
higher costs and feel unfairly targeted by authorities who
are eager to collect revenue and fulfil their mandates.
Unregistered or rule-evading competitors are alleged to
escape the same level of scrutiny, due to the difficulty of
enforcement and prevalence of petty corruption. Tackling
problematic informality in the business environment will
require stronger institutions and a continued government
focus on eliminating petty corruption. In the near-term,
this note recommends eliminating unnecessary regulations and
streamlining others by leveraging public support for
transparency and consistency in the tax and regulatory
systems. This should be complemented by a functional,
efficient one stop window for enterprise registration to
encourage formalization. Putting these recommendations into
practice will require improved monitoring, evaluation, and
assessment practices based on reliable and timely common data. |
|---|