The cost of regulatory compliance weighs more heavily on small business than big business in South African (SA), and is seen a barrier to entry for informal business into the formal business sector. "Relative to their size, small firms carry the heaviest burden of compliance costs. These can be as much as 8.3 percent of turnover for companies with sales of less than R1 million (US$165,494) a year," says Small Business Project (SBP) executive director, Chris Darroll.

By contrast, larger corporations turning over R1 billion of more a year, spend 0.2 percent of their huge turnover on compliance. Average costs per person for firms with less than five employees are ten times higher than for companies with 200 to 499 employees.

?With these data, we are able to pose the question that perhaps the government?s goals and the country?s development needs could be better served with an easing of red tape, particularly for small business,? says Darroll. ?Streamlining regulatory requirements for small business would stimulate growth, bring more informal businesses into the tax regime and thereby help swell government coffers.?

A component of SBP?s regulatory compliance cost survey focused on 150 informal sector businesses. This showed that informal entrepreneurs were well aware of the benefits of formalizing their businesses. Benefits include less harassment, cheaper inputs and credit, the possibility of government aid and a better image.

The disadvantages, such as increased exposure to taxes and red tape, were seen to outweigh the advantages. ?There is a strong case for Regulatory Impact Analyses (RIAs) to be conducted on all proposed new regulations. SA is also long overdue for a systematic review of existing regulatory environment that asks whether the benefits of each existing regulation are greater than their costs,? concludes Darroll.