MGT601 SME MANAGEMENT

Issues and Policy Development for SME – II Lesson 10 Issues and Policy Development for SME – II

Chapter Learning Objectives This lecture deals with the policy-making issues on short and medium term basis. Issues where we feel we may achieve strong impacts in the short and medium-term, i.e. until 2011. They should therefore become major topics of our deliberation and shape the formulation of our SME policy.

Issues in Policy Development (Short and Medium-Term Issues)

Business Environment Consultation with affected SME before launching a new policy To allow them to participate in government procurements

Continued…… To allow them a grace period for adjustment The policy of UK “think small first” Minimizing the bureaucratic discretion

Relationships between Government and SME The relation ship is fundamentally flawed Centralized control on the basis of misled facts by profit seeking semi literate entrepreneur

Continued…… The attitude problems between SME and bureaucratic system The language barrier

Continued……. All laws, regulations and support material is available in English only We should increase the usage of Urdu in documentation. Specially in policy papers

Continued……. The Government sector procurement is very small. It is fewer than 4%. The small number is due to tough bargaining price 36% and supplies on credit 34% due to absence of rules for purchase.

Taxation issues High rates of taxation Expensive accountants and legal advisors High cost of bookkeeping for small firms

Continued….. Time consumption by tax payer to handle tax issues Physiological cost (in terms of anxiety, stress and phobias by possible mistakes and reaction of tax authorities)

Continued…… 67% of the enterprises termed tax regulations as most problematic 56% of businesses report a crunch of taxes 28% of businesses felt taxes are very high

Continued…… The SMEs are harassed by the tax authorities 69% of the firms having less than 1 million assets have given tax as number one problem due to cost of bookkeeping and hiring professionals.

Continued….. During last few years tax based expansion is very slow Two sectors; Retailers and small medium Manufacturers have already offered the idea of fixed taxation.

Continued…….. The tax reforms are only done in tax administration and management by authorities No incentive for SME enter the formal economy

Conclusion The result of such policies is that (unfortunate) surprises to small firms are less frequent. It is made sure that businesses potentially affected are consulted and informed of any forthcoming policy shifts so as to avoid negative impacts.

Conclusion….. Special attention is paid to minimizing the room for bureaucratic discretion while developing policy rules or procedures. All such mechanisms are missing in present policy or legal environment in Pakistan. The absence of a specialized, uniform legal framework for the development of SME hampers SME operations.

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