Regulating SMEs- supporting or strangling?

09 September 2017
Regulating SMEs- supporting or strangling?
Vicky Bowman

In 2015 Myanmar adopted the Small and Medium Enterprises Development Law. It is debatable whether or not a law for SMEs is necessary. More important is for government and Parliament to ensure that all relevant laws and policies recognise the needs of SMEs before they are adopted. However, a Law is now in place, and in addition to the usual creation of Committees and other bodies, it seeks to define what a small or medium-sized enterprise is.
Most official international definitions of SMEs are based on permanent employee numbers. According to the OECD a micro-enterprise has 1-9 employees, a small one 10-49, and a medium-sized one 50-249. This limit of ‘less than 250 employees’ is used by the EU, although some countries set the limit at 200 employees, while the United States considers SMEs to include firms with fewer than 500 employees. Despite national variations, there is a common recognition that number of employees is the simplest indicator of whether a business is an SME. The European Small Business Alliance (ESBA) recently affirmed this as an essential point, in its response to the review which the EU is currently undertaking of its SME definition.
Some SME definitions in other countries also add an additional parameter of turnover or revenue, particularly where being an SME brings eligibility for grants, subsidies or tax incentives. The aim with tax incentives for SMEs is not to help a multimillion dollar jade trading business with only 5 employees. Under EU definitions the turnover of medium-sized enterprises (50-249 employees) should not exceed EUR 50 million; that of small enterprises (10-49 employees) should not exceed EUR 10 million while that of micro firms (less than 10 employees) should not exceed EUR 2 million. One problem with having a turnover definition is that the threshold, unlike employee numbers, needs to be adapted every few years to reflect inflation.
The Myanmar definition in the SMEs Law took these two definitions of employee numbers and revenue, but unfortunately then added two further dimensions: business sector (six categories), and capital investment. The 12 definitions of what is ‘small’ and what is ‘medium’ which were created by this 4D chess can only be depicted in a table.
Labour-intensive or piecework