According to a report by the SME Foundation, around 57 percent of small and medium-sized enterprises (SMEs) surveyed cited the existing tax structure as the main barrier to legally compliant business activity.

The business license renewal process is the second most significant barrier, identified by 54 percent of entrepreneurs, according to the report.

Other top concerns were the added cost of business licenses, cited by 51 percent of respondents, and the complexity of laws and regulations, highlighted by 44 percent.

Melita Mehjabeen, professor at the Institute of Business Administration (IBA), University of Dhaka, conducted and directed the research.

She presented the results at a seminar today.

The seminar, titled “Informal SMEs in Bangladesh: Formalization Challenges and Way Forward,” was organized by the SME Foundation and the German development agency Friedrich-Ebert-Stiftung (FES), Bangladesh, at Parjatan Bhaban, in the capital.

Sadia Noor Khan, associate professor at the Department of Banking and Insurance, University of Dhaka, was the co-researcher.

The study surveyed 304 entrepreneurs in Dhaka, Chattogram, Sylhet, Khulna and Rajshahi.

Mehjabeen said that more than 74 percent of small and medium entrepreneurs want to do business according to government rules and regulations.

However, it is necessary to simplify the rules. Introducing one-stop services, collateral-free loans and increasing the benefits of doing business within the law are also necessary, she said.

To do business according to the law, seven certificates are required from different government departments in India, Mehjabeen said.

But permission from around 34 departments is required in Bangladesh, she added.

Since most SMEs are informal, they remain outside the tax net.

Mehjabeen therefore suggested the government to prepare a comprehensive strategic document to integrate these organizations into existing structures, formalize them step by step and provide monetary and non-monetary incentives to entrepreneurs.

SMEs accounted for nearly 25% of Bangladesh’s gross domestic product in 2018, according to a report by the Planning Division.

SMEs account for around 90% of businesses and more than 50% of jobs worldwide, according to a 2022 World Bank report.

The contribution of formal sector SMEs can reach 40 percent of GDP in emerging economies, he adds.