24 Questions
What is a formal business registered with in South Africa?
Companies and Intellectual Properties Commission
What is the minimum annual turnover required for a business to be registered as a VAT vendor?
R1 000 000
What is an example of an informal business?
A street vendor
What is calculated to determine the cost of a product in an informal business?
The cost of ingredients and electricity used
What is added to the cost of a product to make a profit?
A percentage (mark-up)
What is the term used to describe the informal business sector in South Africa?
The second economy
What is a common characteristic of informal businesses?
They are not recognized as a legitimate source of income by governments
What type of vendor buys goods from a wholesaler and sells them at a higher price on the street?
Street vendor
What happens to goods left over at the end of the day for a street vendor?
They are taken home and sold the next day
What type of business is run from someone's home and sells a variety of everyday items?
Spaza shop
Why do economists not include informal businesses in the Gross Domestic Product (GDP) of a country?
Because they are not recognized as a legitimate source of income
What is another term used to describe the informal economy?
Underground economy
Why do people working in the informal sector appear as unemployed?
They do not declare their income.
What would happen to the Gross Domestic Product (GDP) of countries like South Africa if the informal sector was formalized?
It would increase significantly.
What is essential for an informal business to succeed?
Keeping records of income and expenses.
Why might an informal business owner not pay rent?
They are a street vendor.
What is true about the way informal business owners keep records?
They keep records in a unique way that works for them.
Why is it important for informal businesses to understand ethical and internal control measures?
To maintain trust and prevent fraud.
What is one of the main concerns about informal businesses?
They do not pay tax on their earnings
What is a potential consequence for employees of informal businesses?
They will not be able to get financial assistance if they lose their job
What is a challenge informal traders face daily?
Securing their stock and cash
Why do informal businesses not contribute to the government's revenue?
They operate outside of the formal economy
What is a potential risk associated with informal businesses?
They may be involved in illegal activities
What is a potential consequence of informal businesses not paying taxes?
The government's revenue will be reduced
Study Notes
Informal Businesses and their Impact on the Economy
- Informal businesses do not pay taxes on their earnings, resulting in a loss of revenue for the government, which could be used to build infrastructure and develop the country.
- Employees of informal businesses do not pay taxes on their wages or salaries, reducing tax revenue for the government.
- These employees are also not registered with the Unemployment Insurance Fund, making them ineligible for financial assistance if they lose their jobs.
Challenges Faced by Informal Traders
- Informal traders face violence and crime on a daily basis, and must take measures to secure their stock and cash.
- They must also be careful about the cash they collect daily to ensure they can provide for their families and have enough to buy new stock.
The Informal Sector and Unemployment Figures
- The informal sector distorts unemployment figures, as people working in the informal sector are not declaring their income and are therefore classified as unemployed.
The Potential Contribution of the Informal Sector to GDP
- If formalized, the informal sector could make a significant contribution to a country's Gross Domestic Product (GDP).
Characteristics of Informal Businesses
- Informal businesses require assets and start-up capital to buy these assets and materials.
- They keep track of income and expenses in their own unique way, often using a book to record daily income and expenses.
- Expenses are subtracted from income to determine daily profit.
- Informal businesses do not pay taxes on their profits.
Ethical and Internal Control Measures
- It is essential to understand ethical and internal control measures around informal businesses.
Formal vs. Informal Businesses
- A formal business is registered with the Companies and Intellectual Properties Commission (CIPC) and the South African Revenue Service (SARS) for Income Tax, PAYE, UIF, SDL, and VAT.
- An informal business is not registered and does not pay taxes on its profits.
Learn about the differences between formal and informal businesses, including ethical and internal control measures that affect informal traders. Building on your previous EMS knowledge in Grade 8-9.
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