SME TEST GUIDELINES FOR BUSINESS REGULATIONS

Despite improvements in the business environment, Georgia faces challenges in SME development, with SMEs not performing well and having marginal contributions to gross domestic product (GDP). The Government of Georgia recognizes the importance of SMEs and is committed to improving the business environment to enable SMEs to develop and grow. The SME Development Strategy is based on the "Think Small First" principle, developed in the "Small Business Act" communication from the European Union (EU) Commission COM(2008) 394. This principle aims to enhance SME competitiveness and establish a solid base for inclusive and sustainable economic growth. An important component of the "Think Small First" principle is a rigorous assessment of impacts of forthcoming legislative and administrative initiatives on SMEs, known as the SME test. The SME test is designed to identify affected SMEs, assess the impacts on SMEs, explore and consider a wide range of possible mitigation measures to reduce those impacts, and consult stakeholders, primarily SMEs, to enhance and validate the analysis. The SME test is carried out for any draft regulation that could potentially affect businesses. This report describes the stages of the SME test, provides guidance on how to conduct it, and recommends the format and content of a SME test report. Regulatory Impact Assessment (RIA) has been integrated into the policy and legislative processes in an increasing number of countries. Donor organizations, including USAID, have made significant efforts to raise the Government of Georgia's awareness on RIA benefits and increase the capacity of the Government and civil society organizations (CSOs) for RIA implementation. The Government of Georgia is now taking a systemic approach to RIA and considers methods for its incorporation into the national policy-making framework. G4G implemented RIAs on selected priority policy reforms through its grant activities, particularly, the following RIAs were implemented: RIA on Crop Insurance Reform, RIA on Irrigation Tariff Methodology, RIA on Estonian Corporate Income Tax (CIT) Model Implementation in Georgia, RIA on Water Resources Management Law, RIA on Value Added Tax (VAT) Reform, and RIA on Energy Trading Mechanism (ETM). G4G also developed the Ex-Post Assessment on the Tax Payment Simplification Reform using its in-house resources. The guidelines proposed in this report were drafted according to the following approach/methodology: discussion with Georgian stakeholders about SME test international best practices and expectations for Georgia during a session on the SME test within the "Community of Practice" training program organized with participation of USAID/G4G and other technical assistance projects. The guidelines were also discussed and validated with Georgian stakeholders, including civil servants and representatives of civil society organizations. The SME test guidelines provide a framework for conducting the SME test, including the identification of SMEs, assessment of impacts on SMEs, exploration of mitigation measures, and consultations with stakeholders. The guidelines also recommend the format and content of a SME test report. The SME test is an important tool for ensuring that regulatory initiatives do not disproportionately affect SMEs and for promoting a business-friendly environment in Georgia.