Government and business: regulation and support: WASSCE Commerce

Before a business opens its doors, the government is already involved: it registers the business, issues a tax number and a trade licence, and sets rules on safety and wages. It also helps businesses: it builds roads and ports, gives tax incentives to investors and promotes exports. This lesson explains why and how government regulates and supports business, and how its policies affect traders.

Learning objectives

By the end of this lesson you should be able to:

explain why government intervenes in business
describe how government regulates business: registration, licensing, laws and taxation
describe how government supports and promotes business
explain the effects of government policies on business
calculate the effect of a sales tax on prices

Why government intervenes in business

Protect consumers from exploitation and unsafe goods.
Protect workers: wages, safety and working conditions.
Raise revenue through taxes to pay for public services.
Prevent monopolies and encourage fair competition.
Promote economic growth and create jobs.
Protect local industries from unfair foreign competition.
Protect the environment from pollution and over-exploitation.
Provide essential services that private firms may not provide profitably.
Control inflation and stabilise the economy.
Ensure national security and fair distribution of income and opportunities.

How government regulates business

Registration and licensing

Registration: businesses must register. Companies register with the Corporate Affairs Commission, and sole traders and partnerships register a business name.
Tax registration: businesses obtain a Taxpayer Identification Number (TIN) from the National Revenue Authority (NRA).
Licences: trade licences from local councils, and special licences for pharmacies, mining, banking, insurance, transport and the sale of alcohol.
Permits: import and export licences, and environmental permits.

Laws and regulations

Area	Examples of rules
Company law	Formation, accounts, audits and the duties of directors
Labour law	Minimum wage, working hours, safety, social security (NASSIT) contributions
Consumer protection	Weights and measures, food and drugs, standards
Environmental law	Pollution, waste disposal, mining rehabilitation
Competition law	Monopolies and price-fixing
Health and safety	Fire safety and hygiene in food businesses
Zoning and planning	Where businesses may operate

Taxation

Tax	On
Income tax / corporation tax	Profits of businesses and incomes of individuals
Goods and Services Tax (GST)	The value of most goods and services sold (15% in Sierra Leone)
Customs (import and export) duties	Goods entering or leaving the country
Excise duty	Locally made goods such as drinks and tobacco
Payroll and property taxes, licence fees	Employees, buildings and trading licences

Worked example

How GST affects the price. A shop sells a pair of shoes for NLe 200 before tax. GST is 15%.

GST $= 15\% \times 200 =$ NLe 30
Price to the consumer $= 200 + 30 =$ NLe 230

If GST were raised to 20%, the price would become $200 + 40 =$ NLe 240. Higher sales taxes raise prices and may reduce sales. The shop collects the GST and pays it to the NRA, acting as an unpaid tax collector.

Economic policy tools

Monetary policy (by the Bank of Sierra Leone): interest rates and credit. Higher rates make loans dearer and slow business borrowing.
Fiscal policy: government spending and taxation. Spending on roads raises business activity; higher taxes reduce it.
Price control: maximum prices for essential goods.
Trade policy: tariffs, quotas and import bans, as well as trade agreements.

How government supports and promotes business

Infrastructure: roads, ports, airports, electricity, water and telecommunications.
Finance: credit schemes, development banks, loan guarantees and grants for small businesses.
Tax incentives: tax holidays, duty-free import of machinery, investment allowances.
Investment and export promotion: the Sierra Leone Investment and Export Promotion Agency (SLIEPA) helps investors and finds markets for exporters.
Protection of infant industries with tariffs and quotas.
Training and education: technical and vocational institutions.
Research and information on markets and technology.
Trade fairs and trade missions abroad.
Government purchases: buying from local firms (local content).
Trade agreements: ECOWAS and the African Continental Free Trade Area (AfCFTA) open wider markets.
Peace, security and the rule of law: the basic conditions for business.

Effects of government policies on business

Policy	Possible effect on business
Higher company tax	Lower profits; less investment
Lower interest rates	Cheaper loans; more investment and spending
Tariffs on imports	Protects local producers; dearer imported inputs
Subsidies	Lower costs; lower prices; more output
Price control	Lower prices for consumers, but may cause shortages and black markets
Better roads and power	Lower costs; wider markets
Strict regulation	Safer products, but more costs and paperwork
Political instability	Loss of confidence; investors leave

In Sierra Leone

A small manufacturer in Freetown deals with government at every step:

registration with the Corporate Affairs Commission
a TIN from the NRA
a licence from Freetown City Council
product approval from the Standards Bureau
GST collected on sales
NASSIT contributions for workers

The same government may also give it duty-free import of machinery under investment incentives, and help it reach export markets through SLIEPA.

Common mistake

Government involvement is not only control. Questions often ask for both regulation (laws, licences, taxes) and support (infrastructure, finance, incentives, promotion). Answer both sides when the question says "role of government".

Key points

Government intervenes to protect consumers and workers, raise revenue, prevent monopoly, promote growth and protect the environment.
It regulates through registration, licensing, laws, taxation and monetary, fiscal, price and trade policy.
It supports business with infrastructure, finance, tax incentives, promotion (SLIEPA), protection, training and trade agreements.
Each policy has effects on costs, prices, profits and investment.

WASSCE examination focus

WAEC tests this

Expect to explain the reasons for government intervention in business, to state ways government regulates and assists business, and to explain how a given policy (tax, interest rate, tariff, subsidy, price control) affects business. Link each policy to a clear effect.

Quick check

Give three reasons why government intervenes in business.
State three ways the government assists business.
A radio costs NLe 400 before GST at 15%. What does the consumer pay?
How would a rise in interest rates affect businesses?

Answers: 1. Any three: protect consumers, protect workers, raise revenue, prevent monopolies, promote growth and jobs, protect local industry, protect the environment, provide essential services, control inflation. 2. Any three: infrastructure, finance and credit, tax incentives, investment and export promotion, protection, training, research and information, trade fairs, government purchases, trade agreements. 3. $400 + 15\% \times 400 = 400 + 60 =$ NLe 460. 4. Loans become dearer, so businesses borrow and invest less, and consumer spending may fall.

Government and business: regulation and support