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Applying the SME Test

The current policy stipulated by Government states that when submitting draft subsidiary legislation to the Office of the Prime Minister, Ministries also have to submit a Legal Notice Checklist. The Checklist has been developed to promote a culture whereby the financial and administrative impacts of the proposed regulatory measures on the private sector and the Administration are assessed when proposing subsidiary legislation.

The Checklist covers general aspects, namely the drafting exercise (whether stakeholders were consulted and whether a Regulatory Impact Assessment (RIA) was carried out), impact (whether there are new or increased burdens and procedural or administrative impacts), feedback (whether there was feedback from the private sector) and outcomes.

This checklist process, although useful as a tool to highlight the foreseen impact of the proposal is very limited in scope and outcome. Moreover it is restricted to secondary legislation. In order to improve the effectiveness of this process in the interest of Maltese enterprises and improve the regulation of SMEs, it is proposed to include the SME Test in the impact assessment process.

The application of the SME Test requires amendments to the current Legal Notice Checklist process. The checklist should primarily apply to both main and subsidiary legislation. In addition, if the proposed legislation is identified in the checklist as having a potential impact on micro and small business, the proposal will need to include also the result of a SME Test.

This test should ideally be performed by the entity/Ministry proposing the legislation in collaboration with a centralised unit in the national administration, and should include the outcome of consultations with representatives of small businesses (this consultation process could become one of the functions of the Enterprise Consultative Council as proposed futher below). The proposal to have this process coordinated by a central entity is believed to be necessary because it is felt that developing the necessary expertise (in the implementation of the SME Test) in all Ministries, will lead to duplication and waste of resources, and will result in an uneven application of the Test, even perhaps due to the introduction of some bias through the influence of those proposing the legislation in the application of the Test. Moreover it will be easier for one entity to source personnel with the required aptitudes and background and to develop expertise in the application of the Test.

The SME Test process establishes whether small businesses will be affected directly e.g. through the introduction of a fee which would impact heavily on small businesses, or indirectly whereby a small business will be unable to adapt processes or buy new equipment within a proposed timeframe. Following the outcome of the assessment, the relevant Ministry, together with this central entity will come up with alternatives to the regulation being proposed with a view to limit the impact on SMEs. The process could come up with other options concerning the strategy of regulation such as self-regulation and co-regulation as well as alternatives concerning the selection of regulation methods such as implementation alternatives, derogations, transition periods, simplified reporting or exemptions.

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