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Definition

That part of the economy that operates within the country's laws. It complies with all the laws on income tax, licencing, reporting and other regulations. This is as opposed to the informal sector where business is mostly conducted in cash, limited or no records are kept, business licences and other licences are not obtained and the business is not registered for tax. The formal sector reports regularly if it employs anyone and complies with the pay-as-you-earn (PAYE) regulations. It submits a tax return every six months and complies with the requirements of the Income Tax Act. It is registered with the Companies and Intellectual Property Commission (CIPC) and complies with the requirements of the Companies Act and regulations. Statistics like the level of employment are usually fairly accurate for the formal sector, whereas employment in the informal sector is an estimate which is probably too low.

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