World Bank pats Israel on the back, but...
The World Bank has just published its “Doing Business 2020” report on the ease of doing business around the world. The report measures red tape across 190 countries in 12 business regulatory areas to assess the business environment in each country in the 12 months ending April 30, 2019.
Economies that score well on report’s indicators may benefit from a higher level of entrepreneurial activity. In addition, in countries where burdensome and protracted regulatory processes exist, the temptation to resort to corruption to get things done may be greater.
The top 20 economies have online business incorporation processes, electronic tax-filing platforms, and allow online procedures related to property transfers. Moreover, 11 economies have electronic procedures for construction permitting.
Who’s in the top 10?
The World Bank’s business top ten are: 1) New Zealand, 2) Singapore, 3) Hong Kong, 4) Denmark, 5) South Korea, 6) the USA, 7) Georgia, 8) the UK, 9) Norway and 10) Sweden.
Australia is ranked 14, Canada 23, China 31, Switzerland 36, India 63, and last, in 190th place is Somalia.
What about Israel?
Israel is ranked 35th overall out of 190 countries, an improvement from 51st a year ago. Israeli is ranked 28th for starting a business, 35th for getting construction permits, 83rd for getting electricity, 75th for registering property, 48th for getting credit, 18th for protecting minority investors, 13th for paying taxes, 67th for trading across borders, 85th for enforcing contracts, and 29th for resolving insolvency.
Getting electricity is estimated to take 105 days, of which 11 are spent preparing the applications, and 94 are spent waiting for the Israel Electric Corporation.
The percentage of cases exposed to a VAT audit is estimated to be in the 50%-74% range, whereas only 0%-24% of cases are exposed to an income tax audit.
The World Bank cites improvements over the last year. Israel made starting a business easier by allowing joint registration of corporate tax and value added tax. It apparently takes 11 days to start a business here according to the World Bank.
Israel improved access to credit information by reporting both positive and negative data on individual borrowers.
Israel made paying taxes easier by introducing an electronic system for filing and paying value added tax and social security contributions. Israel made paying taxes less costly by reducing the corporate income tax rate from 24% to 23%. Israel made exporting easier by eliminating the certificate of origin requirement, thereby decreasing the time and cost of export documentary compliance.
Comments
The Israeli Tax Authority was quick to publish an announcement on October 24, congratulating itself on Israel’s improved rating. Online tax payments have indeed been made easier, but that is only one element. The online reporting tax systems are not user-friendly. This is partly because the system is an uneasy mixture of DOS (green on a black background) and Windows, resulting in a myriad of functions, commands and logic checks. Annual tax returns are filed both electronically and on paper.
Most important, the Israeli banks are zealously applying anti-money-laundering rules and impeding cash flows to and from Israel needed for business, investment, private consumption and even paying taxes. In short, Israel has a new de facto exchange control after the old exchange control was repealed in 1998.
Tax evasion is a predicate money-laundering offense, so the banks must watch out not only for terrorism- and drug-related money but also untaxed money that that should have been taxed anywhere in the world. The Bank of Israel supervises all this. It is a Herculean task for all concerned and it is undoubtedly holding back business in and with Israel.
As always, consult experienced tax advisers in each country at an early stage in specific cases. The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd. leon@h2cat.com.