Haim Shani
Haim Shani Photo by Tomer Appelbaum
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Thousands of private preschool operators in Israel can take comfort in knowing they aren't alone in flouting the law. Anywhere from 30% to 60% of Israeli businesses operate without licenses, according to estimates by Finance Ministry Director General Haim Shani. In other words, between one and two-thirds of Israel's business owners are criminals.

The preschool operators are criminals because they avoid the tortuous process of obtaining a license. It starts with a zoning exception, which can take a year or two and tens to hundreds of thousands of shekels. Nor does snagging a zoning exception guarantee a license. On top of that, neighbors could sue for degraded property values, or the city could demand the payment of betterment tax. The preschool cannot operate during the licensing process, too, which means a property that is not generating any income for at least two years but still has to be financed.

Given these circumstances it's no wonder so few private preschools in Israel are licensed - or supervised, since only licensed facilities come under official supervision. And as it turns out, they are the rule rather than the exception. Other types of business face equally Kafkaesque experiences. Despairing of the hoops they need to jump through to become legal, many business owners don't. They pay income tax but do not report, as required, to the local authority.

Israel must be a world leader in criminalizing businessmen, and there's proof. The World Bank's Ease of Doing Business index rates 180 countries on nine topics and comes up with a final score. Israel came 29th in 2011. That sounds reasonable. But what isn't reasonable is the wild disparity between its ranking on the various topics.

In "Getting Credit," "Protecting Investors" and "Trading across Borders," Israel was in the top 10. But in "Paying Taxes" and "Enforcing Contracts" it ranked 83rd and 99th, respectively. Another problem area is real estate. Israel came in at 120 out of 180 countries in "Dealing with construction permits," and it was 147th in "Registering property."

The index doesn't have a category for business licensing. If it did Israel would probably be among the worst countries in the world.

Statistically, Israel is terrible at registering property and enforcing contracts.

Statistically, Israel is also terrible at the bureaucratic processes requiring permits from more than one government agency. Registering a preschool, for example, requires permits from the local authority, the Health Ministry, the fire department, safety consultants and more.

When multiple bodies are involved none see the big picture and take responsibility for completing the process, Shani said.

To register a business, Shani found, a person must fill out the same form for three different agencies (National Insurance Institute, Tax Authority, Registrar of Companies ). The basic document dates from the British Mandate. Any change requires the imprimatur of all the above, which is hardly likely. Moreover, when these bodies do communicate it's by snail mail, not email.

Shani appointed a committee consisting of top people from the NII, the Justice Ministry, the Industry and Labor Ministry and others to think how to expedite business registration. Their solution: a joint government portal through which people can open a business by filling out one computerized form, one time. The joint portal has already shortened the time it takes to open a new business in Israel from 34 to 20 days, which is still well over the global average of 14 days, but it's an improvement.

The team is preparing legislation that will shorten the process of registering property from 144 days to 70. Again, the world average is 34 days, but it's an improvement.

Yet there is still no systemic solution. Until there is, Israel's business community will remain a gang of criminals.