An Israeli government-appointed panel has recommended a “windfall tax” on natural resources, including potash and other raw materials, from the Dead Sea. The panel, headed by economist Professor Eitan Sheshinski, issued its interim report May 18. The 42 percent surtax on excess profits would be levied on net profits above an 11 percent return on investment. Israel Chemicals Ltd. (ICL) would be the hardest hit by the recommendations.
The panel also called for a uniform 5 percent royalty level, which would replace current 2-10 percent royalties on natural resources. The panel was appointed last year by Finance Minister Yair Lapid to reassess the tax regime on natural resources excluding oil and gas. The proposals would cost ICL an estimated $120 million in additional taxes annually.
The interim report recommended that the new tax regime come into effect in 2017, and not when the legislative process is concluded by the Knesset. The report said this could give ICL time to adjust to the proposed changes. A final report is due out in a few months, and will be followed by government approval and then passage of a law by the Knesset.
The 30-month postponement will give ICL a $280 million tax break. Until the new law goes into effect, Dead Sea Works will continue to pay 5 percent royalties on potash production up to 1.5 million mt, and 10 percent on production above that level. Royalties on phosphates are currently 2 percent, and under the panel’s recommendations would be raised to 5 percent.
In response to the recommendations, ICL said it was freezing all planned investments in Israel totaling over $1 billion until the issue of increasing taxes on the company is resolved. ICL also said that if the interim recommendations are implemented, the impact would be disastrous and lead the company to reduce its operations in Israel and lay off workers.
Excellence Nessuah Analyst Gilad Alper said the recommendations will have a very negative impact on the company and its willingness to invest in Israel. “They will develop assets outside of Israel and look for opportunities to expand elsewhere,” he predicted. Alper said that ICL had to be in a situation of having real alternatives to the Dead Sea by 2030, when ICL’s concession at the Dead Sea runs out. He also said that he did not expect the lobbying campaign being mounted by ICL management would have much of an impact on the final committee recommendations.
The Israel Union for Environmental Defense (IUED), the country’s leading environmental lobby, called the recommendations very conservative and said they fail to fully take into account the public’s full share in the profits of the company and still allow “the ongoing damage to the Dead Sea.” The IUED added that the committee set a far too low level for royalties and did not take into account the environmental and health costs of ICL’s operations.