Israel’s Knesset Finance Committee has approved the recommendations of a government-appointed committee on raising taxes on natural resources. The recommendations will primarily impact Israel Chemicals Ltd. ICL had mounted a campaign against the recommendations and has threated to halt investments in Israel. Israeli Prime Minister Benjamin Netanyahu had hoped to modify the recommendations and reduce their impact on ICL. However, Finance Minister Moshe Kahlon was opposed and the committee backed him.
The committee voted unanimously in favor of the recommendations of the committee headed by Professor Eitan Sheshinski. The law will impose a 25 percent windfall profits tax over and above a 14 percent return on investments. The rate will rise to as much as 42 percent on returns of 20 percent or higher. The law also sets a 5 percent uniform royalty payment on all natural resources. ICL has said the new law will cost the company $110 million starting in 2017. However, that figure is based on much higher potash prices. Industry experts say that the tax is likely to be substantially lower at current potash price levels. The committee approved a proposal that all funds from the surtax and royalties go to finance the creation of new jobs in Israel’s southern Negev region.
ICL Board Chairman Nir Gilad called it a bad day for the Negev. ICL has also warned that it will take legal action against the law and take the matter to Israel’s Supreme Court.
Meanwhile, Israel’s Finance Ministry is continuing to bicker with ICL over payment of past royalties on potash and downstream fertilizer production. The Finance Ministry said ICL owes an additional $60 to $120 million in back taxes specifically the linkage on royalties due on profits the company has earned dating back to 2000. The ongoing dispute follows the ruling by an arbitration panel that last year ruled ICL owed royalties not just on profits, but also on mining and extraction operations and on downstream production. ICL estimated its back royalties at $152 million and paid the sum along with an additional $7.5 million owed for the past two years.