The government-appointed committee on the tax regime on natural resources has presented its final report and recommendations to the Finance Ministry. The final recommendations were softened from the interim recommendations which called for a windfall tax of 42 percent on a return on equity of above 11 percent. The final report called for a graduated windfall tax with the highest level to apply to a return on equity in excess of 14 percent.
The other major recommendation called for 5 percent royalty payment on all natural resources.
The recommendations will apply primarily to Israel Chemicals Ltd. and go into effect in 2017. The preliminary report was expected to add $140 million to ICL’s annual tax bill while the final recommendations would reduce this amount by about $28 million. However, Israeli government sources said that ICL would actually pay less tax and royalty payments than it currently does if its return on equity is below 14 percent.
Israeli Finance Minister Yair Lapid said that for years the public did not get a proper return from natural resources. He said that from 2006-2012 the shareholders of ICL received $500 million while the Israeli public received only $60 million. He said that this will now change. Lapid said the government did not want to cause damage to the industrial plants or employment and at the same time guarantee that Israel remains attractive to investors. The finance minister said the committee found the proper balance.
Fearing higher taxes, ICL has taken action. In August, ICL management ordered a freeze in plans for all investments in Israel as a result of the preliminary recommendations by the committee. ICL said at the time it would continue cost cutting measures and expand investments outside Israel. The board cited the evaluation would include the profitability of production of magnesium, bromine compounds and certain downstream phosphate products in Israel. Israeli industry sources said that the immediate impact is the cancellation of a planned $750 million investment in potash expansion at Dead Sea Works. The plan called for increasing potash production by 600,000 mt/y or 16 percent. In addition the sources said that an additional $1 billion in investments over the next five years would be re-evaluated. The sources said that ICL is now studying plans to increase potash production at its Spanish subsidiary to as much as 2 million mt/year. They said that ICL is also looking into a further expansion of polyhalite production at its Boulby mine in northeastern England. In April the company announced a $65 million investment program by its Cleveland Potash subsidiary to produce 600,000 mt/year from the current level of 130,000 mt/year. The sources said that under consideration is a possible expansion to as much as 4 million mt/year. The company’s board instructed management to prepare for shutting down its Dead Sea Magnesium plant by Jan. 1, 2017.