The Province of Saskatchewan on Nov. 20 announced changes to its potash production tax that it says will ensure a level playing field for both existing potash producers and new companies entering the industry. The changes will be effective Jan. 1, 2010, and establish a tax base for new industry entrants, as well as a tax floor for all potash producers.
“These changes ensure that new entrants to our potash industry do not receive an unfair competitive advantage over our existing producers,” said Energy and Resources Minister Bill Boyd. “As well, the establishment of a tax floor means that over the long term the province will maintain an appropriate share of the revenues from new potash mines and mine expansions.”
In August 2003, the government eliminated profit tax on new potash sales above average sales levels from 2001-2002. Potash producers were able to reduce their effective profit tax rates by expanding their sales beyond their 2001-2002 levels.
Boyd said that without the new change, a new entrant would have essentially had a zero percent profit tax rate because all of its production would have been in excess of its non-existent 2001-2002 production levels.
Effective Jan. 1, a new company entering the industry will be assigned a tax base equal to 75 percent of its sales up to a total of 1 million mt of K20. Once this base level of sales is reached, the company will be able to further expand its sales without increasing its taxable tons, thus providing the company with similar treatment to that afforded to existing producers in 2003.
Also on Jan. 1, all potash producers will be subject to a tax floor equal to 35 percent of their total sales. The floor will ensure that regardless of growth, a base level of sales for all producers is subject to profit tax.
“While there has been a diversity of opinion amongst producers,” said Boyd, “I want to compliment all companies involved for their professionalism and most importantly for their commitment to fairness and the future of the province.”
Agrium Inc. says the new tax system favors its larger competitors, The Mosaic Co. and PotashCorp. Agrium cites its position as a smaller producer with only one mine. It says if the mine is expanded to its maximum, the company will still have a higher percentage of its tons taxed than its larger competitors with multiple mines. The company said unless it develops a new mine – an expensive proposition – it will never get down to the 35 percent tax floor.