The Knesset Finance Committee yesterday approved the Law for the Encouragement of Capital Investment proposed by the Ministry of Finance. The vote was 9:0, with three abstentions. The amendment will strip Israel Chemicals Ltd. (TASE: ICL) of tax breaks it had previously enjoyed under the Law for the Benefit of Small Enterprises in the Periphery. As a result, Israel Chemicals will pay the same 18% companies tax rate as all other companies in the country.
Throughout the day yesterday, the Ministry of Finance threatened to withdraw the amendment if the MKs and the government capitulate to Israel Chemicals' demands. A few minutes before the Finance Committee's final vote, the ministry and committee members collaborated to pull a trick: the committee approved reservations by Likud MKs Miri Regev and Zion Pinyan to allow Israel Chemicals to keep its 12% tax rate. Ten committee members voted in favor of the deal, and five voted against it. However, the measure failed in a repeat vote.
Minister of Finance Yuval Steinitz said, "Israel Chemicals is a fine company, with professional management, but we have to be able to pass laws on a factual basis. There is no law that always benefits everyone equally."
Barclays Capital today reiterated its "Overweight" recommendation for Israel Chemicals with a target price of NIS 65, saying that the company is still its top pick in Israel. Given the high level of attention the tax issue has received, Barclays does not think the news will surprise investors. "Given the recent strength of the stock, it closed at a 52-week high yesterday, we would not be surprised to see some profit taking today based on the finance committee's decision."
Barclays noted that the company's tax benefits, which it received from other approved entity status in the past do not change. Those will expire in 2014-2020.
Israel Chemicals' share price fell 0.7% by mid-afternoon today to NIS 61.65.
Published by Globes [online], Israel business news - www.globes-online.com - on December 22, 2010
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