At the end of a tense and nerve-racking discussion in the ministerial committee for legislative amendments headed by Minister of Justice Ayelet Shaked, a draft taxation bill for natural resources for implementing the Sheshinski 2 Committee's recommendations on raising taxes paid by Israel Chemicals (TASE: ICL: NYSE: ICL) was approved. The draft was approved following a compromise achieved between the ministries, in which the bill will be put through in tandem with work by a team composed of representatives of the Prime Minister's Office and the Ministries of Finance, the Economy, and Justice.
It was agreed that the draft bill would be sent for its initial Knesset reading, but the second and third readings would be voted on only after the team formulates agreements on how the tax will be calculated for Israel Chemicals' products based on phosphates and magnesium. It was further agreed that if the team members are unable to agree, the matter will be brought to the cabinet for a detailed discussion. According to the agreements reached at today's meeting, the inter-ministerial team will also discuss issues relating to taxation of downstream products, as well as Israel Chemicals' demand for benefits under the Law for the Encouragement of Capital Investments, including a reduced 5% corporate tax rate.
Israel Chemicals previously benefited from reduced corporate tax, but was excluded from the Law for the Encouragement of Capital Investments in 2010, because it was argued that companies dealing in mining and quarrying of natural resources should not be entitled to benefits under the law. At the same time, the team will not discuss extension of Israel Chemicals' franchise beyond 2030. For some time during today's discussion, it appeared that the heavy pressure exerted on government ministries and the Prime Minister's Office in recent weeks by Israel Chemicals in an attempt to significantly soften the Sheshinski 2 Committee's recommendation had succeeded.
Israel Chemicals employees, many of whom are Likud voters, also took part in this campaign recently. At the beginning of the committee's discussion, Prime Minister's Office director general Eli Groner asked that the question of taxation of natural resources be referred to the cabinet for detailed discussion, and removed from the agenda without a decision on the bill, given concern that it would have a far-reaching effect on employment in the south. Sources involved in the issue predicted that this would mean the introduction of procedures for the implementation of the Sheshinski 2 recommendations that would eventually weaken them.
The official explanation given by Groner to the committee members was that changes inserted during the day preceding the ministerial committee's discussion of the draft bill required thorough discussion and study. These changes, introduced by the Ministry of Finance, related to one of the questions disturbing Israel Chemicals - the method of calculating the tax on downstream products based on phosphates and magnesium.
While government sources tried to portray these changes as "concessions" that the government is granting to Israel Chemicals at the last minute, sources close to the company argued that in the case of the magnesium industry, which employs 400 workers in Sdom, the changes were cosmetic and minor ones that would not substantially alter the picture. On the other hand, where the calculation of the tax that the company will have to pay for phosphate-based downstream products is concerned, it is clear that the state is doing well by the company and enabling it to do a very prosperous and worthwhile business in phosphates. The Sheshinski 2 Committee recommended that the company be required to pay an excess profits tax and royalties that would increase state revenue by NIS 500 million a year.
Israel Chemicals' leaders tensely followed reports today of the drama in the committee's discussions. At first, they drew encouragement from the high probability that the prime minister's effort to keep the Sheshinski 2 recommendations out of the Economic Arrangements bill would succeed. The picture subsequently changed, however, and as of noon, the company refrained from making any response to the results of the discussion. In recent months, Israel Chemicals has made it clear that in exchange for softening the Sheshinski 2 recommendations, it would invest NIS 6 billion in industrial development in the Negev in the coming years. They said that if the Sheshinski recommendations are implemented as written in the framework of the bill for taxation of natural resources, the company would have to move its planned investments overseas, thereby causing a severe employment crisis in the south.
The proposal by the Prime Minister's Office's angered Minister of Finance and Kulanu party leader Moshe Kahlon. He insisted that the committee discuss and vote on the draft bill. Kahlon criticized the Likud ministers who participated in the discussion, accusing them of an attempt to bury the bill, and according to sources, said that they were engaging in a political trick: "I demand that this matter be brought to a vote today, and I don't care if I lose the vote. We'll at least know who is for the bill and who is against it," he said in the discussion.
Minister of the Economy Aryeh Deri also demanded that the discussion take place, and that the committee members vote on the draft bill. Before the meeting, Deri met with senior Ministry of Finance officials, and came to an agreement with them that the draft bill would include elements ensuring the future employment of Israel Chemicals workers in the company's facilities in southern Israel. Deri's agreement with the officials follows an explicit threat by Israel Chemicals officials that because the taxation method proposed in the draft law for phosphate and magnesium-based downstream products would substantially reduce the economic viability of these industries, Israel Chemicals would have to close them down and lay off 2,000 workers.
Deri, who in addition to being Minister of the Economy is also Minister of the Development of the Negev and the Galilee, obtained the agreement of the Ministry of Finance that the economic viability of Israel Chemicals' phosphate and magnesium enterprises would not be harmed. In view of the heated discussion in the ministerial committee, Deri proposed a compromise plan in which the legislative processes for the taxation of natural resources bill would continue, subject to the work of the inter-ministerial team.
In view of the attempt by Netanyahu and the Likud minister to prevent the inclusion of the Sheshinski 2 Committee's recommendations on taxation of natural resources in the Economic Arrangements bill, former Dimona Mayor MK Meir Cohen (Yesh Atid) said, "Netanyahu's connection with the Ofer family should be examined. It is difficult to understand the zigzag he made while completely ignoring the workers' struggle against layoffs, when he kept silent and hid behind legal advisors. Suddenly, when the Ofer family's profits are involved, he has become concerned about the Negev."
Published by Globes [online], Israel business news - www.globes-online.com - on August 19, 2015
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