Sheshinski C'ttee: Lower royalties, higher taxes

Israel Chemicals will start the new fiscal regime in 2017, if the Sheshinski II recommendations are adopted.

The Sheshinski II Committee recommends levying a 42% surtax on excess profits on natural resources, which will generate NIS 500 million in revenues. It also recommends levying uniform 5% royalties on natural resources.

Israel Chemicals Ltd. (TASE: ICL) will be a beneficiary of the lower royalties rate, which is currently 8%, but it will pay a high surtax on income, which it currently does not pay.

The heart of the Sheshinski II Committee recommendations is the surtax on profits on all current and future quarries in Israel. The measure will boost the government's take from these companies to 46-57%. The committee recommends that the surtax will be based on companies' profit and loss statements and guarantee an 11% return on assets of a company. The 42% tax rate will be on an annual basis, and will be another tool in the tax mix, which includes royalties and the companies tax.

The recommendation for Israel Chemicals will only come into effect in 2017, not when the legislative process is completed. The reports says that the interim will give Israel Chemicals unit Dead Sea Works time to adjust to the proposed fiscal regime, make a substantial part of the investments needed for salt harvesting ahead of the new tax arrangement under which the company will pay a surtax on excess profits. The 30-month postponement will give Israel Chemicals a NIS 1 billion tax break.

Until the law comes into effect, Dead Sea Works will pay 10% royalties on potash and chlorine production above 1.5 million tons a year.

The Sheshinski II Committee recommendations are as follows:

  • A 42% tax on natural resources, generating NIS 500 million in annual tax revenues.
  • A uniform 5% royalties rate on all quarries.
  • The natural resources tax will be collected on an annual basis.
  • The basis of the tax will be a company's operating profit, in accordance with its profit and loss statement, and will guarantee a company an 11% return on its assets.
  • In years when a company does not reach the surtax threshold, the "loss" for surtax purposes will be carried over as a defensive tax in the next fiscal year.
  • A single agency will be established to collect royalties.
  • Royalties on quarrying materials will be reviewed following the recommendations of the Belinkov Committee.
  • No changes will be made on mineral water taxes.

Published by Globes [online], Israel business news - - on May 18, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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