The Sheshinski 2's main recommendation is that Israel Chemicals Ltd. (TASE: ICL) will pay a higher corporate tax but much lower royalties. The draft conclusions and recommendations of the committee on the government's take from the commercial use of Israel's natural resources, chaired by Prof. Eytan Sheshinski, will be submitted to Minister of Finance Yair Lapid later this week, before being released to the public for comments.
The committee is expected to recommend reverting to the 5% royalties rate that Israel Chemicals paid on potash mining at the Dead Sea as stipulated in the company's license, six years after the rate was raised to 10% on quarrying above 1.5 million tons a year. At the same time, the committee is expected to recommend levying a new surtax on a profit margin above 15% - the usual rate paid by mining companies around the world.
According to the calculation based on Israel Chemicals' profits in the past few years, after the royalties rate was raised, the company will pay the government an additional NIS 200 million a year in the coming years. This is much less than expected, but sources on the committee say that there is a reasonable chance that the royalties will be higher later. Israel Chemicals and its parent company, Israel Corporation (TASE: ILCO), had feared a much higher payment.
The government is making concessions to Israel Chemicals on the royalties. The pending recommendation is that the company will pay no royalties, not even 5%, on sales of downstream products: an issue that the Ministry of Finance and Israel Corp. have been discussing for over ten years, and which has been in arbitration for over two years. Just two months ago, the Supreme Court ruled in favor of the Israel Union for Environmental Defense and the Movement for Quality Government in Israel to publish the minutes and the parties position in the arbitration, and rejected Israel Corp.'s position. "The figures indicate that this is a matter of great public importance," ruled the panel of judges chaired by President of the Supreme Court Asher Grunis. "This is not a private dispute. This is a dispute with clear public features."
The Sheshinski 2 Committee also recommends not levying royalties on water and mineral companies that use state-owned springs, nor include in the profit margins and surtax calculations for tax purposes, despite the biting criticism on this point by the State Comptroller. The committee concluded that these companies' profit margins are not excessive.
As for the exploitation of mines and sand and gravel quarries for the construction and infrastructures industries, the Sheshinski 2 Committee decided not to increase the government's take, mainly to avoid further boosting prices in these industries, which are largely financed, directly or indirectly, by the government. However, the committee advises the government, in view of the quarrying industry's large profits, to take steps to open them to competition, as they are among the most highly concentrated in the country. Three companies dominate the quarrying industry - Shapir Civil and Marine Engineering Ltd., Hanson Israel Ltd. (Heidelberg Cement Group), and Readymix Industries (Israel) Ltd. - producing 80% of the country's gravel.
Several months ago, Minister of Housing and Construction Uri Ariel appointed a committee chaired by Ram Belinkov to review the quarry market and the extreme concentration in it. The Sheshinski 2 Committee is waiting for the Belinkov Committee's report, and it may propose a different position regarding the proper level of royalties.
Published by Globes [online], Israel business news - www.globes-online.com - on May 11, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2014