Industry boss: Don't approve Sheshinski recommendations for natural resource taxing

Israel Corporation's Israel Chemicals, has been threatening to reduce company operations in Israel if the recommendations are adopted.

By
November 9, 2014 19:11
2 minute read.
Israel's natural gas

Israel's natural gas. (photo credit: MINISTRY OF NATIONAL INFRASTRUCTURES)

A day before the socioeconomic cabinet was expected to approve the Sheshinski 2 Committee recommendations for taxing natural resources, Manufacturer’s Association President Zvi Oren called on Finance Minister Yair Lapid – who heads the cabinet – to delay discussion on the matter.

“The recommendations in the current version will almost certainly bring investments to a halt and reduce manufacturing productivity in the Negev,” Oren said, adding that the recommendations should be reexamined before passage.

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“This is to prevent any damage in the industry and jobs in the region.”

The Sheshinski 2 Committee – headed by economist Eytan Sheshinski, a professor emeritus at the Hebrew University of Jerusalem – submitted its recommendations for natural resource taxation policies to the Finance Ministry on October 20. Ultimately, the committee recommended that companies exploiting the country’s resources be charged a graduated surtax on all “excess profits” of between 25 percent and 42%.

A company with an annual rate of return of 14%-20% would be charged a surtax of 25%, while a firm with a rate of return above 20% would pay a surtax of 42%, the committee advised. The recommendations would ensure, however, that companies would receive a rate of return of at least 14%.

Rather than charging varying royalty rates for exploitation of different types of minerals, the committee members recommended setting a uniform royalty rate of 5%.

If adopted by the government, the committee’s recommendations would go into effect January 1, 2017. The Finance Ministry estimates that enacting the changes would boost the state’s coffers by about NIS 400 million annually, with the expected government take constituting 46%-55% of the revenue.

The company that would be most affected by the changes, Israel Corporation’s Israel Chemicals Ltd. (ICL), has been threatening to reduce company operations in the country if the recommendations are adopted.

After the Sheshinski 2 Committee revealed a set of more stringent, interim recommendations in May, ICL responded by freezing an investment program worth more than $1b. The company said the high taxes would reduce its competitive edge globally, necessitating cutbacks and layoffs.

At the beginning of September, ICL announced plans to close its Dead Sea magnesium factory in 2017.

The factory employs 550 people, about 10% of the company’s total workforce.

The company also discussed plans to downsize its bromine plant in the Negev, which employs an additional 1,200 people.

When the Sheshinski 2 final recommendations were issued in October, ICL said the committee’s recommendations “have not been altered in a substantive manner that would allow ICL to implement the investment plans in Israel that it intended to execute” before the panel’s establishment.

Many politicians, particularly MK Miki Rosenthal (Labor) and Tamar Zandberg (Meretz), have deplored ICL’s actions, accusing the company of manipulative activity.

At an Economic Affairs Committee meeting on the subject last week, an ICL workers committee member meanwhile slammed the company’s management for exploiting workers while “earning millions” for themselves.


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