Netanyahu endorses tax hike on gas, oil profits

By SHARON WROBEL
January 19, 2011 00:53

Sheshinski c'tee "found proper balance between needs of Israel's citizens and its investors," says PM about natural gas.

3 minute read.



PM Netanyahu at the weekly cabinet meeting

Netanyahu leaning 311. (photo credit: Emile Salman)

Prime Minister Binyamin Netanyahu on Tuesday gave his full support to the recommendation by the Sheshinski Committee to raise taxes on gas and oil profits.

“We need to take care of two main needs. One is that of the entrepreneurs, who invested a lot of their money, and they deserve to see a return on that. The second is that of Israeli citizens, who are the owners of the natural resource,” Netanyahu said at a conference in the capital.

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“I believe that the committee has found the right balance between the needs of Israel’s citizens and investors, and therefore I decided to fully adopt its conclusions.”

He reiterated that he would establish a special fund for the gas and oil tax revenues that would be used mainly for security and education.

“We have found gas – and a lot of gas – although maybe not as much as has been talked about,” the prime minister said.

“This gas should be used to promote our natural resource, which is the talent and capabilities of our young generation and future generations. Therefore, I have decided to establish a fund from gas revenues for Israel’s future. The fund will invest in elementary schools and high schools, and some of the money will go toward defense.”

Over the past week, Netanyahu has held meetings with government officials and representatives of gas exploration companies in order to come to a decision over how the nation’s natural resources should be taxed.

Following Netanyahu’s recommendation, the cabinet is expected to approve the Sheshinski Committee’s proposals at the end of the month. They would then need to be passed into law by the Knesset. The Finance Ministry expects the final vote to be held in mid- April.

“There is no doubt that this resource and also gas projects are strategic targets that Israel’s enemies will attempt to harm,” the prime minister said. “The defense establishment will be responsible for protecting [them].”

At the beginning of the month, the Sheshinski Committee recommended raising the state’s take on gas profits to between 52 percent and 62%, up from the current 30%.

This would take the form of a progressive tax on part of the gas and oil companies’ profits, after they recoup 150% of their investment in a gas-field project.

The tax rate would range from 20% to 50%, depending on the volume of the profits. In addition, the 12.5% royalty tax currently in effect will remain.

Bank of Israel Governor Stanley Fischer last week expressed his full support of the proposed fiscal regime on gas and oil profits and called upon the public not to be influenced by the “dirty tactics” of interested parties.

Fischer said that the current situation, in which the state gets a third of gas and oil profits, the lowest share among developed countries, is not reasonable and not acceptable.

The governor praised the Sheshinski Committee for finding the right balance between the need to give entrepreneurs incentives for exploration while generating reasonable profits and securing a fair share for the public of revenues generated from natural resources.

Gas exploration companies, including the Delek Group, have in recent months waged a battle against the recommendations, putting intensive pressure on decision-makers and threatening that they will stop the development of projects.

In recent weeks, Finance Minister Yuval Steinitz, who estimated the value of the recently discovered natural resources at NIS 700 billion, said that the government would not bend to the demands by gas exploration companies to make concessions on the Sheshinski Committee’s recommendations and to exclude the Tamar gas project from the proposed new fiscal regime.

The Tamar gas site, discovered off Haifa in 2009 by Noble Energy and its Israeli partners – Delek Drilling, Isramco and Avner Oil Exploration – is estimated to hold 8.5 trillion cubic feet of natural gas and be capable of meeting the country’s energy needs for the next two decades. The field is slated to begin commercial gas sales in 2013.

National Infrastructures Minister Uzi Landau has been arguing that levying the new gas tax regime on the Tamar site retroactively would impair development of natural-gas reserves and delay the delivery of gas to Israel.


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