Sheshinski bill on oil and gas taxation approved

Knesset Finance C'tee passes bill on taxation of natural gas, oil resources; intensive lobbying by PM, Steinitz garners enough support.

Leviathan drill 521 (photo credit: Albatross)
Leviathan drill 521
(photo credit: Albatross)
The so-called Sheshinski bill on the taxation of Israel’s natural gas and oil resources passed its second and third plenum readings in the Knesset Finance Committee with a large majority, following a marathon session that lasted late into Wednesday night.
The passing of the vote followed days of intensive lobbying among coalition members by Prime Minister Binyamin Netanyahu and Finance Minister Yuval Steinitz to support the bill, government-sponsored legislation that adopts the majority of recommendations submitted earlier this year regarding taxation of those who benefit from Israel’s natural-gas and oil resources.
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During his Tuesday address to the Knesset plenum, Netanyahu called on opposition and coalition MKs to join together and advance the legislation, in the hopes that it could be brought for its final Knesset readings next week, before the end of the Knesset’s winter session.
In hopes of shoring up support among committee members, Finance Minister Yuval Steinitz announced during the Wednesday meeting that the prime minister would announce he is committed to not changing the fiscal policies of Israel in the coming years.
Steinitz’s announcement came in light of what he said were demands by investors and companies to promise that the “rules of the game” will not be changed after the Sheshinski bill passes its final Knesset readings in a vote expected as early as next week.
During the crowded Finance Committee hearing on Wednesday afternoon, committee chairman Moshe Gafni said the committee supported the principle of the bill. He praised the Finance Ministry for the effort it invested in preparing it before it was brought to the Knesset.
Gafni said the committee’s goal had been finding the balance between the right of investors to enjoy profits from their investments and the public interest to enjoy profits from Israel’s national resources.
“The investors aren’t the enemies of the state – they do their job,” he said. “They invested in the discovery of gas and oil, and we must maintain the delicate balances to ensure that these resources continue to be developed.”
Steinitz said the government had committed to establish, by the end of 2011, a fund from gas and oil proceeds that would be used for “economic and social goals.”
The government has appointed Prof. Eugene Kendel, the head of the National Economic Council, to examine similar systems established throughout the world and to report back to the government in the coming months.
The government was committed to reducing corporate taxes by 2016, Steinitz said, while not changing its fiscal policies in the coming years.
The goal was “normalization of the fiscal regime, similar to Western states that also have significant gas deposits, and to encourage investors, on the other hand, to balance between their right to good profits and the public’s right to enjoy natural resources,” he said.
Steinitz emphasized that taxes on the gas profits would be measured only after investors received a full return – and more – from their investments.
MKs, however, were not convinced by Steinitz’s assurances.
Finance Committee members added a separate clause to the bill that would mandate the establishment of a fund for the state income that would be devoted to social and welfare goals. The MKs argued with government representatives, insisting that the clause include a specific statement that the government’s profits be exclusively directed into the fund for social goals.
The final recommendations of the committee, which was headed by Prof. Eytan Sheshinski, were released on January 3. According to those recommendations, the state’s share of the net profit from the sale of oil and gas would increase from the current onethird to 52 percent to 62%.
The initial levy on the companies will stand at 20% and rise gradually to 50%, depending on the amount of excess profits, while the rate of royalties will remain 12.5%.
Following a request from Netanyahu, a clause was added to the bill so that the levy imposed on the companies by the state will decrease as the company tax rate increases, and vice versa.