Socioeconomic cabinet approves Sheshinski 2 Committee recommendations

"This is an important day for the Israeli public, in which the first step in the process to recover control over proceeds from our natural resources has been implemented," Lapid said.

November 10, 2014 17:07
2 minute read.
Israel's natural gas

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

Socioeconomic cabinet members unanimously approved on Monday the recommendations of the Sheshinski 2 Committee to charge a graduated surtax of up to 42 percent for natural resource exploitation.

The Sheshinski 2 Committee – headed by economist Eytan Sheshinski, a professor emeritus at the Hebrew University of Jerusalem – filed its recommendations for natural resource taxation policies to the Finance Ministry on October 20.

Assuming the recommendations now go on to receive full Knesset approval, they would mandate that companies mining the country’s resources be charged a graduated surtax on all “excess profits” of between 25% to 42%.

“This is an important day for the Israeli public, in which the first step in the process to recover control over proceeds from our natural resources has been implemented,” said Finance Minister Yair Lapid, who heads the socioeconomic cabinet.

If authorized by the Knesset, 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.

Under the terms of the proposed tax scheme, 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 recommendations would ensure, however, that companies would receive a rate of return of at least 14%.

Rather than charging different royalty rates depending on types of minerals exploited, the committee members recommended setting a uniform royalty rate of 5%.

The company that would be most affected by the changes, Israel Corporation’s Israel Chemicals, has been threatening to reduce its operations in the country if the recommendations are adopted. Most controversial has been the company’s September announcement about plans to close its Dead Sea magnesium factory, which employs 550 people – about 10% of the firm’s total workforce.

On Sunday, a day prior to the socioeconomic cabinet decision, Manufacturers Association President Zvi Oren called upon Lapid to delay the discussion – arguing that the recommendations as they stand would “almost certainly bring investments to a half and reduce manufacturing productivity in the Negev.”

A reexamination of the recommendations, Oren said on Sunday, could “prevent any damage in the industry and [to] jobs in the region.”

Niv Elis contributed to this report.

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