Knesset approves Sheshinski bill on oil and gas taxation

Steinitz: Bill was test for Israeli democracy, proves money doesn't necessarily buy political power; Levy on profits will rise to 50%.

By REBECCA ANNA STOIL
March 30, 2011 19:57
3 minute read.
Eytan Sheshinski

Eytan Sheshinski 311. (photo credit: Marc Israel Sellem/The Jerusalem Post)

By a sweeping majority of 78-2, the Knesset approved the Sheshinski Law on Wednesday, increasing state benefits from natural-gas and oil resources.

Finance Minister Yuval Steinitz declared victory following the vote, describing the legislation of the controversial bill as a test for Israeli democracy and its results as proof that money does not necessarily buy political power.

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“This is a correct and just law, in economic, social and moral terms,” he said. “The situation thus far was extremely immoral. Israeli citizens were the only people in the world who did not benefit from their country’s natural resources.”

“This struggle became one for Israeli democracy: sometimes the debate was legitimate and sometimes it crossed red lines,” Steinitz said. “But the moral and economic correctness of this law won. This law is a badge of honor for the Knesset, for the coalition and the opposition, that we withstood the pressures and made a correct decision in such a practical manner.”

“I have been an MK for 12 years and the finance minister for two years, and I am excited by this moment,” he said at the podium after the law was passed. “This was a formative, crucial moment, where the Knesset united its support for this bill – coalition and opposition, religious and secular, Left and Right. It is not every day that the house is unified like this.”

Steinitz emphasized the difficulties faced by Prof. Eytan Sheshinski and those who supported his position in favor of increasing taxation on gas and oil profits.

“When I decided a little over a year ago to establish a professional committee to examine royalties on gas and oil, I knew it would be hard and long, but I didn’t know what to expect,” he said.

The final recommendations of the Sheshinski Committee 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 one-third to between 52 percent and 62%.

The initial levy on the companies will stand at 20%, and rise gradually to 50%, dependent on the amount of excess profits, while the rate of royalties will remain at its current level of 12.5%.

The decrease in profit margins sparked harsh criticism by both energy companies and private investors, who complained that they deserve to profit from the risks they take in investing in searches for gas and oil resources.

Steinitz formed the Sheshinski Committee to reexamine royalties and taxation for companies benefitting from Israel’s national resources after major naturalgas deposits were discovered off of Israel’s coast.

“When I asked Prof.

Sheshinski to lead it, I knew that it was a not simple job, but I didn’t know what I was dragging you into,” Steinitz said, referring to Sheshinski, who was sitting in the visitors’ gallery as his recommendations passed into law.

He condemned character assaults launched by opponents against Sheshinski and his family in the course of the debate surrounding the recommendations.

Following a request from Prime Minister Binyamin Netanyahu, a clause was added to the bill that would see the taxing of gas companies linked to the regular company tax rate. Under the clause, the levy imposed on the companies by the state will decrease as the company tax rate increases, and vice versa.

Only two members of the National Union voted against the law.

“The government failed to stand by its promise to the public and to establish a welfare and education fund with the additional gas revenues,” National Union MK Uri Ariel said. “The income will be lost within the national budget, will be subject to the control of Treasury bureaucrats, and the public will not receive anything.”

As part of the law, the government had committed to establishing a fund that would set aside additional income for special budgetary goals, with MKs pushing for the fund to be entirely devoted to social and educational projects.

“The severe damage to investors will be for nothing,” Ariel said on the plenum floor.


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