Netanyahu Seeks Changes to Proposed Tax Reforms on Israel's Natural Resources

Revisions on natural resources royalties and taxes that save Israel Chemicals hundreds of millions of shekels.

Ofer Vaknin

Just days after the socioeconomic cabinet approved the Sheshinski II recommendations for revising the tax regime on Israel’s natural resources, Prime Minister Benjamin Netanyahu on Thursday turned it over to a panel to weigh changes to the reforms.

The prime minister passed the reform proposals to a ministerial legislative committee, headed by Justice Minister Ayelet Shaked, to consider changes. The committee will meet in about two weeks’ time.

The government panel, named for its chairman, Prof. Eytan Sheshinski, proposed last year that all Israel’s natural resources be taxed at a unitary 5% rate, instead of rates ranging from 2% to 10% and impose a 42% windfall profits tax when relevant.

Netanyahu acted under huge pressure from Israel Chemicals, the company that has the license to mine minerals from the Dead Sea and will be the company most affected by the reforms, which don’t cover oil and has. ICL was joined the unions and local authorities in the Negev, who fear the higher taxes will cost jobs.

Government sources who were involved in the deliberations of the Sheshinski committee expressed concern on Thursday that Shaked’s committee could easily empty the recommendation of any meaning with simple changes of wording.

One example they cited was the section on catapulting depreciation of ICL assets, which was worded carefully enough that a single change could render the windfall profits tax irrelevant, depriving the government of revenues of that could reach 500 million shekels ($132 million) annually.

Another, defining ICL’s downstream potash operations as industrial instead of exploitation of natural resources, could reduce state revenues 300 million shekels.

Right now, the government’s take on natural resources – taxes and royalties – is about 30%, compared with 65% for oil and gas. Sheshinski’s proposal would raise it to 55%. ICL warned this week that 5 billion shekels of investments in plans for the eastern Negev over the next few years could be jeopardized by the adoption of Sheshinski II.