Noticing It Hasn't a Clue: State Holds First Survey of Royalties

Survey conducted with the aim of formulating a consistent policy on the government's take on issue of royalties from the exploitation of natural resources.

Realizing that the issue of royalties from the exploitation of natural resources had been royally neglected for decades, the Finance Ministry has conducted the first survey on the matter in Israel's history.

The survey was conducted with the aim of formulating a consistent policy on the government's take.

Mount Gilboa
Yaron Kaminsky

One key question, for instance, is what percentage of revenues the state should be collecting from the exploitation of natural resources,

The accountant general's division in the Finance Ministry, headed by Michal Abadi-Boiangiu, was responsible for this first initial survey of all the royalties the state collects. Until now, the treasury did not even know, in any orderly fashion, how much it collects in royalties and on what goods and services.

The state charges royalties in many areas, such as from quarries or communications licenses. In natural resources, royalties are collected on mineral water, natural gas and phosphates, for example.

Now the state is looking at the entire scope of the royalty issue with the intention of setting a clear policy.

After evaluating the results of the survey, the Finance Ministry intends to consider issues such as whether there should be a unified policy or to set general rules for different sectors. Should the state levy a set percentage charge paid in all areas, or evaluate each issue separately based on international comparisons?

There are plenty of other issues, too. For example, royalties are based on a percentage of a company's revenues from the sale of the resource. But is this amount based on the price to the end consumer or the price at the factory gate? How are deductible expenses accounted for? Today's formulas for royalties are extremely complicated and the state is exposed to the possibility of accounting manipulation by the firms.

The state will then have to introduce the changes into existing royalty agreements, which could require legislation. The agreement between the state and Israel Chemicals over potash extraction dates to 1961, and is only being changed now. The law on mining is from the British Mandate era in 1925, and since then the state has never examined how reasonable and appropriate it is to the present situation.

The Sheshinski committee on taxation of profits on oil and natural gas exploitation, which raised the state's share, changed rules set in place in 1952 which were no longer relevant.

The comptrollers in various government ministries will now be required to check every year that royalties are being paid, and are paid as per agreements.

High Court petitioned against ICL deal

The Israel Union for Environmental Defense (Adam Teva V'Din ) and the Movement for Quality Government will petition the High Court of Justice today against the state and its agreement with Israel Chemicals regarding the removal of salt from the southern basin of the Dead Sea, and ICL's royalties on minerals extracted from the sea.

The two organizations are asking the High Court to cancel the agreement between the Finance Ministry and ICL (which owns the operator Dead Sea Works ). They claim the deal is unreasonable in the extreme and based on incorrect facts. The organizations also say it violates the public interest and social justice, and was reached without public input and transparency, and that violates principles of proper public administration. (With reporting by Ora Coren)