Israel Panel Recommends ‘Windfall Tax’ on Natural Resources

An Israeli government panel recommended setting a “windfall tax” of 42 percent on natural resources, saying it would add 500 million shekels ($144.5 million) annually to government coffers. Shares in Israel Chemicals Ltd. fell.

The panel, in an interim report submitted for public comment today, recommended setting the tax on all quarried materials, effective in 2017. It also proposed imposing a single royalty rate of 5 percent, instead of the 2-to-10 percent range in place, and advised changing the way royalties are calculated to eliminate the deduction of some costs. Shares in Israel Chemicals, which harvests minerals from the Dead Sea, dropped 2.1 percent, the most since April 23, to 30.63 shekels at the close in Tel Aviv.

Finance Minister Yair Lapid appointed the panel, headed by by economics professor emeritus Eytan Sheshinski of The Hebrew University of Jerusalem, with a mandate to ensure the public receives its due from natural resources. The proposed steps would raise the public share of profits from mining to 46-to-57 percent, at least double the current amount, the panel said.

Recommendations by another Sheshinski-led committee three years ago underpinned the government’s decision to more than double its share of gas and oil profits.

‘Worse Than Expected’

“The recommendations seem a lot worse than expected and will surely cause Israel Chemicals to divert most of its investments abroad,” Gilad Alper, a senior analyst at Excellence Nessuah Brokerage Ltd., said today by phone. Most of the proceeds from the windfall tax will come from ICL, he said.

There was no immediate reaction from Israel Chemicals. In April, Chief Executive Officer Stefan Borgas said the company was expecting a “maximum exposure of around $50 million to $60 million per year,” in potential tax increases and that regulatory uncertainty may lead ICL to divert potential investments of $1 billion to other countries.

In February, the company invested $23 million to help develop a mine in Ethiopia. In January, it said it will dual-list its shares in the U.S., in part to protect the company against “the possible further deterioration of Israel’s business environment.”

Royalties Rise

The higher taxes come just two years after the previous government raised royalty payments for Israel Chemicals to an average 8 percent of revenue from the sale of Dead Sea potash, according to Excellence’s Alper. The public will be given an opportunity to comment on the recommendations and a final report will be presented to the finance minister, according to the statement. The final recommendations will be presented to parliament for legislation, the Finance Ministry said.

“Natural resources are a public asset and we must ensure the Israeli public profits from them,” Lapid, whose new Yesh Atid party become parliament’s second-largest last year on a campaign to improve the lot of the middle class, said in an e-mailed statement. “Revenue from these resources will finance projects to promote growth and we will increase investments in social services like more teachers and hospital beds.”

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