Cabinet, Finance Ministry and Knesset revise proposed law on tax and fiscal policy concerning Israel’s natural resources.
By Avi Bar-Eli

Prime Minister Benjamin Netanyahu is looking for ways to give the oil and gas exploration companies hundreds of millions of shekels in tax breaks and other benefits. This, even as the Knesset Finance Committee is scheduled to vote today on the so-called Sheshinski recommendations on raising taxes on profits from Israeli oil and natural gas production. (See accompanying story. )

The cabinet, Finance Ministry and Knesset have given in to the tycoons and oil and gas companies and made changes in the proposed law on tax and fiscal policy concerning Israel’s natural resources – and it is estimated these will cost the state some NIS 30 billion in future revenues.
Benjamin Netanyahu

Benjamin Netanyahu.

Even though Netanyahu said in public that he has given the order for the recommendations of the Sheshinski committee to be carried out as written, behind the scenes he is singing a different tune. The last-minute changes he is trying to introduce would include three major tax breaks.

Many senior officials were surprised by Netanyahu’s instructions yesterday, including the members of the Sheshinski committee. Although the premier had stated repeatedly that the version of the proposals approved by the cabinet would not be changed, it seems Netanyahu has given in to a number of Likud MKs on the Finance Committee in return for their support for the bill, intended to guarantee its passage. Netanyahu also does not want to be embarrassed by seeing the law passed due to opposition support without a majority from his own coalition voting for it.

The changes Netanyahu is pushing include: Companies will be allowed not only to carry over losses from one tax year to the next, a major concession already for the gas producers, but Netanyahu wants the state to allow the rolled-over losses to include interest at market rates.

The second break the prime minister is pushing would link the tax on profits to the corporate tax rate. This means that if the state raises corporate taxes in the future, it would reduce the gas taxes accordingly.

The third concession involves the extension of dates for tax breaks on the Tamar offshore site and postponing tax revenues by raising the levels of accelerated depreciation on gas production.

Forgoing NIS 30 billion in state income from gas

The Prime Minister’s Bureau said Netanyahu was determined that the state’s share in the revenues would not change from what was set in the Sheshinski recommendations, and that he had ordered creation of a mechanism to ensure that the state’s revenue share remained exactly the same, even with the proposed changes.

While the gas companies may have lowered their profiles lately and tried to keep out of the news, they have not for a moment given up in their attempt to keep a larger share of the revenues from exploitation of the country’s natural resources. Every percentage point they can cut from the new tax rates is worth at least NIS 3 billion, and the cost of paying for the lobbyists, fixers and even the campaign contributions for MKs is a drop in the bucket – and worth every shekel.

The only problem is that this really is a zero-sum game, where every shekel given to the tycoons is one taken from the taxpayers and the public.

All told the state has “given back” NIS 30 billion to the gas companies since the publication of the Sheshinski committee’s interim recommendations. The main changes came at two points: From the interim recommendations to the committee’s final proposals, and then in the cabinet’s version of the bill.

The figures work out approximately to NIS 18 billion for the Leviathan offshore field partners and NIS 10 billion for the Tamar field. The remaining NIS 2-3 billion in breaks will go to the owners of the Dalit and Tethys Sea fields. Other tax breaks, relating to other issues not included in the Sheshinski bill, are waiting for a cabinet decision.