Israeli Parliament Approves Oil Tax Regime

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The Israeli Parliament, the Knesset, has approved the 'Sheshinski Committee' Recommendations on the Fiscal Policy on Oil and Gas Resources in Israel.

The Committee was formed by the Finance Minister in 2010 to look at royalties and taxation of those companies benefitting from the discovery of major natural gas deposits off the Israeli coast. Under the new law royalties on hydrocarbon discoveries will remain at 12.5%, while taxation of profits will start when the oil exploration companies start seeing a return on their investment. The levy will be 20% after a payback of 150% on the investment, and will rise gradually, reaching 50% after a return of 230% on the investment. The maximum amount taken by the state will therefore be 62%.

The Sheshinski Committee had said that the government's share of revenue from mineral exploitation at about 30% was the lowest in the world.

He had criticized the existing tax breaks given to oil and gas companies because they more than offset the royalties due. There had been much controversy when it was reported that the two main oil exploration companies had enjoyed tax breaks of NIS740m (USD202m) from 2004 to 2009, more than cancelling out the ILS650m royalties paid over the same period.

Not surprisingly the Sheshinski Committee’s proposals led to anger from both the energy companies and private investors, who complained that they were being unfairly disadvantaged and that they should receive the lion’s share of the profits in return for the financial risks they took.