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The Sheshinski Committee Submitted its Final Conclusions

1/12/2011

Final Conclusions by the Committee to Examine the Policy on Oil and Gas Resources in Israel, Headed by Prof. Eytan Sheshinski released on January 3, 2011

The Committee to Examine the Fiscal Policy on Oil and Gas Resources in Israel (the Committee) headed by Prof. Eytan Sheshinski published a draft of its main recommendations on November 15, 2010. After receiving feedback from the public the final recommendations were released on January 3, 2011. Most of the recommendations formerly proposed have remained the same with a few noted changes. The committee has decided to leave the rate of royalties the same at 12.5%, while implementing alternative fiscal tools for the purpose of increasing the state’s share. The initial rate of levy will be 20% and rise gradually to 50% according to the amount of excess profits, which is 10% lower than originally proposed (20% raised to 60%). Furthermore, the share of the net profit for the state and public will increase from one third to 52%-62% (which is slightly lower than the proposed increase to two-thirds).

Implications

The outcome of these fiscal changes will ensure that the cash flow of the projects during the debt repayment period will not be impaired which will safeguard the ability to finance the ventures. By reducing the maximum tax rate the maximum rate of the state’s share in the profits is reduced, which keeps it on par with the accepted rate of taxes in most countries in which these operations are conducted.

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