Tax expert calls Sask. potash royalty structure worst in Canada

February 8, 2013 - 2:11pm Updated: February 8, 2013 - 4:02pm
Photo from Creative Commons
Photo from Creative Commons

Saskatchewan's potash royalty regime is being called incredibly "complex and bizarre" according to a University of Calgary tax expert who co-authored a new report proposing a simpler, more efficient structure.

Jack Mintz, director of the School of Public Policy at the U of C, presented the report in Saskatoon Friday.

He calls Saskatchewan's current tax structure a "tangled thicket of royalties, taxes and credits" consisting of 26 tiers that many companies struggle to understand.

"This is by far the worst Canadian royalty system, by far," said Mintz, a widely published tax expert who has worked on tax regimes all over the world.

"It's very distorting. It has a very bad impact, I think, in terms of the allocation of capital within the province. It also distorts the actual investment decisions made by potash companies."

Mintz has a solution that he said is consistent with Alberta, British Columbia, Norway and Australia. It would replace the current multi-layered structure with two rates: a revenue-based royalty and a rent-based tax. The rent-based tax would allow for the full economic costs of doing projects to be deducted from the revenues, to which a single-rated tax would be applied.

He believes the proposed regime would benefit everyone with a stake in natural resources because they could potentially get more income.

"It would be good for the industry itself in the long-run because they would have a more stable regime and also one that doesn't have this unfair competitive aspect among different producers."

But Bill Boyd, Minister of the Economy, believes the province's potash royalty structure is working "pretty well." He disagrees with the suggestion that Saskatchewan isn't reaching its investment potential.
"The potash companies only invest into the potash industry, they don't make investments in Saskatchewan in other areas, so I think that's a little bit wrong," said Boyd.
He admits simplicity would be good, but argues potash is a complex industry in and of itself. Even so, Boyd said the government isn't opposed to looking at changes as long as it is done in consultation with the potash industry.
"Because after all, when they make their decisions to make very large investments into our province, it's all predicated on the royalty structures that are in place. So if you make any changes, that may necessitate the companies to make changes in their investment decisions which could be, ultimately, very bad for our province."

But Mintz said it is possible for Saskatchewan to change its royalty system like it did back in the 1980s.

"They went from a very distorted potash royalty at that time to a much better one. It stayed in place until 2002 when the government of that day frankly mucked up the system with new additions and changes, which just made the system unbelievable in terms of its overall complexity."

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