Tax expert calls Sask. potash royalty structure worst in Canada
Jack Mintz simplifies structure in new report
First Posted: Feb 8, 2013 2:11pm
| Last Updated: Feb 8, 2013 4:02pm
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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