Saskatchewan potash royalty system ‘a mess:’ report – Canadian Press (Globe and Mail – February 8, 2013)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

Saskatoon — The Canadian Press – A tax policy expert says Saskatchewan’s potash royalty structure is a complicated “mess” and Premier Brad Wall has “his head in the sand” if he thinks it’s working.

Jack Mintz, with the University of Calgary, said in report released Friday that the current royalty and tax system for Saskatchewan’s potash industry “has actually reached the point of incoherence and absurdity.”

“It’s incredible, really,” Mr. Mintz said at a news conference in Saskatoon. “I mean I’ve worked [in] a lot of countries and this is absolutely incredible as a system. In fact, in my view it’s the worst royalty system I’ve seen in Canada.”

The report said the “tangled thicket of royalties, taxes and credits” can differ between start dates for production, projects of different sizes or even projects of similar size but with different profitability. It also has potash producers generally enjoying a much lighter tax burden on marginal investments than those in other industries, according to the report.

“The result is distortions and inefficiencies, resulting in subpar investment activity, which can only stand in the way of Saskatchewan reaching its full economic potential.”

The government collects royalty money from companies that develop resources and that has helped fill provincial coffers.

The potash royalty system has layers of levies, includes a production-based levy, revenue-based levies, profit-based taxes and other taxes on capital investment.

Investments are treated differently according to whether the company existed prior to 2002.

For those producing potash in 2001 and 2002, the maximum taxable volume is their average sales in 2001-2002. However, for those who were not producing potash until after 2002, their maximum taxable amount is 75 per cent of their sales but for no more than 1 million tonnes.

All of it is overly complex, said the report.

For the rest of this article, please go to the Globe and Mail website: