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The Progressive Economics Forum

PotashCorp Projects Low Royalties

Today’s fourth-quarter report indicates that PotashCorp paid “provincial mining and other taxes” of $194 million on potash sales of $3 billion in 2013. In other words, Saskatchewan’s resource surcharge and potash production tax amounted to just 6.5% of the value of potash sold.

Adding the basic Crown royalty (which PotashCorp includes in “cost of goods sold”) and subtracting New Brunswick potash suggests that Saskatchewan is collecting no more than a dime per dollar of potash extracted from the province.

PotashCorp’s guidance for 2014 projects “provincial mining and other taxes” not as a percentage of potash sales, but as a percentage of potash gross margin. While Saskatchewan’s resource surcharge is 3% of sales, the potash production tax’s statutory rate is 35% of mine profits (i.e. gross margin).

Yet PotashCorp predicts that both payments combined will actually amount to between 16% and 18% of potash gross margin this year. The old excuse for such low royalties was that potash companies were making large investments in Saskatchewan (which the provincial government allowed them to write off at 120%).

But PotashCorp has completed its major investments. Far from expanding, it is laying off workers. So, why does it expect to pay only about half of Saskatchewan’s potash production tax rate?

The biggest problem is that potash companies enjoy an endless holiday from Saskatchewan’s potash production tax on all tonnes in excess of the average sold in 2001 and 2002. The solution to Saskatchewan’s upcoming budget crunch is to close such loopholes in the provincial royalty structure.

UPDATE (Jan. 31): Quoted on page D1 of today’s Saskatoon StarPhoenix and Regina Leader-Post.

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Comments

Comment from Travis Fast
Time: January 30, 2014, 12:46 pm

“The solution to Saskatchewan’s upcoming budget crunch is to close such loopholes in the provincial royalty structure.”

Here I will make you look centrist and suggest another solution: nationalise potash and stop the games.

Comment from sm
Time: January 30, 2014, 6:21 pm

Gosh, at this rate, SK will have to revive the film production industry that it killed off by eliminating tax credits.

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