UPDATED: Sask. potash royalty structure most complicated in world: report

WATCH ABOVE: A prominent researcher says the way Saskatchewan taxes potash companies is too complicate

REGINA – A new report is criticizing Saskatchewan’s potash royalty structure for being too complex and “alarmingly inefficient.” Jack Mintz, a professor with the School of Public Policy at the University of Calgary, says the system is the most complicated in the world.

“The convoluted nature of Saskatchewan’s regime benefits no one — not producers, investors, or the provincial government, which is left without any revenue certainty from its most significant natural resource,” Mintz said in the report.

The government collects royalty money from companies that develop resources and that has helped fill provincial coffers. Saskatchewan’s system includes a production-based levy, revenue-based levies, profit-based taxes and other taxes on capital investment.

“(Royalty reform) would give more money to both government and the producers as a result.”

Story continues below advertisement

Mintz’s report compares Saskatchewan’s system to New Brunswick as well as to Canada’s international competitors. He says the royalty systems in both provinces result in lost revenue during boom periods, but too much revenue when production slows.

“In fact, in recent years, where potash production and sales value rebounded substantially in Saskatchewan from 2009 levels, excessive tax allowances resulted in the province incurring three years of tax revenue losses from its potash production tax.”

The Saskatchewan government is disputing the report, saying Mintz made some gross miscalculations and based many of his observations on the level of collected revenue.

Among those is that Mintz assumed the 3.0 per cent corporate tax resource surcharge was included in the annual financial report. Officials say that is reported separately and say this caused Mintz to under-report total taxation revenue by roughly $150 million a year between 2006 and 2013.

READ MORE: Saskatoon-based company hopes to bring unique potash mine to Sask.

Premier Brad Wall does admit the system is difficult to comprehend, but he says now is not the time for change – particularly when companies receive an incentive worth 120 per cent of what they spend on expanding operations in Saskatchewan.

Reform could be considered “when we are closer to the end of incentives being utilized by the companies. We’re close to that now, but not quite,” Wall said.

Story continues below advertisement

The opposition NDP want a review of the royalty system sooner than later.

“Laying out a schedule of what those changes might look like allows predictability and stability to the industry as well, and that’s important,” said deputy NDP leader Trent Wotherspoon.

Mintz states there are simple solutions that exist that would make both markets more efficient and competitive. One of those solutions, Mintz argues, is to convert potash levies to a rent-based royalty regime that taxes only revenues net of all capital spending and operation costs.

“There would be more profits being made because investment decisions would be made better over time,” Mintz told reporters. “That would give more money to both government and the producers as a result.”

Saskatchewan is the largest producer of potash in the world, accounting for over 30 per cent of world-wide production.

With files from The Canadian Press

Sponsored content