Canadian potash industry takes a hit on tax changes

The potash industry in Canada, which accounts for a third of the fertilizer mineral's total global production, is hit by tax changes introduced by the provincial government of Saskatchewan where the mineral's production is concentrated.

The Saskatchewan government proposes to collect around C$150 million from the industry through the new tax regime announced along with the province's 2015-16 budget. The government also said that it will review the potash royalty structure.

Potash Corporation of Saskatchewan Inc (PotashCorp), the world's largest integrated fertilizer company, which is badly hit by the tax changes, has responded furiously to the government's decision.

In a statement, PotashCorp said that the new potash taxation is expected to decrease the company's pre-tax earnings by C$75 million to C$100 million this year.

Expressing his disappointment in the announcement, the company's president and CEO Jochen Tilk said, ''While we understand the difficult revenue situation facing the government, we are nearing completion of a $6 billion investment in Saskatchewan which was based on the existing tax structure remaining in place.''

''Changing the rules midstream impacts the ability of our shareholders to earn a fair return on their capital and undermines Saskatchewan's relative competitiveness,'' he added.

Canada has nearly half of global potash reserves located beneath the southern plains of Saskatchewan. PotashCorp accounts for about 20-per cent of the global production capacity of the mineral and plays a vital role in global food production by providing plant nutrients.

''The impact reflects a significant change in the timing of the annual allowable deduction for expansion and maintenance capital expenditures and is most pronounced in 2015 – and to a lesser extent 2016 – as we wind down our capital expansion projects and incur higher maintenance capital spending as a result of these expansions,'' PotashCorp said.

The hit from the new rules will still hurt next year, as well, though to ''a lesser extent,'' the company said.

According to the provincial government, the change in potash tax was necessary to help offset a sharp fall in oil revenue due to the continuing price slump.

Saskatchewan premier Brad Wall said in an interview that potash companies have benefited from the liberal capital spending incentives of the province for many years. However, he promised to review high potash taxes as part of the government's review of the royalty regime.

Saskatoon-based PotashCorp is estimated to report earnings before interest and taxes of $2.53 billion this year, according to Bloomberg.

Further to the news, shares in PotashCorp fell almost 5 per cent to $32.04 yesterday in New York. Stocks of other peers Agrium Inc and Mosaic Co also fell 4 per cent and 2.6 per cent respectively.