Saskatchewan’s Potash Royalty Structure ‘Alarmingly Inefficient,’ Says Report

January 7, 2015 Updated: January 7, 2015

REGINA—A new report says Saskatchewan’s potash royalty structure needs to be overhauled because it is too complex and “alarming inefficient.”

Jack Mintz, a professor at the University of Calgary, says the royalty program is the most complicated in the world.

“Hardly anyone understands the Saskatchewan system,” said Mintz, who is the director of the university’s School of Public Policy.

His report released Wednesday, Jan. 7, says that while Saskatchewan produces almost one-third of the world’s potash, its tax on the resource isn’t competitive on an international level.

“What you really want is something that’s stable,” said Mintz, who added that there are wide fluctuations in the current approach.

The royalties collected by governments from resource companies help fill provincial coffers. Saskatchewan’s system includes a production-based levy, revenue-based levies, profit-based taxes, and other taxes on capital investment.

“Saskatchewan is competitive as long as there is a lot of investment that is undertaken by firms,” Mintz said. “But it’s not very competitive—in fact it actually has the highest effective tax rate on investments compared to any other country that we look at—when companies aren’t investing as much as the 2002 period.”

Investments are treated differently depending on when companies were established.

For those producing potash in 2001 and 2002, the maximum taxable volume was their average sales in those years. For those who were not producing potash until after 2002, the maximum taxable amount is 75 percent of their sales—but for no more than one million tonnes.

In the report, Mintz and co-author Duanjie Chen compared Saskatchewan’s system to New Brunswick as well as to Canada’s international competitors.

Mintz said royalty structures in both provinces result in lost revenue during boom periods, but too much revenue when production slows. New Brunswick has a better-designed system than Saskatchewan, he said, but it’s still not a model of efficiency.

Mintz suggested that the approach contributes to instability in the potash industry and said it should be simplified. He said he believes Saskatchewan would have had $2.4 billion in extra revenue between 2009 to 2014 using a rent-based tax system.

“What we are recommending would be a very stable [system] in the sense that the government would get good revenues when the prices are high, the industry won’t get whacked with a bunch of taxation when revenues are down.”