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Scrutinising Australia's Mineral Resource Rent Tax

Scrutinising Australia's Mineral Resource Rent Tax

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Published by Gaurav Sharma

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Published by: Gaurav Sharma on Sep 05, 2011
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All content © Copyright 2010 Emap Limited, all rights reserved. 
Scrutinising Australia's Mineral Resource Rent Tax
Gaurav Sharma
Australia's new Prime Minister Julia Gillard reached a deal with mining companiesover the country's controversial resources taxation plans in as much haste as herLabor party got rid of the unpopular Kevin Rudd. As the political dust settles, it isworth looking beyond the headlines.
Soundbites coming out Canberra are a bit monosyllabic. The unmusical hymn sheet for thepress could almost read: "Rudd had announced plans for a 40 per cent tax on miners' profitsbut a compromise agreement negotiated by his successor - the country's first female PM -has now reduced the rate to 30 per cent for coal and iron ore miners."The markets clearly bought it; at least to begin with. In intraday trading on July 2
, whenthe news first emerged, mining stocks spiked in London with the share prices of Lonmin, BHPBilliton and Rio Tinto all rising about 1 per cent and Xstrata by a whopping 3 per cent.Australian media reports were awash with commentators opining that several of the mininggiants who had threatened to halt or cancel projects because of Rudd's proposal, would nowwithdraw their threats.Over the last two weeks I have been pouring over documents and reports in the publicdomain as Rudd's Resource Super Profits Tax (RSPT) was transformed into Gillard's MineralResource Rent Tax (MRRT) ahead of the general election she has called for August
.Apart from the token reduction in headline tax, closer scrutiny suggests that under the dealoil and gas operations will still pay a pre-existing 40 per cent tax rate. Furthermore, the taxwill hitherto cover onshore oil and gas projects as well as the offshore operations previouslysubject to it. The new proposals also indicate that smaller iron ore and coal companies, withannual profits below Aus$50 million (US$41.9 million) will not be required to pay the new tax.However, the ambiguity arises when the total tax burden projection on miners is workedupon. Popular speculation suggests that MRRT reduces the total tax burden on miners fromabout 57 per cent under the RSPT to somewhere in the region of 42 to 43 per cent.Katrina Parkyn, tax partner at Allens Arthur Robinson in Brisbane, notes that the figure of 57per cent is being arrived at by adding the existing Australian corporate tax rate to the
All content © Copyright 2010 Emap Limited, all rights reserved. 
effective additional RSPT impost of 28 per cent. After tax, the RSPT would have beendeductible for income tax.
MRRT: A lot remains to be ironed out (Photo © Rio Tinto, Australia)
 "In reality, however, the position is more complicated than this because the tax base forcorporate income tax and RSPT was different. A more meaningful comparison is between theeffective additional impost under RSPT, which would have been 28 per cent on an after-taxbasis, and the effective additional impose under the MRRT, which is in the order of 15.75 percent on an after-tax basis and after allowing for the 25 per cent extraction allowance," Parkynexplains.Most tax advisers in Australia near unanimously suggest that a lot of the detail is still to beworked out. "It will impact different players in the mining industry differently and because of the interaction of the two taxes - the effective tax rate will depend on each miner," says JockMcCormack, Head of Tax at DLA Phillips Fox in Sydney.A range of further consultations and ironing out of the details is expected to follow. The policytransition group is being led by the Minister for Energy and Resources and the ex-chairman of BHP Martin Ferguson and its recommendations are not due for some time yet. Then there'sthe small matter of the general election and McCormack thinks it will be a long while beforethe wider world sees any draft legislation."This proposed tax regime is not set in cement - all we have are a couple of press releasesissued at beginning of July. We are a million miles away from a discussion paper andultimately the legislation. That is if we ever get to that point, given the opposition even froma lot of the smaller miners and opposition politicians," he adds.Indeed, the earlier row between the Rudd government and miners played out on prime timeTV and we are not just talking news bulletins and talk-shows. Both sides aired confrontational

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