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Scrutinising Australia's Mineral Resource Rent Tax
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