Australia Settles on New Mining Tax

July 7, 2010 Taxation in Australia

PacLease-Sun Coast Resources-Peterbilt Model 379 deliveryThe Australian Government has scrapped its controversial proposed Resource Super Profit Tax (RSPT) in favor of a new Mineral Resource Rent Tax (MRRT) and an expanded Petroleum Resource Rent Tax (PRRT).

Last week the Government of Australia revealed its plans to drop the previously announced RSPT system and instate a new MRRT scheme. The levy will be enacted alongside an expansion of the current PRRT to cover both all onshore and offshore extraction of gas, oil and coal seam methane. Unlike the RST, which levied a headline tax of 40 percent on all mineral resource projects, the MRRT will only be applicable to coal and iron ore extraction. Further, the new system will only be levied on companies with annual “at the mine gate” earnings in excess of AUD 50 million. Other forms of common Australian mining, like gold, alumina, copper, zinc, nickel, sand and uranium exploration, will not fall under the scope of the MRRT.

The Government expects the new system to come into effect from July 1st 2012, for both current and future resource extraction operations. Companies falling within the scope of the MRRT scheme will face a headline tax rate of 30 percent. However, with the inclusion of the Government’s currently planned allowances, the effective tax rate faced by firms could be as low as 22.5 percent. The Government still plans to hold extensive consultations with the resource sector to finalize details concerning the MRRT system.

The original RSPT system caused extensive controversy in Australia and internationally. The Australian Government faced heavy lobbying from mineral extraction firms, some of which had already threatened to shelve planned projects. According to economic and political experts, RSPT system would have led to international firms operating within Australia to re-invest in jurisdictions with more beneficial tax schemes. Upon announcement of the MRRT scheme, international mining firms BHP Billiton, Rio Tinto and Xstrata released a joint statement, saying, “…the proposal presented by the Government represents very significant progress towards a minerals taxation regime that satisfies the industry’s core principles.” Additionally, credit-rating agency Moody’s has commented on the new scheme, labeling it is “…far less harsh” then the original scheme, which it deemed as a possible sovereign-credit risk.

In a media statement Julia Gillard, Prime Minister of Australia, assured Australians that the new system remains faithful to the tenement of taxing the extraction of finite resources. She went on to elaborate, saying “…the breakthrough agreement keeps faith with our central goal from day one: to deliver a better return for the Australian people for the resources they own and which can only be dug up once.”

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