IMF Urges Mining Tax Expansion

September 30, 2010 Taxation in Australia

on the inside the rigs still pileThe International Monetary Fund has praised Australia for its plans to implement a tax on the extraction of national mineral resources, however it has also stated that the levy needs to be broadened across the mining and resource industry.

On September 30th an early draft of an International Monetary Fund (IMF) report on the Australian economy was made available. The publication showed that the IMF was generally pleased with the Australian Government’s current economic and fiscal direction, however it did raise some concerns about the current implementation of tax measures for the mining sector.

The IMF report stated that the new Minerals Resource Rent Tax (MRRT) system was only a “…step in the right direction.” In its planned form, the MRRT will only apply to an approximate 320 iron and coal mining companies with reported profits exceeding AUD 50 million (approx. USD 48.56 million). According to the IMF, the tax is too narrow in scope and it would be much more effective if expanded. The report suggested that an attempt be made to restore the MRRT to its originally proposed form, which would see all major resource extraction operations covered by this tax.

The report added that the Australian mining sector is currently driven by significant commodity demand from China. While the current situation leads to prosperity, any future drop in Chinese demand for Australian resources will result in serious detrimental effects to the country’s economic condition. The IMF commented further, saying that any expansion to the mining tax system should be implemented as soon as possible, to take full advantage of the buoyant market conditions. Additionally, as a precautionary measure, the Australian Government should investigate possible increases to the national consumption tax rate, to alleviate reliance on the AUD 10 billion (approx. USD 9.7 billion) in forecasted revenues from the MRRT.

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