The Minerals Council of Australia will examine in detail the proposals outlined in the Discussion Paper released by the Business Tax Working Group (BTWG) today.

The MCA remains to be convinced that this is anything other than a second-rate process of supposed tax reform. By its design, it is a game of ‘winners’ and ‘losers’ in the business community, one that appears slanted towards increasing the tax burden on the resources industry.

The minerals resources sector is already among the highest taxed industries in Australia. In the last decade, the combined tax take from company tax and royalties alone has risen more than four fold.

According to Deloitte Access Economics, the effective tax rate of the minerals resources industry (measured on a base of taxable income) has remained relatively stable in excess of 40%. Official statistics confirm that the mining industry has a net corporate tax rate (after refunds and credits) above the average of total industries.

The MCA is particularly concerned about the push to overturn long-standing taxation arrangements applying to exploration expenditure. The Government’s Policy Transition Group (PTG) led by Resources Minister, Martin Ferguson, and former BHP Billiton Chairman, Don Argus, considered these issues and concluded that:

  • A strong resources exploration sector is the backbone of the resources industry, ensuring continued future access to high quality deposits;
  • The amount of investment in exploration affects the ability of Australia’s resources industry to sustain strong growth and expand its contribution to national economic growth;
  • Most of Australia’s major discoveries were made more than 20 years ago and additional high quality resources need to be discovered and developed for future generations;
  • There is evidence of a trend toward exploration in other countries at the expense of Australia, as well as of a protracted shift away from greenfield activity; and
  • Existing tax arrangements are an acknowledgement of “the high risk nature of exploration and the economic benefits that result from it”.

Given the Government accepted all recommendations of the PTG only last year, including the extension of immediate deductibility for exploration expenditure to the geothermal energy sector, any move to scrap existing arrangements will only heighten concerns among investors in the resources sector about government chopping and changing tax laws.

Download complete article