Mineral Resource Rent Tax Bill 2011 and related bills

The minerals industry is Australia’s most globalised industry and a key pillar of the national economy. It accounts for around 7% of GDP, upwards of 20% of national investment and more than 50% of Australia’s exports of goods and services. The industry is also a large and growing contributor to Federal and State Government revenues in Australia under existing taxation and royalty arrangements.

The product groups covered by the proposed Minerals Resource Rent Tax (MRRT) – coal and iron ore – are the nation’s two largest export earners. Export earnings from both commodities combined in 2010-11 were around $91.7 billion – more than one in every three export dollars earned by Australia, up from around one in 10 a decade ago. Coal and iron ore projects are highly capital-intensive with considerable, high-risk exploration outlays, large upfront capital commitments, long- life assets, sophisticated technologies and long lead times to profitability. A stable, efficient and competitive taxation regime is therefore critical to the international competitiveness of projects and to attracting future investment into these industries.

With certain caveats, the Minerals Council of Australia (MCA) considers that the set of bills presented to the Australian Parliament on 2 November 2011 represents a workable basis for implementation of the MRRT in line with the agreement made by the Australian Government with major mining companies in July 2010, as modified by the recommendations of the Government’s Policy Transition Group (PTG). The caveats are as follows:

  1. Though a marked improvement on the proposed Resource Super Profits Tax (RSPT), the MRRT still pushes tax rates on coal and iron ore projects to the upper boundary of globally competitive tax rates (Chart 1).
  2. Both the proposed bills and the explanatory material for the MRRT are very complex and further consultation through the Resource Tax Implementation Group (RTIG) would have helped to improve the legislation and uncover any unintended consequences.
  3. The bills introduce some new concepts and practices and it will be important that companies are afforded appropriate consideration by the Australian Taxation Office (ATO) given the large transition and ongoing compliance costs from the imposition of the MRRT. In some areas, the proposed MRRT legislation remains open to a degree of interpretation that does not aid taxpayer certainty.
  4. The experience of the Petroleum Resource Rent Tax (PRRT) has underlined further that poor tax design and/or a lack of clarity in resource taxation law can result in considerable disputation and litigation. It is important that the weaknesses and administrative irritations that have characterised the PRRT are not replicated in the administration of the MRRT.

Download complete article