Recent statements by Prime Minister Kevin Rudd's government
to impose a super tax of 40% on profits of mining projects in
Australia from July 2012, have created much consternation among
mining executives and investors in Australian mining companies.
This tax has come to be known officially as the 'Resources
Super Profits Tax'. It is not yet clear how profits are to be
calculated in reporting to the fiscal authorities in relation to
this tax, but it is anticipated that the royalty tax scheme
currently in existence and pegged at 17% would be replaced by a tax
on a producing mine's profits. The tax would kick in on profits
above the yield rate of Australian Government Bonds, currently at
6%, although the government is considering softening its stance to
profits above 12%. Support for this tax revolves around the idea
that natural resources are the common assets of the public domain
and that mining companies are extracting minerals and profiting
disproportionately from their activities to the detriment of their
true custodians. During 2008, metals prices rose feverishly which
added to mining companies' bottom lines; however, it has also
been suggested that the mining industry was at the forefront of
saving the Australian economy and diverting it away from
An analysis of the proposed tax shows that it would amount to a
new tax imposed over and above the state and federal taxes and
royalties already levied on mining companies, and may therefore
have the effect of driving investments away from the mining sector
in Australia to lower taxed jurisdictions, such as Canada. It would
also have the effect of lessening the incentive to develop
greenfields projects by increasing the cost of risk. Further to
this, Australia is currently evaluating the implementation of a
resource exploration rebate (RER). Similar to the Canadian
flow-through regime, the RER would likely not be enough to offset
the increased super tax on profits. South Australia would bear the
brunt of this new tax with an estimated A$40 billion in scheduled
investments to be pulled as a result of it. However, according to
the government, capital spending plans by mining firms were
expected to be 5.5 percent lower for 2010 and 2011 than an estimate
made three months ago. Therefore, it is important to note the
threats to cut mining investment by mining companies may not be
solely attributed to this tax but also to a possible slowdown in
capital spending as a result of economic conditions.
Australia is not the only jurisdiction seeking to escalate taxes
on mining companies. In February 2010, the government of Brazil,
most likely in an effort to encourage domestic production to remain
in the country, was considering the imposition of taxes on
shipments of commodities and an increase in royalty payments. China
has explored taxing miners based on metal prices of reserves and
resources, as opposed to on the amount of actual resources
extracted. Officials at India's Ministry of Mines have also
announced that they are looking to impose a similar tax on miners
based on the Australian model. Undoubtedly, as the debate
surrounding the Resources Super Profits Tax unfolds, other
countries are sure to look to its outcome when considering
amendments to their own tax regimes.
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