Miners scramble as mining tax takes effect

June 29, 2012

Mining companies and tax experts alike said they were unsure of what was to come ahead of the mining and carbon taxes set to begin July 1 in Australia. The confusion came because they were not sure how to measure a company's liability. To make matters worse, the tax comes amid rising cost blowouts and falling commodity prices, according to a report by The Australian.

The impact of the taxes remained uncertain and miners were struggling to transition from their lengthy fight against the tax to a world where they face no choice but to absorb it.

The tax was born out of a deal between the big miners — BHP Billiton, Rio Tinto and Xstrata — with Julia Gillard in June 2010 to stop a multi-billion-dollar anti-government campaign following Kevin Rudd’s controversial resource super profits tax.

While the government has stuck firm on its revenue projections for the tax, low commodity prices mean it is highly likely the tax take will not even come close to what has been predicted. The government hopes the tax will raise $13.4 billion across the next four years. But UBS predicts that, based on falling commodity prices and the deductions miners will receive under the design of the tax, it is likelier to raise only $4.7 billion.

The design of the tax includes allowances that enable miners to reduce their taxable super profits, which includes miners being able to reset the book value of their projects to a market value to create a bigger shield against the tax.

The Australian quoted KPMG resource taxation partner James Macky saying that mining tax collections will be “very volatile” because of fluctuating commodity prices and the uncertainty of the Australian dollar.

“Equally, the MRRT is volatile from a miner's perspective because they will be required to regularly revisit and change their valuations and forecasts,” he said, according to the newspaper. “None of this will be easy because there is no Australian taxation legislation that is more complex in its application than the MRRT.”

Those falling commodity prices mean it is unlikely the Labor government will receive the revenues it forecasted for the mining tax. Labor has said it hopes to receive $13.4 billion from the tax over the next four years.

However, UBS has predicted that it is more likely the government will collect something closer to $4.7 billion.

“These challenges are compounded because miners need to implement the tax well in advance of the Australian Taxation Office being able to give them practical certainty,” PwC's energy and mining tax leader, James Strong, said, according to The Australian.



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