The PTG, led by the Resources and Energy Minister Martin Ferguson and former BHP Billiton chairman Don Argus, yesterday handed down its recommendations to Federal Treasurer Wayne Swan.
The advice was provided in a 175-page report outlining 94 recommendations on the design and implementation of the proposed Minerals Resource Rent Tax and the transition arrangements for the Petroleum Resources Rent Tax announced by the government on May 2.
The recommendations were welcomed by the Minerals Council of Australia, which said the reports represented a “significant milestone and vindicate the industry’s call for detailed consultation on resource taxation reforms”.
“The PTG’s recommendations will go some way to restoring Australia’s reputation as low sovereign risk in investing in the development of minerals resources, but the real test will be the adoption of the report’s recommendations (with corrections to inconsistencies) into legislation consistent with the letter and the spirit of the heads of agreement,” MCA chief executive officer Mitch Hooke said yesterday.
One of the big recommendations put forward by the PTG is that all current and future state and territory mining royalties be offset under the MRRT.
“It is now crystal clear that all current and future royalties must be credited against MRRT liabilities, as the industry has maintained throughout the debate,” Hooke said.
“It is imperative that this and other key design features of the MRRT are enshrined in forthcoming legislation and not deferred to regulation.”
The MCA’s stance relating to crediting all mining royalties was echoed by BDO corporate and international tax partner John Murray.
“The pleasing thing is the PTG has agreed with the mining industry that the state royalties should be credited in full and that is good news,” he told ILNsister publication MiningNews.net.
“It’s balanced its position by saying that it recognises the concern that state governments can just ramp up the royalty rates and get fully refunded in effect by the federal government and so the PTG has recommended that there be some checks and balances put in place so that there is just not a massive move of financing from the feds to the state.
“It certainly aligns with the essence of what the tax was trying to do and that was to prevent distortions.”
Potential game changers
However, Murray also noted there were a number of game changers that mining companies would now have to go back and revise their mining tax models on.
He told MNN the PTG had appeared to have moved the all-important taxing point to an earlier stage than described in the PTG discussion paper released in October.
“The PTG discussion paper suggested that the taxing point was probably after primary crushing and primary screening and now I am reading it that it is the earlier point of run of mine stockpiling,” he said.
“What that does is that it does two things. It potentially takes value from the top line of your calculation, but it also takes deductions out of the equation as well, so all the equipment and costs involved in running your primary crusher and screening, that all gets taken out of the equation.
“I can’t tell you whether it’s going to be good, bad or indifferent other than by saying it’s a change and it could be in some circumstances a big change.”
Murray also noted there was good news relating to alterations to the $50 million threshold outlined in the discussion paper.
“They have accepted one of the recommendations from the industry that there should be a phasing in of the threshold, which will be greatly received by the industry, in particular the junior end,” he said.
Meanwhile, the MCA said further clarification and consultation with the mining industry will be required, specifically regarding the recommendations to differentiate losses created by starting base deductions from operating losses with a lower consumer price index (CPI) uplift rate, rather than the agreed long-term bond rate plus 7% for all other carry forward losses.
The MCA also said further consultation would be required on the PTG proposal to include inventory as at July 1, 2012 as subject to the MRRT, rejecting some form of opening stock adjustment as accepted practice.
In addition, MCA believes further consultation would be required to take account of integrated coal-fired power stations.
In its report, the PTG also recommended that an implementation group be established with industry representatives, taxation experts and officers from the Department of Resources, Energy and Tourism, Treasury and the Australian Taxation Office.
Treasurer Wayne Swan welcomed the report, saying the government would now consider the recommendations and respond in early 2011.
The MRRT, which applies to all coal and iron ore miners, will take place from July 2012.