Govt floats mining tax shake-up

Energy and Resources Minister Phil Heatley. Photo / Sarah Ivey

Industry facing fewer taxation breaks and higher royalties but lobby group unfazed

Higher royalties and fewer tax breaks are in the offing for mining operations under Government proposals just released.

The review of the royalties regime for minerals covers coal, gold, silver and the platinum group minerals, iron sands, and phosphates and massive sulphides on the sea bed, but not oil and gas.

Under the proposed regime they will pay either 2 per cent of the value of the minerals produced or 10 per cent of profit, whichever is higher. "However the new rates would only apply [to] new permits," Energy and Resources Minister Phil Heatley said.

"Existing permits and licences would retain the royalty rate which currently applies."

The existing rules vary widely.

Coal is subject to a flat rate of 30c to $1.40 a tonne depending on the grade of coal, plus another $2 a tonne for open cast mines.

Gold, silver and the platinum group pay either 1 per cent of the value of the minerals produced or 2 per cent if revenue exceeds $1.5 million a year.

The Government received $23 million in royalties in the year to June 2012.

Meanwhile, the company tax laws are seen as highly concessionary for mining companies, in this case excluding coal as well as oil and gas.

They effectively allow immediate deductions for spending which would normally be capitalised and depreciated over the life of the asset.

"For example, a miner extracting specified minerals may claim immediate deductions for expenditure on land, plant or machinery, production facilities and preparing the site for mining operations," Deloitte chief executive Thomas Pippos said.

In some cases they even allow expenditure to be deducted before it has been incurred.

The overall effect is that a miner's income tax liability can be deferred for a significant period, Pippos said.

"The specified mineral regime is one of the last examples of low-hanging fruit in the tax system, ripe for picking."

The proposed changes would continue to allow immediate tax deductions for prospecting and exploration expenditure.

"However, on the establishment of an operational mine, exploration expenditure on items used for the extraction of minerals will be clawed back and be deductible over the life of the mine," the Inland Revenue Department said.

"Tax deductions for development expenditure will be deferred and allowed over the life of the mine on a unit-of-production basis."

Chris Baker, chief executive of the mining lobby group Straterra, said there was some good analysis and thinking in the two discussion documents.

"We need to have a closer look. The measure over time will be the amount of investment we get into our sector, but at a first look we are not too upset," he said.

"As soon as you get into a tax on profit that is a much more comfortable position to be in than a rise in the tax on revenue."

As for some of the company tax breaks, they reflected the fact that mining and oil and gas are more capital-intensive than most industries, Baker said.