Major miners have billions to offset mining tax

Rio Tinto and BHP Billiton have built up $1.7 billion worth of tax credits and will not have to make any mining tax payments until they are used up.

The credits do not reduce the amount of company tax the major miners have to pay, but they can be used to offset any future mining tax liabilities.

And with confirmation from Fortescue Metals chief Andrew Forrest that his company would not be liable to pay any tax under the MRRT this year, the government is facing renewed pressure over the design of the tax, The Age reported.

Forrest has been vocal in his opposition of the tax since its inception, especially over claims it would net billions in revenue from the big miners.

'The record stands for itself,'' Forrest said.

The government’s mining tax only raised $126M in its first six months, a figure well short of predictions the tax would raise $2 billion for the 2012-13 financial year.

However, most recent analytics show Rio Tinto and BHP Billiton have built up $1.1 billion and $637 million in tax credits respectively.

The current structure of the MRRT allows the largest mining companies a deduction on their overall MRRT tax liability, based on either the book value or market value of their separate relevant coal and iron ore projects as of May 2010.

This means large investments the miners made in operations at a time when commodity prices were at their peak can be used to offset their liabilities.

How long the tax credits last is highly dependent on commodity prices and profits in coming years, however research conducted by BDO shows that both Rio and BHP are unlikely to pay any taxes under the MRRT for at least half a decade.

The government has been facing pressure to rework the design of the tax after it was revealed revenue was billions of dollars short of predictions.

The opposition, which plan to scrap the tax if elected in September, have described the tax as a "dog's breakfast", and blamed the government for negotiating the tax with major miners BHP Billiton, Rio Tinto and Xstrata.

"The government negotiated it personally, exclusively and in secret with the managing directors of the three biggest mining companies. They didn't have commonwealth officials in the room, and they made a number of very costly promises," opposition assistant treasury spokesman Mathias Cormann said.

"The MRRT was a fiscal train wreck in the making."

The government is also under pressure from The Greens to make changes to the mining tax.

Proposed changes include increasing the tax rate to 40%, cutting Commonwealth refunds of state royalty increases and including other minerals as part of the tax.

However a spokesman for the Treasury has said that while the loopholes in the tax were being discussed with the states governments, there were no immediate plans to change the tax.

Image: businessreview.com

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