The federal government is expected to announce two tax changes that will affect the mining sector as it tries to plug a $12 billion hole is this year’s budget.
The Financial Review reported that business tax breaks will be changed, including the “thin capitalisation” rules and exploration tax concessions.
Presently, companies which are highly geared are entitled to significant tax reductions and minimal amounts of tax being paid.
Changes will effectively halve the current ratio of debt to equity rules from 3:1 to 1.5:1.
On exploration, it is believed the government will reverse a 2001 budget decision which allows major miners to write off the cost of buying smaller players who have undertaken exploration activities. It is estimated savings from the measures could amount to $500 to $900 million over four years.
While changes to thin capitalisation rules have been estimated to save $2 billion.
The Business Tax Working Group (BTWG) said “when assessed against other countries’ thin capitalisation regimes, the Australian rules could be seen as overly generous”.
Treasurer Wayne Swan has previously said tax concessions on mining industry exploration and depreciation is part of a decline in the revenue base.
“Mining pays a relatively low rate of company tax compared to its share of the economy. Mining companies currently account for about 30 per cent of corporate gross operating profits, but only around 15 per cent of corporate tax receipts,” he said.
However others are critical of new taxes in the current economic climate and claim any changes to how mining companies are taxed could lead to decreased investment.
Chief of the Minerals Council of Australia, Mitch Hooke, said that new taxes in the industry would hurt Australia’s global competitiveness and said the industry was opposed to both of the proposals.
“Altering the thin capitalisation and exploration deduction provisions are a naked tax grab. They are not concessions or loopholes. They are critical features of the business tax system.
“Exploration is the nursery of Australia's mining industry. Adding a new impost at a time when Australia's share of global exploration spending is falling and costs in general are escalating dramatically is the wrong way to go.”
Hooke said the mining industry already pays its fair share in taxes.
“The minerals industry already pays more than $20 billion in taxes and royalties a year net of the carbon tax and the Minerals Resource Rent Tax.
“The industry's effective tax rate – the ratio of taxes and royalties paid as a proportion of net revenues – has remained high and relatively stable, averaging 41.6 per cent since 2001-02. Even net of state royalties, the average effective company tax rate for mining is above the average for all industries.”
Hooke said the government should be creating sustainable fiscal policies which would encourage investment.
“Confidence to invest is critical if Australia's economy is to continue to grow. New business taxes are precisely the wrong signal to be sending to foreign investors,” Hooke said.
“The Government should be focussing on boosting economic growth through policies that cut costs, improve productivity and reduce sovereign risk. Instead they are headed in the opposite direction.”