Robert Deutsch

The mining tax that contributed to Kevin Rudd’s downfall has now passed the Senate: however the question is if the debate and angst expressed in response to the passing of the mining tax is actually justified.

 The reality is with the compromise deal the government was forced into, the Bill that has passed through Parliament is a very much watered-down version of what was originally anticipated by the Henry report in 2010 – just look at the narrow focus on iron ore and coal to the exclusion of other minerals.

Coal and iron ore miners will now have three taxation regimes: company income tax, ad valorem mine production royalties and now a new resource rent tax on profits that will be calculated quite differently to the other two.

To suggest that Australia is somehow unusual in this area is misleading as almost every country with substantial natural resources has worked frenetically over recent years to introduce similar measures. These measures have similar motivations, namely to prevent the extraction and utilisation of non-renewable resources without adequate compensation for the broader community. This increases taxation which makes additional funds available for other unrelated non-mining activities.

Instead of an overall tax at 40 per cent as the Henry review proposed, the tax is now 30 per cent, and with a cut of a quarter for an “extraction allowance” reduces the effective rate to 22.5 per cent. The tax is also only levied on coal and iron ore and only on profits above $75 million, so it doesn’t replace state royalties as originally proposed by the Henry review.

Of course other countries have implemented their own version of the mining tax:

Brazil levies a specific mining tax on aluminium, manganese and potassium (3%); iron ore, coal and certain other mineral substances (2%); gold (1%) and other precious metals (0.2%).

India levies a mineral tax which is imposed at rates ranging from 0.2% to 20% depending on the type of mineral and a mining royalty is also payable to State governments, the amount depending on the type of mineral involved.

South Africa imposes a secondary tax on companies in the mining sector which is 10% of the dividends which are distributed by such companies. Royalties are also payable on minerals classified as either refined or unrefined with the payments calculated in terms of a set formula. The royalty rates vary by the level of refinement – the royalty rate on unrefined minerals are set at a maximum of 7% and for refined materials at a maximum of 12%.

Russia subjects companies to minerals resource extraction tax levied at rates ranging from 3.8 to 8% based on the value of the extracted mineral. The tax is calculated by reference to the quantity of minerals extracted multiplied by their sales price with some adjustments.

In Canada each province imposes its own mining tax under systems that vary significantly with applicable rates varying from 10 to 16%.

In Kazakhstan there is a separate mineral extraction tax which is levied on the cost of produced volumes of minerals. The current rates for such minerals are fixed depending on the type of mineral extracted but it is applied to the value of the produced mineral where value is based on the world price of such minerals. There is also a general excess profits tax which subjects certain profits beyond a base to progressive rates of tax ranging from 0 to 60%.

Added to this are proposed new mining tax arrangements in Indonesia, Ghana, Guinea, Namibia, Zimbabwe, Nigeria, Mongolia, Peru, the Democratic Republic of Congo, Chile, Zambia and of course China. In addition South Africa apart from the measures referred to above is currently debating a 50% windfall tax on super profits and a 50% capital gains tax on the sale of mining tenements.

What this short world tour has demonstrated I hope is that the attempt to extract tax from the utilisation of non-renewable resources is not a narrow Australian phenomenon.

Although the rates and methodology for imposing the tax vary greatly and it may well be that after careful analysis one jurisdiction is somewhat more favourable for mining than another, it is unlikely that companies would go offshore.

The idea that somehow those mining companies operating in Australia currently will pack up their tents and move offshore as a result of the introduction of the mining tax is to a large extent fanciful. The inevitable question is where would they go? Our main competitors in relation to the two critical areas where the Australian mining tax will apply (iron ore and coal) also have in place mining taxes and some are looking at the introduction of further taxes which go way beyond what has been successfully passed in Australia. With a more ingenious implementation more revenue would have been generated for the state, and still with no danger of any businesses moving overseas.

Professor Robert Deutsch is a professor of taxation at the Australian School of Business.

This article first appeared in the Australian Financial Review.