Senate Economics Legislation Committee
ANSWERS TO QUESTIONS ON NOTICE
Inquiry into the Minerals Resource Rent Tax Bill 2011 and related bills
21 February 2012
Question: Hansard Reference: Page 72.
Topic: Mining Tax
Question 1: Hansard Reference: Page 72 (Proof Hansard)
Ludlam. - Do you have a view of how much more revenue the MRRT would raise if it were extended
to cover - and we will just pick two for the moment - gold and uranium?
How difficult would it to be to provide the committee with an estimate?
Government policy is for Minerals Resource Rent Tax to apply to iron ore and coal only.
The expansion of the MRRT into other commodities, such as those mentioned, is not Government
policy and no modelling has been conducted in this area.
Question 2: Hansard Reference: Page 72-73 (Proof Hansard)
Ludlam.How much revenue raised by the proposed tax will return to the mining industry in savings
in the company tax rate from 30 per cent to 29 per cent?
Nobody is going to hold you to it too many decimal places, but we should know to within an
order of magnitude.
The 2010-11 Budget and the Economic Statement released in July 2010 together provide an estimate
of the cost associated with moving the company tax rate from 30 to 29 per cent from 1 July 2013,(1
year earlier for companies with a turnover less than $2 million). This was estimated at an aggregate
level and was not spilt up by industry. The Senate Order, tabled on 8 February 2012, relating to the
Minerals Resource Rent Tax provided a summary of the estimated revenue impact from the early
start to the company tax cut and the general tax cut for corporations.
Question 3: Hansard Reference: Pages 73-74 (Proof Hansard)
Ludlam. - We will have heard that the mining sector is taxed much more heavily than other sectors.
We have also heard completely the opposite. It is really difficult to make a judgement call on
those arguments, which are partly economic and partly political. We are looking to you to
provide us with figures that we could at least agree were fair.
The average rate of company tax paid by the mining sector can be determined by dividing the
company tax paid by the sector by its net operating income for a given period. An updated analysis
of average tax rates across industry sectors was recently published in the Treasury Economic Round
Up for the period 2006-07 to 2008-091. These average tax rates were calculated utilising company
tax data published in the ATO Taxation Statistics, and ABS data (cat. 8155) - with the ABS data
being used to estimate net operating income.
The analysis found that the average rate of company tax for the mining sector was lower than the
economy-wide average over the period, with an estimated average tax rate of 23 per cent.
Determining the average tax rates using company profit data rather than net economic income
showed a similar dispersion across sectors, with the average rate of company tax for the mining
sector estimated to be 19 per cent, compared to most other industries which ranged between 24
per cent and 27 per cent.
Average rates vary from the statutory rate due to differences between taxable income and net
operating income that result from the differing impact of general and industry-specific tax measures.
Possible specific factors lowering the mining industry's average tax rate include the capital intensive
nature of the industry, the degree to which investment is funded via debt, as well as the likelihood
that in the period examined the mining industry was investing in additional capacity but that
capacity had not yet ramped up to full output.
Higher average tax rates for the mining industry reported by others are typically due to state
royalties being included within the total tax take, rather than treated as an input cost payable for the
resource as in the Round Up article. For instance, Deloitte Access Economics published analysis2 in
August 2011 based on industry survey data, which found royalties averaged 17.5 per cent of profit,
with company tax and royalties together constituting 42.2 per cent of profit for the survey group in
the 2009-10 year, implying an average company tax rate of 24.6 per cent for the survey group.
It is noted that, where royalties have been included in the tax take of very profitable projects, the
royalties will constitute a smaller percentage of project profit, resulting in a lower total tax take than
the average. Conversely, royalties will comprise a higher proportion of the profit from a marginal
1 Clark, Greag and Leaver, Average rates of company tax across industries revisited, Treasury Economic Round
Up, Issue 2 2011, August 2011.