Source: www.miningweekly.com                   Date: 06 July, 2010

Australia's newly appointed Prime Minister, Julia Gillard, last week lifted mining spirits when she scrapped the proposed 40% tax on ‘super profits’ in favor of a mineral resources rent tax (MRRT). The newly proposed MRRT at a rate of 30% would only apply to iron-ore and coal from July 2012, with all other mineral resources exempted. Small miners with profits below A$50 million a year would also not have to pay the new tax.

The new tax arrangement will apply to the value of the resource, rather than the value added by the miner. It will do this by setting the taxing point at the mine gate where possible, and using appropriate pricing arrangements to ensure only the value of the resource is taxed. It also recognizes the preference of industry for more generous recognition of past investment, through a credit that recognizes the market value of that investment written down over a period of up to 25 years.

The MRRT was introduced a day after negotiations with diversified miners BHP Billiton, Rio Tinto and Xstrata were concluded and comes only a week after Prime Minister Kevin Rudd, whose government proposed the 40% tax on super profits, was ousted. All the companies welcomed the government’s proposed changes, saying they satisfied the core principles that eluded Mr. Rudd’s tax, including ensuring that the new tax was not applied retrospectively so that existing projects were not adversely affected.

The MRRT also ensured a competitive tax rate that would not disadvantage Australia as an investment destination, the companies said. “As we have previously stated, BHP Billiton believes that tax reform that is prospective, competitive, differentiated and resource-based will ensure that the Australian mining sector continues to grow through investment in the industry which benefits all Australians,” said BHP Billiton chief Marius Kloppers.

Rio Tinto MD for Australia, David Peever, said that the recognition of market value for existing mines and a reduction in the headline tax rate represented significant progress in achieving tax reform. “We all want a minerals taxation system that grows the mining industry in Australia. A strong mining sector keeps the Australian economy strong, spreading prosperity to all Australians,” Mr. Peever said.