Australian Mining Sector Voices Concern on New Tax

28 January 2010 (Last Updated January 28th, 2010 18:30)

Australia's mining sector says it is against the nation's proposed resources rent tax, saying it will not only reduce mining profits but also foreign investment in the sector. The proposed tax, suggested by the government's Henry Report, will involve a 40% tax on profits of operating mi

Australia's mining sector says it is against the nation's proposed resources rent tax, saying it will not only reduce mining profits but also foreign investment in the sector.

The proposed tax, suggested by the government's Henry Report, will involve a 40% tax on profits of operating mines based on the amount of land occupied by a mine.

Miners say this could reduce profits by 15%.

Macquarie Bank analyst Brendan Harris said BHP Billiton will face a 7.5% to 15% cut in underlying earnings from now to 2015.

"Iron ore projects slated for development in the Pilbara would lose up to 20% of their net present value," Harris said.

Such concerns will push investors to shift their focus from Australia to Brazil and other mineral-rich nations with lower tax rates and will also hinder the progress of projects under development.

Macquarie and Merrill Lynch banks said the resources tax will replace the state royalties that vary from 2% to 10%, although the banks have not considered that a cut in company tax will counterbalance any rise in resources, according to The Australian.

The Business Council of Australia has been pressing for a reduction in company tax from 30% to 15% as it claims it will benefit mining companies and the country as a whole.

The council said resulting revenue losses would be compensated for by a rise in economic activity and jobs as consumers usually end up bearing the burden of a company tax.

BHP may not agree that a company tax will be passed onto consumers as companies such as Vale, which has a 2% royalties and 34% company tax, will benefit if the government imposes another tax.

BHP is expected to protest against the Henry Report when it is issued and focus on its contribution to Australia as well as the impact of the tax on its shareholders and superannuation savings.