The Resource Super Profits Tax - what is it?
Glenda Kwek
May 11, 2010
The Resource Super Profits Tax is a 40 per cent tax on mining profits, which is in addition to the usual company income tax. It is planned to start on July 1, 2012.
How does it work?
Mining companies are allowed to subtract a tax-free allowance of 6 per cent from their existing earnings - called the RSPT allowance.
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In the first five years of the scheme, they can also subtract an accelerated rate of depreciation.
The remaining amount is taxed at 40 per cent - the "super tax". The remaining amount is taxed again, at 28 per cent.
For example
Revenue = $100 and
Expenses = $50
Your profit = $50
You can then subtract depreciation, with the allowance - set at 6 per cent.
So if RSPT allowance = $3
You are left with $50 - $3 = $47
The $47 is taxed at 40 per cent (the super tax).
So $47 x 0.4 = $18.80 and you are left with $ 28.20
The $28.20 is taxed again at 28 per cent (the company tax).
So $21.20 x 0.28 = $7.90 and you are left with $20.30.
That adds up to about a total tax of about 57 per cent.
How does it differ from the old tax regime?
*The royalties that resource companies have to pay to states now will be refunded by the federal government. Miners could argue that the royalties introduced uncertainty into the market as they were subject to change without notice.
*Company tax will be lowered from 30 per cent to 28 per cent.
*Resource companies can claim accelerated depreciationbefore the super tax kicks in, on prior investments for the first five years.
All new investment will be subject to the normal depreciation. The 6 per cent rate is applied here.
So do other industries have a similar tax regime?
Yes. The petroleum industry is one example. It has been operating under such a regime since the 1990s.
The difference is that it has a higher allowance - 11 per cent.
So why are there points of contention with the RSPT?
*It's not a super profits tax
Miners argue that the government is not just taxing more when it's boom time, but taxing more all the time.
"At the moment, it doesn't appear that there is this premium that comes in and out depending on whether these companies are making super or normal profits," UBS chief economist Scott Haslem says.
"That's the issue. It just appears like we have a higher marginal tax rate on every dollar forever."
*6 per cent allowance is too low
Back to our earlier use of numbers. What's at issue is the $3 (6 per cent of $50).
This 6 per cent is too low, miners say. It's how much return you get on an ultra-safe investment. But their investments cost a lot and are highly risky. They say they should have a higher allowance (which means a lower amount of money is taxed after the allowance is subtracted).
Petroleum companies, as mentioned above, have an allowance of 11 per cent. The resources companies are not arguing for such a high rate - but they do want something between 6 and 11 per cent.
(Note: The 6 per cent is calculated from the government's long-term bond rate.)
*$9 billion tax take a year
The resource companies dispute the government's figures that it will get $9 billion a year in super tax on miners.
$9 billion "is not a steady state long-term growth estimate", Haslem says. It's a lower tax take calculated when accelerated depreciation is taken into account. That means that if today's profits are replicated in five years after the regime kicks in, mining companies would be playing even more tax.
**Background on the RSPT was complied with the help of Scott Haslem, chief economist at UBS.
Source: SMH, 11 May 2010
If you want to read more:
The first hurdle: define a super profit
New mining tax will cut long-term growth, UBS economists predict
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