Australia’s imposes 30% mining tax

The Australian Parliament on March 19 passed a bill for a new 30% mining tax on iron ore and coal mine profits in the country, leaving some miners and business groups in a fury.

The legislation is known as the minerals resource rent tax (MRRT), which Prime Minister Julia Gillard proposed two years ago when she took office. The MRRT was viewed more favourably by mining groups than the tax proposed by Gillard’s predecessor, Kevin Rudd. The former prime minister had planned to impose a 40% levy on revenues generated from all mineral production in the country. But, Rudd quickly lost public support largely due to the tax and was booted by the Labor party in favour for Gillard.

The MRRT recently passed the Senate by a vote of 38 to 32. The law, which is to go into effect July 1, 2012, will affect 30 companies, including mining titans BHP Billiton (BHP-N, BLT-L), Rio Tinto (RIO-N, RIO-L) and Xstrata (XTA-L).

The 30% tax will apply to current and new iron ore and coal projects in Australia that have annual profits of more than A$75 million. So, companies below this A$75 million threshold are exempt from the tax.

Gillard’s government says the law will help distribute the wealth created by Australia’s decade-long mining boom. The government is expected to collect A$10.6 billion (roughly US$11 billion) in three years.

However, there are suggestions that a high court challenge will be made to the constitutional validity of this legislation, says Norton Rose’s Sydney-based partner Peter Norman in an email.

Fortescue Metals Group (FMG-A) is one such Australian miner aiming to launch a high court challenge against the mining tax.

On its website, the company noted the tax “is bad policy and poorly designed.”

“The MRRT will ensure the world’s biggest miners have an unfair advantage in the market place by reducing their overall unit cost compared to the smaller miners,” said Fortescue, arguing the that if the tax can’t be dropped, amendments should be made to ensure junior miners pay the same rate of tax as major miners.

The Association of Mining and Exploration Companies (AMEC) says it will assist its members, which include Fortescue, who are looking to oppose the tax in court. 

“The tax is simply unfair to smaller emerging miners, and is so complex that the administrative and compliance burden on industry and government will be extreme,” said AMEC chief executive, Simon Bennison, in a prepared statement.

He goes on to say that many emerging producers and explorers are already struggling to raise capital for projects in Australia and may seek out more favourable jurisdictions to work in.

“The introduction of this anticompetitive legislation in Australia will only further push investment capital offshore, and change our reputation as a safe place in which to invest,” cautions Bennison.