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PERTH (miningweekly.com) – The Australian Petroleum Production and Exploration Association (Appea) has warned that the commonwealth government’s changes to the Petroleum Resources Rent Tax (PRRT) should be assessed carefully.
Treasurer Josh Frydenburg on Friday released its final response to a 2016 review of the PRRT, saying changes to the legislation would better reflect Australia’s current petroleum industry, and would raise some A$6-billion in additional revenues.
The changes would include lower uplift rates, which would limit the scope for excessive compounding of deductions. For example; the uplift rate on exploration expenditure would be reduced from Long Term Bond Rate (LTBR)+15 percentage points to LTBR+5.
Existing investments will be respected.
Furthermore, onshore projects would removed from the PRRT regime.
Frydernburg said that since onshore projects were brought into the PRRT in 2012, no revenue had been collected and that was expected to remain unchanged into the future. In practice, it had been used to transfer exploration deductions to profitable offshore projects reducing PRRT payable.
This change would simplify the system and strengthen its integrity, he added.
The government would also review the gas transfer pricing regulations with the Treasury to review the regulations that determine the price of gas in integrated LNG projects for PRRT purposes.
The Treasury would consult closely with the industry and community, Frydenburg added.
“These changes will ensure production of our petroleum resources are taxed appropriately while continuing to support the development of our world leading liquefied natural gas (LNG) industry,” he said.
The new uplift rates and removal of onshore projects are expected to raise A$6-billion over the next decade, to 2028/29, with the changes to be implemented from July next year.
Appea CEO Dr Malcolm Roberts said that the 2016 independent review confirmed the PRRT was an effective profits tax, which delivered, over the life of projects, a higher return than royalties.
“Once a project has recovered its costs and achieves a modest profit, the combination of company tax and the PRRT applies an effective tax rate of 58 c in the dollar.
“Investors will now need to assess what the proposed changes will mean for future investment in Australia,” Roberts said.
He noted that in particular, changes to the treatment of exploration costs were troubling, given exploration had fallen to historic low levels.
“While Australia has attracted significant investment in LNG projects over the last decade and global demand for LNG continues to rise, future investment in Australia is far from guaranteed,” Roberts said.
“The global gas market is highly competitive and we are not a low-cost producer.”
Australia’s oil and gas industry recorded nearly A$40 billion in export earnings in 2017-18, with continued growth forecast. Over the past decade, the industry estimates it has invested more than A$300-billion into the Australian economy.