Photo by: Bloombeg
PERTH (miningweekly.com) – Australia’s capacity to capture the next wave of mining investment would depend on ensuring policy frameworks that were internationally competitive, the Minerals Council of Australia (MCA) said in a submission to the Standing Committee on Economics.
The committee was tasked to undertake an inquiry into the simplification of the personal and company tax income system, with a focus on broadening the base of these taxes to fund reduction rates. A particular reference was made to the deductibility of interest incurred by businesses.
The MCA stated that in global comparative terms, Australia had a high corporate tax rate, with the country’s 30% corporate tax rate exceeding the Organisation for Economic Cooperation and Development (OECD) average of 25%.
While the industry body said that it supported tax reform to reduce this rate in line with the OECD average, it strongly opposed any proposal to alter long-standing tax arrangements on the deductibility of interest expenses.
“Successive reviews of Australia’s taxation system have rejected such a radical approach. Removing or tightening existing arrangements for the deductibility of interest would be contrary to Australia’s economic interests and out of line with international best practice,” the MCA said.
“The idea that a revenue neutral reduction in the corporate tax rate funded from denying interest deductibility would reduce effective tax rates is misplaced.”
The MCA pointed out that while the impact on overall revenue might be neutral, a change of this nature would effectively result in the redistribution of the incidence of company taxation to industries which relied more heavily on debt funding, such as capital-intensive industries.
“Such a proposal would not represent tax reform and would be counter to Australia’s tax policy imperatives to increase investment and growth.”
The industry body added that the scale of funding required for mining projects and the limitations on funding capacity of domestic financial institutions meant Australia’s mining industry relied heavily on highly mobile foreign capital, including debt funded capital.
“Removing or tightening existing arrangements for the deductibility of interest expenses would increase the cost of capital for mining investments in Australia and reduce after-tax returns. It would affect companies that have made large investments under the existing tax regime, damaging Australia’s sovereign risk reputation. This would mean imposing a higher tax burden on an industry that is Australia’s largest export industry by a wide margin and is vital to growth, investment and jobs, especially in regional and remote Australia.”