Australia to review oil and gas taxes

Australia, that is set to become the world’s largest LNG exporter, is to review its petroleum taxes amid a plunge in oil and gas revenue and to collect more from multinational giants operating in the country.

The petroleum resource rent tax, crude-oil excise and other federal royalties will be reviewed to “ensure that companies are paying the right amount of tax on their activities in Australia,” Treasurer Scott Morrison said in a statement on Wednesday.

According to Morrison, takings from the petroleum resource rent tax had halved to about A$800 million (US$598 million) since the 2013 financial year and crude-oil excise has also dropped by more than half.

“We will ensure that the PRRT provides an equitable return to the Australian community from the recovery of petroleum resources without discouraging investment in exploration and development that is vital to the industry,” Morrison said.

The tax review comes just days after the Australian National Audit Office issued a report saying that the North West Shelf (NWS) project claimed more than A$5 billion worth of deductions against petroleum revenues in the 18 months to last December.  The North West Shelf project is operated by Australian LNG player Woodside while other partners include energy giants such as BHP Billiton, BP, Chevron, and Royal Dutch Shell.

Australia is expected to overtake Qatar to become the world’s largest LNG exporter by 2019. The multi-billion Australian LNG industry is expected to be able to produce more than 85 million tonnes of LNG a year from ten projects in 2020, according to the Australian Petroleum Production and Exploration Association (APPEA).

“Australia’s oil and gas industry at crossroads”

APPEA said in a statement on Wednesday that the oil and gas industry welcomes and supports the Treasurer’s announcement.

“The review is timely as the industry confronts the twin challenges of a dramatic collapse in profits and a sustained fall in the level of exploration undertaken in Australia,” said APPEA Chief Executive Malcolm Roberts.

Roberts said that APPEA’s latest financial survey of its members shows that the industry had paid more than A$5 billion in taxes in 2015, despite recording its first ever net loss.

“The continued payment of taxes at a time when the industry is under severe pressure debunks critics’ suggestions that the industry is not somehow paying its way.”

According to Roberts, a fact-based review of the petroleum resource rent tax by Treasury would show the “super-profits” based tax was working as intended.

“For almost 30 years, the Commonwealth has used the PRRT as a super profits tax,“ Roberts said, adding that the tax encourages investment by “only taxing projects when upfront costs have been recovered and profits exceed a modest benchmark rate.”

“However, when these conditions are met, the PRRT, in conjunction with the company tax regime, applies an effective tax rate of 58 cents in every dollar of profit.”

“When projects are not profitable – usually because prices are depressed or upfront costs have not been recovered – the Commonwealth still applies a 30 per cent company tax to revenue, ” Roberts said.

“Australia’s oil and gas industry is at a crossroads,” he noted. “Exploration has collapsed.”

According to Roberts, the petroleum resource rent tax regime that the Labor Party introduced in the 1980s is a major reason why Australia has attracted more than $200 billion worth of new investment in recent years.

These new projects will provide taxes, jobs and other benefits for Australia for decades to come, he concluded.

LNG World News Staff