Tax credits for oil and gas giants rise to $324 billion


April 01, 2019 17:35:04

Oil and gas giants operating in Australia may not have to pay tax for years to come, as they accumulated $324 billion worth of tax credits in 2017-18.

Key points:

  • Of 138 returns lodged, only six profitable projects paid the PRRT, a profits-based tax generated from the sale of gas and oil
  • Critics claim Australia is giving away natural resources cheaply compared to countries such as Qatar
  • The Government has proposed new laws, expected to raise about $6 billion in additional revenue over 10 years

Australian Taxation Office (ATO) statistics show the amount of tax credits, which can be used to lower liabilities in future years, has risen from $282 billion in 2016-17.

The figures reignited calls by some groups for a 10 per cent royalty to replace the petroleum resource rent tax (PPRT).

Out of 138 returns lodged in 2017-18, only six “profitable” projects paid the PRRT, a profits-based tax generated from the sale of natural gas and oil, but which excludes LNG.

This is because there are generous tax concessions available for spending that is greater than a company’s assessable tax receipts, which can be carried over year on year.

For example, in 2017-18 there were receipts totalling more than $29.7 billion, but only $1.16 billion was paid in PRRT.

In 2016-17, out of 142 returns, only seven profitable projects were paying PRRT. And despite receipts totalling more than $22.7 billion in 2016-17, just $970 million in PRRT was paid.

PRRT: a controversial tax

The PRRT, introduced by the Hawke government in 1987 to apply to new offshore projects, has been the subject of much debate in recent years.

It was revised in 2012 to apply to all oil and gas production, including coal seam gas and shale oil.

Critics have claimed Australia is giving away its natural resources cheaply compared with countries such as Qatar, which gets billions of dollars in royalty payments annually for its natural gas exports.

They also point to companies such as Shell and Chevron, in previous years not paying a cent in petroleum resource rent tax despite earning billions of dollars annually in sales.

Assistant Treasurer Stuart Robert told ABC News it was misleading to compare revenue raised under the PRRT, with carry forward losses or tax credits.

“The former is a function of the profitability of projects, while the latter is a function of the money actually spent by companies to develop those projects,” he said.

“Tax losses, or credits as they are sometimes called, represent money companies have actually spent on developing projects, plus uplift, and are mostly not transferable between projects.”

“As a result, the aggregated carry forward PRRT tax losses published by the ATO are not directly relevant to whether individual projects will pay PRRT.”

But Greens Treasury spokesman, Senator Peter Whish-Wilson, said $324 billion equates to about 70 per cent of the Commonwealth Government’s total revenue.

“The PRRT is the most egregious rort in the Australian tax code,” Senator Whish-Wilson said.

“While the world is in the middle of an LNG boom, we’re practically giving the stuff away.”

Government moves to change laws

A Federal Government bill, scheduled to be debated in Parliament this week, is expected to raise about $6 billion in additional revenue over 10 years, by reducing the deductions that apply to future years.

Shadow assistant treasurer Andrew Leigh said Labor would support the Federal Government’s bill.

The reforms are a response to a 2016 review of the regime by former Treasury official Mike Callaghan.

It also follows the 2010 Henry tax review, which noted the PRRT “fails to collect an appropriate and constant share of resource rents from successful projects due to uplift rates that over-compensate successful investors for the deferral of PRRT deductions”.

Senator Whish-Wilson said the uplift rates applied to carried-forward expenditure and used to offset taxable income were “overly generous”.

He said exploration expenses, which can compound up to 15 per cent above the long-term bond rate, can be transferred from one project to another within a company.

“On current trends, it is an open question whether PRRT tax offsets will ever be expired,” he said. “Some companies might ride a multi-decade long boom and end up tax positive.”

Senator Wish-Wilson said further improvements could be made to the PRRT, including imposing a 10 per cent Commonwealth royalty, which could be creditable against the PRRT.

Lobbies say more needs to be done

Centre for International Corporate Tax Accountability and Research (CICTAR) principal analyst Jason Ward said the Federal Government’s bill to reform the PRRT was a “modest step forward and should be supported, but much more needs to be done”.

He added that the Labor Party’s silence on addressing PRRT had been “decidedly unhelpful”.

“The PRRT regime is utterly broken, with the world’s largest oil companies accumulating hundreds of billions in tax credits and paying nothing,” Mr Ward said.

“Over the next few years, on similar LNG export volumes, while Qatar collects $26 billion in royalties — not including income tax and proceeds from state-owned companies — Australia will collect absolutely zero in PRRT from the booming offshore gas industry.”

“Australians are left with massive carbon emissions from extraction and little else — no revenue or energy supplies despite a domestic shortage and rising prices. This is a policy failure on every front.”

The Federal Government had referred its proposed laws to the Senate’s economics legislation committee.

The Uniting Church’s Mark Zirnsak said in his submission to the committee that providing tax offsets for exploration activities essentially makes the community share the risk of a company’s revenue loss. Its preferred position was that the PRRT be replaced with a 10 per cent royalty rate.

“Many other businesses take risks and if they fail and make no profit, then they have to carry their loss as there is no profit to claim deduction against,” Mr Zirnsak said in the submission.

“It is unclear why it is so important that gas corporations be able to get tax deductions for all exploration activities, no matter how poorly conceived or carried out.”

Big companies, industry hit back

But Santos, which operates both onshore and offshore, said in its submission it was concerned it would be among companies worst impacted by the decision to exclude onshore projects from the PRRT.

Santos chief executive Kevin Gallagher said while the company supported removing onshore projects from the PRRT, a limited transition period was needed to ensure “those companies which invested in onshore exploration over this period are not disadvantaged”.

“One of the biggest concerns of foreign investors is retrospective regulation in Australia giving rise to sovereign risk,” he said in the submission.

The South Australian energy department and the Australian Shareholders’ Association who support the reforms, also called for a transition period.

The Australian Petroleum Production and Exploration Association (APPEA) argued in its submission that the proposed laws created old and new projects with different carry-forward rates, which increased complexity.

“Taxpayers who in the past may have elected to combine projects for PRRT purposes may now choose to do so otherwise due to the less attractive provisions that apply to ‘new’ investments,” it said.

It called for a July 1, 2019 start date and called on the committee to “acknowledge the negative impact on taxpayers” of removing the option to transfer onshore undeducted onshore exploration expenditure between 2012 and 2019 financial years by introducing a transfer window of up to five years.

A spokesman for APPEA told ABC News: “As the industry is seeking a settled framework in which to undertake future investments, it is important that the changes are introduced as soon as practical to ensure future investments are not lost to Australia”.







First posted

April 01, 2019 16:35:05

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