Corporate Accounting - Mineral Resources Rent Tax and the Resources Super Profits Tax - Coursework Example

Table of Contents Introduction 2 Resources Super Profits Tax (RSPT) 2 Mineral Resources Rent Tax (MRRT) 3 Difference between RSPT & MRRT 3 Reason for imposition of Super Profits Tax on the mining sector 6 Reactions of Stakeholders 7 Manner in which Mining Companies dodged the MRRT 8 Role of Accounting Standard 9 Conclusion 10 References 11 Introduction The imposition of Mineral Resources Rent Tax (MRRT) which has replaced the Resources Super Profits Tax (RSPT) in 2012 by the Australian government is an area which needs to be analysed to understand the manner in which it impacts the economy and the different sectors. This report evaluates both the Mineral Resources Rent Tax (MRRT) and the Resources Super Profits Tax (RSPT) by making a comparison between the both so that the difference which exists can be understood. This is followed by finding out the different reasons which has led towards an imposition of Super Profits Tax on the mining sector and the different reactions which have been received from different stakeholders which includes miners, workers, the finance sector, unions, the federal government, the opposition party etc. The report then dwells on the gaps and loopholes which is present in the MRRT and which were exploited by some of the miners enabling them to pay no taxes and gain from it. This is lastly supported by the manner in which accounting standard will help to reduce such acts and the importance of accounting in MRRT. Thus, on the overall basis it will help to understand and analyse the different aspect of RSPT and MRRT and help to improve the horizon of learning on the topic. Resources Super Profits Tax (RSPT) The Resources Super Profits Tax (RSPT) is a tax which was imposed by the Australian government on organizations that exploits natural resources. The government had imposed a tax of 40% on the super profits which is earned by organization engaged in the exploitation of natural resources. The different resource which falls under the gambit of Resources Super Profits Tax (RSPT) includes gold, nickel, mining and other quarrying activities. Later, the Resources Super Profits Tax (RSPT) was replaced by the Mineral Resource Rent Tax (MRRT). The government had imposed the RSPT with the intention of garnering revenues which was generated by the different organizations engaged in quarrying activities so that the sum can be used for the development of Australia and the government is able to provide some development opportunities for the different natural resources which has been exploited in Australia. Mineral Resources Rent Tax (MRRT) The Mineral Resources Rent Tax (MRRT) is a new tax which has replaced the Resources Super Profits Tax (RSPT) and aims towards having a tax being charged on the profits which are generated through the use of natural resources which in exploited in Australia. The MRRT proposes a tax of 30% on the super profits which is generated from the use of natural resources like iron ore and coal. MRRT further proposes that a tax of 30% will be applicable only when the profit of the organization reaches $75 million. This has been done with the intention that the small business and players are not burdened and is done with the objective of ensuring that the gains from the exploitation of natural resources can be passed to the common people. Difference between RSPT & MRRT Both Mineral Resources Rent Tax (MRRT) and Resources Super Profits Tax (RSPT) which has been imposed with the objective of taxing the super profits which is earned by different organization highlights the following differences Firstly, the scope of MRRT is limited to iron ore and coal projects. Other quarrying activities like oil, gas, and methane projects either being off shore or on shore will be under the purview of the Petroleum Resource Rent Tax. RSPT on the other hand covers the entire sector which doesn’t fall under the purview of Petroleum Resource Rent Tax and is applicable for other renewable projects which are being developed in Australia (Stavropoulos & Coombes, 2010). Secondly, MRRT has looked towards imposing a tax rate of 30% on the super profits which is earned by extracting companies. The tax rate further falls to 22.5% when the extraction allowance of 7.5% is taken into account as the government allows an allowance of 7.5%. RSPT on the other hand imposes a tax of 40% on the super profits. The proposal also doesn’t allow for any allowance on extraction thus keeping the effective tax rate to be 40% (Stavropoulos & Coombes, 2010). Thirdly, MRRT has an extraction allowance of 25% on the super profits which is subject to the MRRT. This thereby helps the extraction companies to gain a special advantage through the process of extraction allowance. RSPT on the other hand doesn’t have any such allowance in the tax which has been determined (Stavropoulos & Coombes, 2010). Fourthly, both MRRT and RSPT have highlighted a different upliftment rate by the government. MRRT allows an upliftment rate of long term government bond rate and an additional 7% whereas RSPT only allows for an upliftment rate of long term government rate and no other benefit other than it is provided (Stavropoulos & Coombes, 2010) Fifthly, MRRT provides the flexibility to determine the depreciation for the existing projects based on market value as on May 1, 2010 or at book value which can be determined by the organization providing discretion to choose the value of the existing value. RSPT on the other hand allows depreciation at the book value which is been provided in the financial statement (Stavropoulos & Coombes, 2010) Sixthly, MRRT also provides the method of depreciation which has to be used for existing projects. In case book value of the existing project is used than depreciation has to be done at an accelerated rate over 5 years; whereas in if market value is used then depreciation is charged over the remaining life of the assets not exceeding 25 years. RSPT on the other hand ensures depreciation at an accelerated rate over 5 years for the existing projects (Stavropoulos & Coombes, 2010) Seventhly, both MRRT and RSPT have different principle for state and territory royalty which have been paid. MRRT ensures that credit is paid for state and territory which have been paid. The credit which hasn’t been used can be carried forward but cannot be refunded. RSPT on the other hand allows rebate for state and territory royalty which has been paid and allows for a refund in case of unused credit (Stavropoulos & Coombes, 2010). Eighthly, difference exists with regard to the depreciation which is allowed for investment made after July 2012. MRRT allows immediate deduction for depreciation which has been made in projects after July 2012. In case of RSPT the depreciation has to be determined after consulting the mining industry and the depreciation will be decided after arriving at a decision through which will help to decide depreciation that has to be charged (Stavropoulos & Coombes, 2010). Ninthly, MRRT doesn’t allow for the refund of losses whereas RSPT allows for a 40% refund on the losses if the circumstances is reasonable and can be determined clearly before determining the loss (Stavropoulos & Coombes, 2010) Tenthly, MRRT doesn’t allow for any resource exploitation rebate whereas RSPT allows for a resource exploitation rebate which can be offset against the company tax rate. This thereby ensures that RSPT helps the organizations to take advantage of the resource exploitation (Stavropoulos & Coombes, 2010) Eleventh, MRRT has ensured that the tax rate for the company has been reduced to 29% whereas RSPT has reduced the company rate to 28% determining the differences which exist between the tax rates (Stavropoulos & Coombes, 2010). Thus, there exist wide differences between Mineral Resources Rent Tax (MRRT) and Resources Super Profits Tax (RSPT) which provides different reasons for the enactment of the tax and has its different applicability in different industries and sectors. Reason for imposition of Super Profits Tax on the mining sector The Australian government has looked towards the imposition of the Super Profits Tax on the mining sector because of the following reasons Differences which exist among companies working in the mineral sector with regard to the different royalty which has to be paid by companies. To ensure that the difference between mining companies is reduced the government has looked to impose the same super profit tax for all organization (Mining Tax, 2013) The price of coal and minerals has increased but the royalty paid by organizations haven’t increased which has ensured super abnormal profits for the organization. Since, the organization exploits the natural resources in Australia the government has realized the need and importance of having a super profit tax which can be passed on the society so that the society is able to gain from it and ensure that different areas of the society highlights better opportunities of growth (Mining Tax, 2013). Certain sectors of the Australian economy has benefitted due to the resource boom whereas the other sectors haven’t been able to ensure the same gain. To ensure that all the sectors are provided with the same gains the government has looked towards imposing a super profit tax so that the benefit can be passed on to the other sectors as well (Mining Tax, 2013) Removing the imbalance in the Australian economy which is present so that proper wages and salaries can be provided to the employees working in the mining sector is provided with corrective rewards (Mining Tax, 2013). The imposition of the super profit tax will ensure that an average worker gains $450 per year due to company tax rate and tax breaks which will be provided to the organization (Mining Tax, 2013). This will help the society to benefit and will help to improve the living condition of the employees Reactions of Stakeholders The different stakeholders like miners, workers, the finance sector, unions, the federal government, the opposition party etc show different reactions. It is seen that the miners feel that the imposition of MRRT will increase the pressure on the mining sector as the miners will have to pay additional tax which will be a burden on the business. This will further increase the complexities for the smaller mining organizations as they will have to bear the additional burden which will thereby increase the cost for the business (Miners, 2013). The workers on the other hand feel that MRRT will help to improve their living condition as it will help to improve their standard of living as each worked will be able to get $450 more in a year . This will help the society as it will bring the required transformation through which the societal contribution will improve. The finance sector on the other hand will be able to witness better opportunities of growth through which they will be able to finance the new projects effectively. The federal government and the opposition party on the other hand feels that the imposition of super profit tax will help to ensure that the GDP contribution increases as it will ensure that the Australian economy is able to witness better growth rates. Thus, mixed reactions seems to appear from the different stakeholders with regard to the imposition of super profit tax as the imposition of tax will have a different effect on different stakeholders. Manner in which Mining Companies dodged the MRRT The mining companies used the different loop holes which was present in the MRRT which enabled them to ensure that they could develop a process which ensured no taxes being paid by them. The use of the different loopholes and gaps which existed provided an opportunity through which the different mining organizations were provided with an opportunity to ensure no taxes. Mining organization used advantage of the depreciation method which allowed the determination of the value of the existing project based on book value or market value. The depreciation method was then decided accordingly. The mechanism to use different depreciation method and bring a change and determine the method which was most beneficial for them ensured that they could keep the tax rate to be low (Martin, 2013). This helped them to take advantage of the tax structure and ensure better gains for the business. This was matched by the fact that organizations also started to take advantage of the fact that a minimum of $75 million has to be ensured as super normal profit before the imposition of a tax rate. Mining organization ensured that the profits were kept low and was below $75 million by increasing the cost which helped them to take advantage of the tax structure and ensured that they didn’t have to pay any taxes (Smith, 2010). The process ensured that mining organizations gained from the process which thereby helped them to take advantage of the loop holes and ensure that no taxes was paid by them. Role of Accounting Standard Accounting standards holds an important aspect with the regard as the use of different accounting standards and rules provides an opportunity through which the lop holes can be filled. The government through the process can look towards ensuring that a process is developed which will be aimed towards using a correct method for depreciation which will aim towards making retrospective effect. This will help to determine the correct depreciation rate and amount and will thereby ensure that the organization is able to use the correct method. In addition to it the process will also look towards correct estimation of the cost so that the profits can be correctly ascertained. This will help to ensure proper auditing of the financials so that the different costs are estimated correctly. This will help to evaluate and gauge the effectiveness of the method as the use of different accounting standards will improve transparency and will help to ensure that the correct profits are highlighted which will ensure correct taxes. Conclusion The report thereby makes a comparison of MRRT and RSPT and shows the different which exist between both. The different stakeholders also shows different reactions based on their individual needs and requirements. The government and other bodies along with the society and employees support MRRT whereas organizations are against it. The government on the other hand looks to impose MRRT with the objective of providing better returns to the society. The enactment of the rule has provided organizations with the opportunity to take advantage of the loopholes through no taxes but the integration of accounting standards and development in certain areas will help to ensure that better rules can be developed. References Miners. 2013. Small Miners Buried in MRRT Design Process. Retrieved on August 30, 2013 from http://www.miningtechnologyaustralia.com.au/small-miners-buried-in-mrrt-design-process.html Martin, P. 2013. The astonishing ineptitude of the MRRT. Retrieved on August 30, 2013 from http://www.macrobusiness.com.au/2013/02/the-astonishing-ineptitude-of-the-mrrt/ Mining Tax. 2013. Mining Tax Facts. Retrieved on August 30, 2013 from http://www.mining-tax.com.au/ Smith, H. 2010. RSPT becomes MRRT. Retrieved on August 30, 2013 from http://www.lexology.com/library/detail.aspx?g=d9bafdb1-dba7-4edb-a07c-0e78dd318c56 Stavropoulos, D. & Coombes, D. 2010. Australia: Mineral Resource Rent Tax A Compromise. Retrieved on August 30, 2013 from http://www.mondaq.com/australia/x/105040/Mining/Minerals+Resources+Rent+Tax+A+Compromise Read More