Minerals Resource Rent Tax - Accounting Issue - Assignment Example

Accounting Name: Tutor: Subject: Date: What is the accounting issue related to the articles? There are various accounting matters that have been raised in the Australian Mining Tax. From the first discussion of the so-called "super-profits" tax in the year 2010, the Minerals Resource Rent Tax abbreviated as the MRRT has made headlines. The first accounting issue been raised in this mining tax is whether the MRRT should classify as an income tax or not. From the articles, it is very apparent that the accounting effects of MRRT solely will depend on its definition in regards to the income tax. In most cases, MRRT is evaluated by extraction of numerous taxable resources such as coal and the iron ore according to McKnight, D. and Hobbs, M., (2013). Incase MRRT is to be treated like royalty, and then MRRT liability will only be recognized as relevant only when the MRRT payable arises. However, in case it meets the requirements or definition of an income tax as posited in the AASB 112 Income Taxes in the Australian constitution, there will be a need for a deferred accounting from the date the legislation will be substantially enacted. From the articles it is clear that the mining profits gained for MRRT are almost the same to the PRRT (Petroleum Resource Rent TAX) when considering the net amount, the mining revenue subtracted from the mining expenditure. The second accounting issue raised in the Australian Mining Tax was whether there was an income tax benefit despite paying new taxes. The miners raised this issue. From the calculation of the MRRT payable one of the allowances provided for is the starting base allowance which minimizes the mining profits. It was agreed that in case the miner chooses to employ the “market value” as the starting base, he or she was eligible to receive future deductions (Kraal and Nash, 2010). The problem with this was that the tax deductions were likely to be significantly higher when compared to the historical costs which were incurred on the mining projects. Thirdly, the issue of whether to keep a set of tax books was raised in the mining tax. Many miners are aware that deferred tax accounting usually involved the consideration of the two primary sets of accounting books which are the corporate and accounting income tax books. From the mining tax, it is necessary for the miners who are subject to the MRRT to prepare the separate set of these accounting books for every Mining Project Investment so as to compare well with the MPI tax base for proper calculations (Ergas et al., 2010). Who are the stakeholders? Describe each stakeholder and their concerns. From the articles, the stakeholders in the Australian Mining tax are the miners, the standard setters and finally the auditors. The first stakeholder, the miners have been affected primarily by the Mining Tax thus raising concerns regarding some issues. The Australian miners have raised their concern about the possibility of job losses in the Mining Industry due to the Upper-Profit Tax policy introduced (Bell and Hindmoor, 2014). According to the miners, there are threats of mining project closures thus compromising with the Australia’s competitiveness in the mining industry. There is a possibility of mining stocks falling making the Australian mining sector suffer. Auditors (accountants) on the other hand have raised the concern about the possibility of dodging. Concerns of dodging by the big miners have been raised by the top auditors who are using trickery to evade taxes. The standard-setters, on the other hand, have raised concerns particularly on ensuring transparency. According to Paul Boulus & Keith Dowding (2014), Standard-setters are striving to see that there is more transparency in the mining industries posits from the financial reports even after the introduction of the “super-tax” on the miners. Concerns have been raised that the miners may attempt to dodge their financial statements. What is motivating the stakeholders to operate in this manner and who will be affected by these actions? The motivation behind the mining companies is that they want the mining tax to be abolished so as to continue making the super profits they were generating. It is interesting to know that most of these mining companies are foreign-owned enterprises that are making huge profits at the expense of the Australian taxpayer's expense as also noted by Bell and Hindmoor, (2014). The miners are making their outcry so that the mining tax law could be abolished so that they could continue making the huge profits. On the other hand, the standard-setters particularly the government motivation is to ensure that the Australian people receive a greater share of the profit made by the miners. Earlier, miners were paying an estimate of 40% of the profits they made as royalties to the state governments in the country. However, this has changed, and they nowadays spend less than 20% raising the need for the mining tax. Accountants and auditors motivation, on the other hand, is to see the economic growth in Australia as noted by Gregory (2012). The financial modeling provided by the Treasury saw that the mining tax would benefit the states mainly since it will increase the average worker gain to about $450 a year and at the same time lowering the cost of necessities such as food, clothing and housing. Using the stakeholders you have identified detail what accounting theory might explain their actions or perceptions? The positive accounting theory bests explain the actions and perceptions of the miners. For the miners to ensure efficiency in the mining industry, they know they have to reduce the costs of expenditure such as reduced taxes to gain more profits. For this reason, they will have to account for their transactions and events in the future. On the other hand, the normative accounting best explains the actions and perceptions of both the standard-setters (government) and also the accountants (auditors). This accounting theory enables the accounting policy makers to know what is required based on the different accounting theoretical principles. Relating to theory and practice, compare and contrast the different approaches When relating the theory and practice from the case study, Normative accounting theory deduces the actions and clearly highlights the views of some of the stakeholders which are the media, government officials and the economists involved. It is apparent that normative theory best explains how the media, government officials and economists of Australia are being subjective and value-based. They are in the notion that increasing the mining tax will add value to the economy of their country (Australia) thus increasing economic development. On the other hand, the positive theory shows how the other stakeholders (miners and investors) are using certain economic statements to favor their side. They are claiming that increasing the rates of mining tax will drive them away thus leading to an economic decline in Australia since there will be increased levels of unemployment. They claim that the increment in the “mining tax” will be unfair to them. This positive economic statement does not have to be correct, but the government (standard setter) should determine the allegations by doing research in the mining industry to either prove or disapprove the claims that it would be unfair to the miners and the investors to increase the mining tax. Identify which of these theories is most important and explain reasons why you think your chosen approach is the most important. I think the most important theory was explaining well the current situation of the Australian mining tax is the Positive approach. It will be not a fair judgment to impose Resource Super Profit Tax (RSPT) to the miners in the mining industry according to Taylor, (2014). From positive theory, it is important to note that an investor is behind making profits. This makes the theory important regarding the current situation. If the standard-setters (government) impose this RSPT, the miners will make no profit. Thus, they will not take the risk of digging. Instead, they may decide to keep their money. Considering that many states in Australia depend on the mining sector, there will be high rates of unemployment amongst the Australian people as claimed by Gilding et al. (2012). Also, the RSPT will lessen the dividends which are paid to the Australian based shareholders and also reduce the money which flows into the business which supports mining projects in Australia. (1400 words) BIBLIOGRAPHY Bell, S. and Hindmoor, A., 2014. The structural power of business and the power of ideas: The strange case of the Australian mining tax. New Political Economy, 19(3), pp.470-486. Ergas, H., Harrison, M., and Pincus, J., 2010. Some economics of mining taxation. Economic Papers: A journal of applied economics and policy, 29(4), pp.369-383. Gilding, M., Merlot, E., Leitch, S., Bunton, V. and Glezos, L., 2012. Media framing of the resources super profits tax. Australian Journal of Communication, 39(3), p.23. Gregory, R.G., 2012. Living standards, terms of trade and foreign ownership: Reflections on the Australian mining boom*. Australian Journal of Agricultural and Resource Economics, 56(2), pp.171-200. Kraal, D. and Nash, R., 2010. Minerals Resource Rent Tax (MRRT): mining project evaluation techniques. Marsh, D., Lewis, C. and Chesters, J., 2014. The Australian mining tax and the political power of business. Australian Journal of Political Science, 49(4), pp.711-725. McKnight, D. and Hobbs, M., 2013. Public contest through the popular media: The mining industry's advertising war against the Australian Labor government. Australian Journal of Political Science, 48(3), pp.307-319. Parker, L, Guthrie, J & Linacre, S 2011, 'The relationship between academic accounting research and professional practice', Accounting, Auditing & Accountability Journal, vol. 24, no. 1, pp. 5-14 Paul Boulus & Keith Dowding (2014) The press and issue framing in the Australian mining tax debate, Australian Journal of Political Science, 49:4, 694-710, DOI: 10.1080/10361146.2014.948378 Taylor, R., 2014. Australia Repeals Mining Tax—Australia Mining Tax: Repeal Hands Political Victory to Prime Minister Tony Abbott. The Wall Street Journal. Read More