Miners lose out on royalties refunds

Federal government plans to impose restrictions on refunds

In a bid to shore up revenues from the controversial Minerals Resource Rent Tax (MRRT), the federal government is planning to impose new restrictions on the refunds they can claim against state royalties.

The way the MRRT works currently, is that iron ore and coal miners can claim state royalties as a deduction before calculating MRRT. Obviously, the more the states increase royalties, the less revenue the federal government receives.

Related: Treasurer admits boom is over

According to the Australian Financial Review (AFR), the proposed change would mean that if the states increase royalties, only a set amount would be refundable to miners such as BHP Billiton (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Xstrata. The big three are expected to contribute almost 90% of revenues due under the MRRT. Only iron ore and coal are currently included in the MRRT.

The AFR has suggested that The Greens want royalty credits to be capped at July 2011 levels, when the MRRT legislation was introduced to parliament. The Greens estimate that around $2.2 billion in revenue has been lost because of rises in state royalty levels. The world’s best treasurer, Wayne Swan is due to meet with state counterparts early next month, in a bid to arrange a deal over increases in state royalties. If that is unsuccessful, the treasurer may consider further action against the states, including withholding grants, or legislation for royalties credits.

In September, the Queensland state government increased state royalties on coal from 10% to 12.5% for coal valued under $100 a tonne, while coal worth more than $150 a tonne would face a 15% tax. That forced several coal miners, including Yancoal Australia Limited (ASX: YAL) and New Hope Corporation (ASX: NHC) operating in the state, to shelve new projects, cut back on expanding existing projects, and shed jobs to cut costs.

The Foolish bottom line

The MRRT appears to be a case of shutting the gate after the horse has bolted. Commodity prices, especially iron ore and coal, have dropped substantially from their highs, and none of the miners have paid  any taxes under the MRRT in the current financial year so far. Whether they will in future remains to be seen.

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Motley Fool writer/analyst Mike King owns shares in BHP Billiton. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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