[hr]Written By Noel Mullen[hr]
The petroleum resource rent tax (PRRT) regime was extended to all petroleum activities in Australia over a year ago. There have been teething problems and it is timely to take stock of the issues that will shape the PRRT’s future operation.
The PRRT was originally introduced in the late 1980s. It replaced federal royalty and production excise regimes at most offshore projects. The benefits associated with the new profits-based regime have been well documented over many years.
It is important to remember that extensive consultations were undertaken from 1983 to 1987 to ensure that a quality and efficient system was introduced and that PRRT has generally received bi-partisan support.
While the PRRT’s underpinning principles remain as valid today as they were three decades ago, the industry has undergone much change over the period. When the tax was originally introduced, it was mainly targeted at offshore oil projects. But the industry is now focused on developing Australia’s gas resources.
Today, the industry’s operations are characterised by complex operational structures, high project costs and strong competition to capture domestic and export markets. One consequence is significant time lags between the discovery of resources and final investment decisions for projects.
Recent litigation and the complexities in transitioning onshore projects into the PRRT regime have highlighted a range of complicated issues that must be prioritised in future discussions between the industry and the Australian Government.
The Australian Taxation Office’s draft ruling on what that agency considers to be ‘exploration’ highlights the need for such taxes to be ‘modernised’ to reflect current practice. Perhaps more importantly, it shows that rigid definitional outcomes based on minimal parliamentary guidance should be replaced with genuine policy engagement.
Many onshore projects must grapple with PRRT policy uncertainties and with the significant costs in ensuring that ‘transitional’ elections are correctly completed. This diversion of time and resources dilutes the funding available for day-to-day operational activities.
The ATO has demonstrated a willingness to work closely with APPEA and the industry to address the complexities of the process, but considerable work remains to be done. As we enter the second and third years of the transition process, the number of companies coming under the PRRT is growing. There is a real risk that interpretative concerns will be exacerbated or multiplied. A strong commitment from the Australian Government to genuinely consult — at both a policy and an administrative level — will be critical to addressing this problem.
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