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In its submission to the Petroleum Resource Rent Tax (PRRT) review, the Business Council of Australia (BCA) has said that the Government should not pursue changes to the regime unless there are clear benefits from doing so.
According to the BCA, the PRRT has worked appropriately to date and concerns about current revenue levels are misplaced. It believes the stability of the current regime has helped to encourage more than AUD200bn (USD153bn) in investment, and said that the tax "is operating as intended and designed, with current revenues reflecting the current unique stage of the industry's cycle."
"After completing almost a decade of large-scale investments, in a high-cost environment, the oil price has fallen sharply. Taxes, including company tax, will be paid in future when production and profits flow from these investments. A delay in recouping PRRT revenues is a core feature of the design of a profits-based tax, an approach that was deliberately chosen 30 years ago and continues to be appropriate," it added.
The BCA warned: "Changing the basis for the tax, in particular where this would impact current projects where investment decisions have already been made, would risk unintended consequences such as reducing competitiveness, damaging investor confidence (not just in the oil and gas industry) and deterring vital investment."
The PRRT is levied on the taxable profits of petroleum projects at a rate of 40 percent. The review is examining the design and operation of the PRRT, crude oil excise, and associated federal royalties that apply to the onshore and offshore gas industry. It will advise the Government on the extent to which the PRRT operates as originally intended, and address the reasons for the recent decline in PRRT revenues. The review panel will report back to the Government by April.
According to the BCA, the fundamental rationale for the design of the PRRT should remain the same. This is that "both investor and government will receive an appropriate return from projects at maturity when costs are recovered and there is a likelihood that project proponents are earning economic rents."
The BCA stressed that PRRT revenues should be assessed over the life of projects, and argued that "the advantage of the tax over an output-based royalty – and the principal reason for its introduction – is to raise revenues without discouraging investment in marginal projects."
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