MRRT mockers ignore Rio's royal tax bill

Rio Tinto's tax report shows that, despite no MRRT liabilities, it contributes significantly to tax revenue. And with commodity prices recovering, it will soon be paying the super profits tax.

It may not have paid any minerals resource rent tax yet, but Rio Tinto’s annual disclosure of the taxes it has paid tends to refute assertions that the big miners aren’t paying a fair share of the profits they generate from Australian resources to taxpayers.

Under pressure earlier this year, the government disclosed that the MRRT had raised only $126 million in its first six months, though it was forecast to raise $6.5 billion in its first two years. Predictable calls for a redesign of the tax ensued. It was introduced, of course, during a period in which iron ore and coal prices had dived. They have subsequently recovered.

Rio, as it has revealed previously, paid no MRRT because it is able to credit state royalties against MRRT liabilities and because the starting base for calculation of the tax and against which deductions can be made is the market value of mining investments as at May 10.

That doesn’t, however, mean that it didn’t pay any tax or that it only paid the general company tax rate of 30 per cent.

The tax report the company released on Friday shows that it paid a total of $US11.625 billion in taxes and royalties in 2012, $US8.924 billion – about 77 per cent of it – in Australia. The group’s overall tax payments were about 8 per cent lower than in 2011, but that’s because its earnings were down about 40 per cent and its overall effective tax rate was 44 per cent.

Of the $US8.9 billion or so paid in Australia, $US6.72 billion went to the federal government – mostly in income tax, although there was also $US1.1 billion worth of payroll taxes. The rest went to state governments, overwhelmingly in the form of royalties ($US1.95 billion), with Western Australia, as one would expect, easily the biggest beneficiary. Rio handed over $US1.6 billion to the state.

Those royalty payments of around $US2 billion are, of course, a form of 'super' taxation applied by those who actually own the resources Rio is exploiting – the states. Rio is already effectively paying a super tax rate of around 14 per cent on its profits for the privilege of accessing natural resources.

The rebound in iron ore and coal prices this year – most notably iron ore prices – will, if sustained, inevitably result in Rio and BHP Billiton paying MRRT (or, in BHP’s case, more MRRT).

Marius Kloppers has said that, over time, the big miners will pay more tax as a result of the MRRT than they would have had it not been introduced and there have been some analyses that the rebound in commodity prices could still deliver the government as much as $750 million this year.

It is somewhat premature to condemn a super profits tax for not raising much revenue during a six-month period when the miners weren’t super-profitable.

Even without a meaningful MRRT contribution, however, Rio and BHP pay about a quarter of all the corporate tax paid by the 1600 biggest companies in the country and, once royalties and payroll taxes are included, have an effective tax rate nearly 50 per cent higher than the non-miners. While it might be spread over two levels of government, that’s not a bad contribution.

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