Rio and BHP break the ice on mining tax

Rio Tinto has made its first payment under the Gillard government's mining tax, but remains in "very high-level" discussions with the Australian Tax Office over whether it has been correctly calculating its obligations during the first nine months of the controversial tax.

Officials from Rio and BHP Billiton told a Senate inquiry the companies had paid mining tax for the March quarter, ensuring the total amount raised by the tax will climb beyond the $126 million that was raised in the six months to December 31.

Both companies said market disclosure rules would temporarily prevent them from revealing the exact amount they had paid, but it is believed the sums involved will do little to repair the $12 billion collapse in company tax revenues that Prime Minister Julia Gillard revealed on Monday.

That collapse in company tax has exacerbated a budget hole that was started by the mining tax, which has had its revenue targets downgraded several times since being devised in 2010.

The most recent revenue forecast of $2 billion this financial year looks unlikely to be achieved, with large companies like Fortescue Metals and Xstrata avoiding payments on the back of lower commodity prices and deductions for state royalties and prior infrastructure investments.

Minerals Council of Australia boss Mitch Hooke said he feared the mining industry could now be targeted by the government in the search for further budget savings, particularly on existing tax concessions for diesel consumption and exploration.

Xstrata, which exports coal but not iron ore from Australia, used the Senate inquiry to highlight the poor profit margins being recorded across much of the coal sector.

"We would estimate that somewhere in the region of 36 per cent of Australia's thermal coalmines and almost 45 per cent of coking coalmines are, in fact, in a loss-making position at the moment in Australia," Xstrata government relations manager Cassandra McCarthy said.

The March quarter payments made by BHP and Rio were based on their Pilbara iron ore businesses, where prices and profit margins held up better than the coal sector.

The ATO has launched an investigation into the poor revenue flows from the mining tax, and Rio Tinto tax expert Ross Lyons said the company welcomed the discussion because it was keen to clarify whether it was correctly interpreting the complex structure of the impost.

"The ATO have contacted us, wanting to understand some of the key matters that determine the MRRT [minerals resource rent tax] outcome - the methodologies, the starting base, the upstream costs. It has been a very high-level inquiry, we have provided some information and are having ongoing discussions with them," he said.