Tax and commercial

The oil and gas industry is a major taxpayer.

In 2011, the industry paid $7.9 billion in taxes ($4.4 billion in corporate taxes and $3.5 billion in production taxes).

APPEA seeks a petroleum taxation system that encourages investment in oil and gas while also ensuring that the Australian community receives an appropriate return for the use of its resources.

Governments must ensure that the burden of the overall tax take – including company income tax, resource taxes and indirect taxes (such as tariff and excise duties) – does not discourage investments in what would otherwise be commercially viable projects.

The industry already pays high levels of tax. Over the past decade, oil and gas industry tax payments to federal and state governments have averaged almost one-half (48%) of the industry’s pre-tax profits.

The best way to increase the industry’s tax contribution is not to raise taxes but to improve incentives for investment.

More development means more taxes

A 2012 Deloitte Access Economics (DAE) report shows the difference between tax revenues under different scenarios. DAE modelled “central development” and “high development” scenarios.

The central development scenario includes all oil and gas projects that are currently committed or considered highly likely to proceed. The high development scenario includes not only these projects but also projects under consideration and currently proposed projects that are several years away from final investment decisions.

In the central development scenario, the industry would pay $127.6 billion in tax between 2012 and 2035. Under the high development scenario, it would pay $157.5 billion, or almost 25% more.

Tax and exploration

APPEA also advocates the need for the fiscal system that encourage companies to undertake exploration in Australia. There is a need for taxation settings that would prompt an increased exploration effort in Australia’s less-explored frontier areas and would help smaller Australian listed companies source capital to fund their activities.

Petroleum Resource Rent Tax (PRRT)

In 2012, Federal Parliament passed legislation to extend PRRT to include onshore oil and gas projects previously not covered by the regime.

The new provisions have applied since 1 July 2012, but much work remains to be done on finalising the details of the expanded PRRT.