December 22, 2020
Oil and gas is a major contributor in more ways than one
APPEA’s 2018–19 Financial Survey highlights the significant contribution made by Australia’s oil and gas industry over the last financial year, with direct tax payments amounting to $5.85 billion.
This represents a year-over-year (YoY) increase over 2017–18’s figures ($5.75 billion), affirming findings from the Australian Tax Office’s 2018–19 Corporate Transparency Report and highlighting the important contribution the Australian oil and gas industry makes to the country’s economy.
It is worth noting that desktop comparisons of the industry’s tax contribution, especially those that compare tax paid to total revenue, can ignore various complexities associated with how tax is calculated for large corporate sectors including oil and gas.
Corporate income tax is not the only way the industry gives back. As a large corporate sector, oil and gas is subject to complex tax laws on the state, territorial and federal level — several of which are levied prior to income tax calculation — in addition to myriad royalties, excises, and other government payments. Over the last decade, the Australian oil and gas industry has paid a combined $66.2 billion in taxes, rents, and royalties to governments at both a national and regional level.
Direct comparison between total revenue and corporate income tax disregards various cost factors that also play into the larger picture. Australia is a high-cost, tax-heavy business market, and costs increased by 38% to $74.3 billion YoY in 2018–19, due in part to commodity fluctuations and the performance of the Australian dollar against its US counterpart.
The ATO is cognisant of these regulatory settings, having already assured the roughly 90% of nil tax payable companies reported in its 2018–19 Corporate Tax Transparency Report through assurance programs — representing some 32% of Australian large corporates — that there is no issue regarding their use of losses to offset income contribution taxes.
Large, complex projects such as offshore gas installations carry significant forward tax losses, including exploration in investment; construction and development; and financing costs, which incorporate no offsetting income during the early stages of development.
The Petroleum Resources Rent Tax (PRRT), which relates to profits on the sale of petroleum goods, is not applicable to projects until all eligible outlays have been recovered, including threshold rate of return. This means that projects tend to not pay PRRT for a period of up to several years after production has commenced.
Payroll tax contributions from the industry’s nearly 18,000 direct employees collected by large corporates on behalf of the ATO under the Pay as you go (PAYG) Withholding Regime are also not considered in APPEA’s financial survey, nor are they reflected in the ATO’s Corporate Tax Transparency Report data. While the information in APPEA’s survey and ATO’s report relate to pre-COVID figures, the Australian oil and gas sector is primed to continue assisting Australia’s continued economic recovery as a major employer capable of injecting up to $350 billion and 220,000 jobs into the economy over the next two decades (EY).