The Australian Government has unveiled changes to the Petroleum Resources Rent Tax (PRRT) to collect increased taxes from oil and gas operators and stem declining revenues.
Announced by treasurer Josh Frydenberg, the changes are in response to PRRT review undertaken by economist Mike Callaghan AM PSM, which was released in April last year.
The PRRT regime was introduced in 1988. Over the past 30 years, Australia’s liquefied natural gas (LNG) production has increased by more than seven times and the country is expected to replace Qatar as the world’s top gas exporter by 2020.
The government initiated the review of PRRT in November 2016 to identify the reasons for the declining PRRT revenues.
A statement from the review read: “Changes should be made to PRRT arrangements to make them more compatible with the developments that have taken place in the Australian oil and gas industry.”
The proposed changes include reduced uplift rates, the removal of onshore projects from the PRRT regime, and a review of gas transfer pricing regulations.
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Australia will curtail the scope for excessive compounding of deductions. This includes a reduction in the uplift rate on exploration expenditure from Long-Term Bond Rate (LTBR)+15 percentage points to LTBR+5.
Onshore projects were brought into the PRRT in 2012. Since then, the government has not collected any revenue from companies operating in the onshore segment.
The government states that companies use these projects to transfer exploration deductions to more profitable offshore projects, thereby reducing the amount of tax payable.
The treasury will also undertake a review of the gas transfer pricing regulations that determine the price of gas in integrated LNG projects.
Expected to come into force from 1 July next year, the proposed changes are aimed at levying appropriate taxes on the production of petroleum products.
It is estimated that the new uplift rates and removal of onshore projects will accrue $6bn ($4.3bn) to the exchequer through to 2028-2029.
Last week, the government granted seven new offshore exploration permits located in Commonwealth waters off the coast of Western Australia, Victoria and the territory of Ashmore and Cartier Islands.