accounting times logo



Experts clash over classification of PRRT as ‘super-profits tax’

24 April 2024
experts clash over classification of prrt as super profits tax

At a recent Economics Committee hearing, gas industry representatives and outside experts disagreed on the potential for resource rent taxes to deter investment.

Witnesses to a recent hearing of the Economics Legislation Committee disagreed over the extent to which rent taxes for gas companies could deter investment.

Gas companies will be required to pay a minimum resource rent tax of 10 per cent of the assessable income generated by their offshore gas projects under Labor’s proposed changes to the petroleum resource rent tax (PRRT).

A super-profits tax is a tax on profits “over and above” the normal rate of return on capital, according to the Australia Institute.


Under a super-profits tax, “the profits being taxed are not expected. They are not the profits that are required for an ongoing profitable company or operation. They are not profits that are expected by investors,” explained Greg Jericho, policy director at the Australia Institute.

Appearing at a Committee hearing, Jericho said he believed the PRRT, including Labor’s proposed changes, would keep the tax within the definition of a super-profits tax. In other words, the PRRT would not deter investment.

“Our belief is that an appropriate and true windfall profits or super-profits tax would not affect investment but enable an honest or just return to the Australian community,” Jericho said.

“Also, given … the fact that gas is a greenhouse gas, it would enable those companies that are contributing to climate change to assist in the funding of the transition away from a fossil fuel-based economy.”

Samantha McCulloch, CEO at Australian Energy Producers, was ambivalent about the classification, underscoring the importance of striking an appropriate balance between the government’s revenue objectives and maintaining a “strong and sustainable” gas sector.

Currently, gas companies begin paying the PRRT only once they are making profits. Given gas projects often take many years to begin generating profits, several gas companies – including Shell and Chevron – have not paid a dollar in PRRT.

This does not mean they are escaping taxes entirely. They are still subjected to common taxes including income taxes, royalties, excise, and other duties and levies.

However, the PRRT is a kind of social investment paid to reflect the use of public resources. It is different to the normal company tax; in that it is intended to acknowledge the value of Australia’s natural resources.

While not paying the rent tax, they are generating deductions that can be carried forward to future tax assessments. The level of deductions they can carry forward is referred to as the “uplift rate.”

Australia has two uplift rates, both of which are tied to the long-term bond rate which roughly doubles every four years.

The first uplift rate is the long-term bond rate plus 5 per cent paid for general losses. The second is the long-term bond rate plus 15 per cent paid for exploration losses.

The uplifts for gas projects can be substantial given the relatively long time taken to generate profits relative to oil projects.

Treasury’s Susan Bultitude recently told the Economics Legislation Committee that the stock of deductions related to the building phase of offshore gas projects amounts to approximately $277 billion.

As is, companies will be able to offset their taxable incomes with these offsets, and even that would likely not begin for several years.

Enter the deduction cap. Under Labor’s proposed legislation, gas companies will be required to pay a minimum rate of tax regardless of their applicable deductions.

Jericho said the proposed deductions cap will not go far enough in ensuring the “gas industry pays a fair share of tax given the large profits it is generating through international events, such as the illegal Russian invasion of Ukraine, and the ongoing impact its production has on climate change.”

The cap is expected to generate an additional $2.4 billion in government tax revenue, a figure Jerico said needs to be watered down by context.

“According to the ATO, over the past five years assessable oil and gas revenue has averaged $34 billion per year, while PRRT revenue is just $1.2 billion per year, representing 3.6 per cent of petroleum revenue,” he said.

“Rather than adequately taxing economic rents derived from the petroleum and oil and gas industry, the PRRT has become a gas company accountant’s paradise.”

Representatives of the gas industry have largely embraced Labor’s proposal, claiming the defined stance will give investors greater certainty after a series of reviews in recent years.

McCulloch defended the use of the deductions, claiming the oil and gas industry had invested “well over $400 billion in the Australian economy over recent decades, undertaking exploration, and developing natural gas production, transport, liquefaction and export facilities to provide energy security for Australia and our regional partners.”


Join our subscribers get exclusive access to freebies and the latest news

Subscribe now!