Australia's government has confirmed it will increase taxes on gas profits, in a bid to raise an additional A$2.4bn ($1.59bn) over the next three years at current forecast commodity prices.
As part of its response to the gas pricing transfer review restarted last year, the government has announced that a deductions cap will be imposed from 1 July 2023, limiting the proportion of petroleum resources rent tax (PRRT)-assessable income that can be offset to 90pc. The tax model presently enables companies to write off assessable tax to costs incurred in upstream project development, with the government claiming most LNG producers were not likely to pay PRRT until the 2030s.
The PRRT adjustments ends seven months of speculation and follows recommendations from the 2017 Callaghan review. That review found the model used to tax profits from petroleum resources was outdated and not fit for the high-cost LNG industry, which took longer to develop projects than the oil sector. The 40pc PRRT was established in 1988 at a time when Australia's oil production was the key consideration, and a year before the first LNG exports began.
Producers including Woodside, Santos, Shell, Chevron and ConocoPhillips are expected to be most affected by the changes. The government will consult on final design and implementation details for the dedications cap and rules governing gas transfer pricing by the end of the year. Treasurer Jim Chalmers said the changes strike a balance between ensuring a taxpayer return and limiting disincentives to invest in the sector, pointing out that the Callaghan review's recommendations were accepted but only partially implemented by the previous government. The then-government in 2019 removed the PRRT from onshore projects and lowered the uplift rates that upstream companies can use for deductions against the PRRT.
The industry has expressed support for the changes while emphasising its ongoing tax contribution to Australia's treasury. PRRT revenues were already at their highest level ever and forecast to deliver revenue of more than A$11bn over the next three financial years, over the forward estimates, said Australian Petroleum Production and Exploration Association chief executive Samantha McCulloch.
"This outcome closes out the long-running Callaghan review, informed by public consultation, and will ensure the ongoing efficiency and administration of the PRRT regime," McCulloch said.
The gas industry has become a politically contentious issue for Australia's parliament as the ruling Labor party faces increasing scrutiny from the anti-fossil fuel Greens party. The government has set ambitious targets for Australia to reduce greenhouse gas emissions and increase renewable energy use at a time when coal and gas exports contribute significantly to easing its budget deficit.
The gas industry is significantly affected by two other new policies announced by the 12-month old government — a A$12/GJ domestic price cap and changes to the so-called safeguard mechanism for reducing CO2 emissions that requires net zero scope 1 emissions from new projects.
