Coal-to-retail conglomerate Wesfarmers Ltd says the federal government's planned new mining tax could dent dividends it pays to shareholders.
The diversified conglomerate also said the resources super profits tax (RSPT) would make Australia less competitive in the global resources industry.
It would also have significant flow-on effects for the broader economy and society, Wesfarmers says.
As well as holding retail chains including Coles, Wesfarmers had three coal mining operations in Australia that were central to the company's ability to expand and pay dividends, chairman Bob Every said.
"Cashflows from the division during periods of high export coal prices have enabled us to undertake expansions at group level (much of the acquisition of Coles Group in 2007) with confidence," Dr Every said in a letter to shareholders on Tuesday.
"They have also supported Wesfarmers paying a significant component of our after-tax profits in dividends to our shareholders.
"Any threat to earnings is clearly a threat to the level of dividend we can pay you, our shareholders.
"The point here is that the proposed tax would have an impact on our company which goes well beyond our coal mining operations.
"That flow-on effect on a broadly based conglomerate like ours might be seen as analogous to the potential impact of the tax, not just on the resources industry, but on the wider national economy."
Wesfarmers said its resources division paid an effective tax rate of 41 per cent last year, comprising state royalties plus company tax.
It also pays additional royalties to Queensland state government-owned Stanwell Corporation, which gave Wesfarmers access to coal reserves in the Curragh North mining area.
Under this arrangement, Wesfarmers pays an effective tax rate of 51 per cent.
Wesfarmers shares inched down 0.03 per cent to close at $28.81, against a flat benchmark index.
A blow to competitiveness
Dr Every says the proposed 40 per cent tax rate under the RSPT, combined with corporate income tax of 28 per cent, "will result in a significant increase in the total effective tax rate and will negatively affect Australia's competitiveness".
The conglomerate echoed other mining companies in saying it was not opposed in principle to the introduction of a new resources tax as a replacement for multiple state royalties.
However, the tax as it currently stood was "not what Australian needs", Dr Every said.
The tax would create sovereign risk to investments in Australia and discriminate between high-capital and low-capital mines, he said.
This was largely due to the proposed adoption of the long-term bond rate, six per cent, as a permitted return on capital for RSPT purposes combined with proposed operating deductions.
Under the RSPT, miners with profits of between six and 15 per cent will pay less tax than they currently do, once the corporate tax rate is reduced from 30 per cent to 28 per cent in 2014/15.
However, miners with higher profits will pay more.
The other key aspect of the RSPT, a 40 per cent tax credit on losses in the event of bankruptcy, has been denounced by miners including Fortescue Metals Group Ltd, Minara Resources Ltd and now Wesfarmers.
It would reward companies for pursuing sub-economic projects by making the taxpayer subsidise marginal operations and be of no value to financiers, these companies say.
"Australian taxpayers should not be exposed to the underwriting of 40 per cent of losses on failed projects," Dr Every said.
He also said the consultation process around the new tax proposal had been "completely inadequate".
"We believe the process should be restarted and the tax completely revamped," Dr Every said.
He said Wesfarmers had made a direct submission to the federal government's review panel and had been asked to provide a further submission, which it would do. ----------- From Business Spectator http://www.businessspectator.com.au/bs.nsf/Article/RSPT-could-dent-Wesfamers-dividends-6F58N?OpenDocument&src=hp1&src=pmm
