Significantly, the Australian Taxation Office (ATO) has announced a key shift in the timing of PRRT payments. This change impacts their fiscal year 2023-24. The complexity of entities imposed the obligation to pay PRRT has increased. Yet, the revenue collected through this tax has plummeted. This example highlights the tricky nature of profitability in the prescriptive petroleum world — specifically for liquefied natural gas (LNG) projects.
During the 2023-24 cycle, a total of 16 entities paid into the PRRT, an increase of five payers over the prior year. Unfortunately, this boost in taxpayer participation didn’t result in a significant increase in tax revenue collected. The total amount PRRT payable dropped to just $1.48 billion, reflecting a drop in profitability for the companies subject to the PRRT. According to industry insiders, this drop is a direct outcome of the increased poor economic returns throughout the industry.
Increased Number of PRRT Payers
This new trend is an important development within Australia’s petroleum tax framework. Only 16 entities disclosed their tax liabilities paid under the PRRT this year. That’s a big jump from only 11 sanctions in the entire second fiscal 2021 period. This amendment marks a significant step toward recognizing all the people who pay into the tax code. Previously, only a handful of big players were able to easily control it.
Even with this remarkable uptick in the number of entities currently paying PRRT, the total revenue being generated has not increased. Tax revenues from such entities have evaporated. This decline creates the possible illusion of a growing number of payers with improved balance sheets.
Michelle Sams, an expert in resource taxation, commented on the situation, stating, > “For the first time since CTT reporting began, the amount of entities paying no tax has dropped below 30 per cent.”
This change comes at a time of great transition and uncertainty within the industry. Now as more companies opt into this tax framework, they are facing difficulty that makes hitting their profitability targets almost impossible.
Decline in Revenue and Profitability
The revenue collected from PRRT experienced a significant drop in 2023-24. The overall PRRT payable fell to $1.48 billion, again indicative of a profitability squeeze being suffered by many companies in the sector. Analysts blame this drop mostly on the oil market, outside market factors and the volatile oil and gas markets.
The corresponding decline in profitability for the small number of companies subject to the PRRT has created concerns across the industry. Most major producers have recently posted lower earnings and blamed higher costs to operate and turmoil in the markets. As a consequence their capacity to pay taxes has greatly eroded, resulting in lower revenue collection from the PRRT overall.
The deductions cap for LNG projects restricts the deductible expenditure that can be claimed against assessable receipts. This cap makes it difficult for companies doing business in the LNG space to plan their finances, damaging their profitability and subsequent tax payments.
Challenges Ahead for PRRT Entities
For companies trying to stay afloat in these stormy seas, there are many unseen pitfalls that can drastically change the bottom line. This drop in PRRT payable reflects the fact that company performance matters. These moves are being driven by larger economic forces impacting the petroleum sector.
As noted by industry experts, it will take until at least 2026 before companies can expect to improve their financial bottom line. Michelle Sams noted this timeline while discussing future expectations for the sector, stating, “We aren’t expecting [to see that] until 2026.”
This longer-than-expected period of projected challenge is likely to have enormous impact on long-term tax revenues expected from the PRRT. With many companies adjusting their operations and strategies amidst changing market conditions, the ATO may need to reconsider its approach to managing PRRT compliance and collection.
