Research Problem, Aims, Objectives, and Questions
The present research proposal provides an overview on the theories of accounting and its application.The study focuses on the various perspectives or conceptual structures, accounting and ethical issues that is referred to Health article in relation to Petroleum Resource Rent Tax (PRRT). The article highlights that there has been duty huge sink gap since the gas fuel enterprises adventuring LNG in Australia have declared near around fifty billion dollars in a year. By working up an additional $51 billion in tax credit, the MNCs have usually delayed any kind of rational payment for loyalty from themassive export sector of this nation (Söderholm and Svahn 2015). This signifies that the energy enterprises elude payment of their tax share in unethical way. The main reason behind this is that the Australian Tax Office has submitted the PRRT review to the Treasurer Scott Morrison, which indicates thatjoined tax credits mainly carry forward expense of LNG sector surging to around $238 billion in trading time period 2015-2016 (O’faircheallaigh 2017). This increased by around $51 billion from $187 billion from the previous year. As a result, this has been equal to $138 million each day rise in a year. The first section of this research study reflects on the research problem, research aims and objectives and research questions. The review on literature of this research proposal is elucidated in the next section of this study. The third segment focuses on the methods adopted for conducting this specific research study. Furthermore, findings of the research is discussed in last segment of this study.
Aston has discussed numerous accounting issues and also expressed concerns about the societies, academics and regulators related to the impact on the scope of stockholder regarding the given article “Gas multinationals claim additional $50 billion in tax credits. This article reflects on the numerous accounting issues and its affect on the users. However, this problem on the PPRT mainly characterizes how alternative view point on the same phenomenon might yield to diverse knowledge, specifically the impact on other people of the society. All the MNE’s operating in this nation have got improvement in business reserve of tax credits with these lines, thereby fallaciously protecting themselves from any kind of contribution of PPRT in itsbusiness (Phillimore 2014). This has been shocking as PPRT is merely royalty kind payment that large LNG ventures such as – Exxon-owned Gorgon, Chevron, Shell must have to pay in exchange of huge amount of money in the Australian gas excerpted as well as traded to the Asian countries by these MNCs. Therefore, dodging the tax deceitfully by failing to reveal data as needed is dreadful and thus deprives this nation of huge dollars in form of royalty which lawfully belongs to this economy.
Review of Literature
The research aim is involved in the assessment of the accounting as well as ethical issues in respect of PPRT. The objective of this study is to compare the perceptions from the above income tax theories. In addition to this, the purpose of this research is to analyze various influence of insights on financial statement users, regulators, preparers and public. The sub- objectives of this research study are –
- To assess how the issue of PPRT affected the organizations and society
- To investigate whether the issue of PPRT influenced the performance and growth of MNEs
The primary research questions of this research study is –
- What are the accounting and ethical issues relating to PPRT?
- What is the difference between regressive income tax and progressive income tax?
- How the issues relating to PPRT impacts the financial statement regulators, prepares, users and public from each insight of theories?
The interpretation of Australian PPRT might aid to understand accounting and ethical problems that is reflectedby Health (2007). Smith (2013) states that Accounting Standard AASB 112 Income taxes as well as Accounting Standard AASB 108 Accounting policies Changes in the accounting estimates and Errorsmight form references in assessment. The PPRT Assessment Act 1987might also aid to understand estimation of taxable profits (Smith 2012). Therefore, PPRT of Australia will be construed in this studyas income tax within the scope of AASB 112. Thus, the MNCs operating in this country must identify, estimate and present it relative to AASB 112. Moreover, the application of this interpretation will be there to every entities that is needed to prepare the financial reports in relation to Part 2M.3 of Corporation Act 2001. This might be applicable to financial statement purpose of other reporting entities.
From the article, the accounting as well as ethical issues comes out in proper way. While determining taxable profit of PPRT, it can be seen that the MNCs did not obey with the requirements of AASB 112, which signifiesthat PPRT be analyzed based on the petroleum projects. This consequently levied at 40% on the‘taxable profit’ of this project. Apart from this, the MNCs did not involve in the estimation of taxable profit in favor of the PPRT purposes since excess of measureable receipts over the sum of-
- i) The appropriate expenditure incurred
- ii) Un-deducted or carry onward expenditurethat are usually compounded annually constituting bond rate in long run along with 15% for the exploration expenditure or 5% for development expenditure.
iii) Un-deducted exploration expenditure that is compounded at higher rate where taxpayer is the company in wholly- possessed group.
The MNCs operating in this countrydid not follow to provision that needs non- deductible expenses as income tax and override royalty programs (Bryman and Bell 2015). In addition to this, the MNCs did not comply with the needs that PPRT should be paid in the repayments. These whole payment requirements of PPRT that are subjected to deduction were not obeyed especially at the time of the computation of taxable income within confinement of Income Tax Assessment Act 1997.Moreover, these MNCs have failed fallaciously to integrate all the requirements of AASB 112, which are mainly applicable to the PPRT of Australia involving such needs associated to identification, assessment, presentation and disclosure of the present deferred taxlinked to PPRT of Australia (Hogan 2012). For this reason, the MNCs of this nation had reported near around 2.1 billion dollars since taxable profit in cover of asymmetry information among them and public, regulators, government, users for depriving country payment of accurate royalty.
Research Methods
PPRT relates to the profit-oriented tax imposed on the petroleum project and has been integrated from 1st July 2012. This involved all the onshore and offshore oil and gas projects in Australia such as coal seam gas and oil shale projects of North West Shelf. One can track the PRPT history from the provided regulations under the PPRT Assessment Act 1987. The parliament passed this Act and made it in effect on 15th January 1988. PPRT had implemented this to the offshore areas excluding North West Shelf and Bass Strait at that time period. Since the introduction beginning from 1991 to 1st July 2012, PPRT had gone through several amendments, especially when it was outspreaded to onshore gas and oil projects involving- coal seam gas and oil shale projects came into effect in North West Shelf.
As per Bell and Hindmoor(2014), the principle of PPRT is to uniquely tax rent and then leave the required return of investors for carrying out investments. Moreover, this might never distort the investment decision since it need not vary pre- tax merits of investment. In context to this, PPRT remain as neutral tax which might be only captured by the progressive taxation. According to the definition of resource rent, decrease in risk associated to investment of investors leads to decrease in minimum needed return of investors for carrying out investment. Hence, this flows potential of the resource rent of investor’s deposit.
It has been seen from two opposing income tax theories that the Australian economy has been applying regressive tax approach, which does not successfully hold PPRT as it might otherwise be hold by the progressive taxation.Arezki, Dupuy and Gelb (2012) states that the resource rent is additional of total lifetime value of project arising from deposit exploitation over summation of costs relating to resource exploitation involving compensation of each input factors. Based on this definition of resource rent, decrease in risk associated to investment of investors will decrease minimum needed return of investors for carrying out investments. Hence, this surges potential of the resource rent deposits. The main principle underlying PPRT is to tax rent and keep aside required return of investors for carrying out further investments. However, this might never misrepresent the investment decisions of investors and so far need not differ the investment pre-tax merits. In context to this, PPRT stays as a neutral tax and one can capture it by the process of progressive taxation.
Findings
In the year 1970, the taxation of resource rent has remained topical and highly characterized in deliberations of the resource tax policy. Laporte and Quatrebarbes(2015) opines that the changed attention in the resource rent taxation has been discourse over how the spoils of current sectors boom can be shared since theorists of regressive taxation have badly failed in form of PPRT capture. In fact, spoils sharing has remained marred between the industries and host nations, thereby leading to uncertainty as well as limitations on the investments in resources for longer run. Roeder (2015) cites that the fiscal policy addressing these challenges mainly relates to revenue optimization from endowment of heterogeneous resource amidst economic uncertainty without even resorting to the brinkmanship that might outcome from theory of regressive income tax application to PPRT owing to fiscal rigidities.
Employment as well as fiscal flexibilities of the progressive taxes avail expected footing for effectual reallocation of advantages between the host economies and sectors during change of economic conditions. Eccleston, Warren and Woolley (2013) has suggested that the progressive taxations aiming the resource rent should maximizetotal revenue from resources by optimizingavailability of rent from resource project and resource exploitation (McKnight and Hobb 2013). Apart from this, different taxes have been structured in order to target the resource rent capture with huge range of accuracy. Thus, the PPRT usually takes case of the appropriate progressive taxes relative to resource rent capture (Hunter 2014). In the present situation, the host nation Australia has to balance fiscal risk with the benefits associated with different types of taxes as well as resources that are needed to ascertain effectual PPRT administration. Several experiences signifies that regressive PPRT might levy unacceptable level of fiscal risk on this country. Furthermore, the emerging problems in the application of PPRT, which might not be successfully addressed by the theorists of regressive taxation involve- required return rate by investors, total PPRT proportion that might be taxed, creditability of PPRT and Australian government setting tax rates as well as threshold tax. Apart from this, PPRT has huge reputation regarding complexities of administration, which in turn weighs against it when there has been utilization of regressive taxation. Stroebel and Van Benthem(2013) opines that progressive taxation is one of the available tools that mainly captures resource rent. However, effectiveness of PPRT has been mainly dependent on potentiality of revenue, cost of administration and fiscal risk that is associated to PPRT use. Thus, progressive PPRT has huge benefit over regressive PPRT and unsustainable fiscal regimes as it has the capability to exclude damaging risk-taking.
The different methods that will be used for conducting this research are- research design, research approach, research philosophy, data collection technique, sampling design and technique. This specific research study will be done depending on the data collected from the sources. The secondary sources involve- peer reviewed articles, related books and newspapers, websites and so on. Besides this, the secondary data will be gathered from the financial statements and other reports from the official websites of enterprises.
This method will be used in this study in order to assess the variables of research problem. There are three major kinds of research designs such as – explanatory, descriptive and exploratory design. Exploratory research design aids to explore the circumstances to provide insights about this study. This design aids to clarify theories and formulate problems in precise way. Explanatory research design attempts to connect ideas for analyzing cause and effect relation. Descriptive research design aids to depict the respondents with higher accuracy. In this study, descriptive research design will be usedfor attaining accurate data from the employees of MNCs operating in this country (Meyers, Gamstand Guarino 2016).
Research philosophy will be integrated in this study for categorizing research principle by using different aspects. There are four major types of research philosophy such as – positivism, realism, pragmatism and interpretivism. Positivism relates to scientific data collection method that is attained through observations. Realism depends upon those ideas which are not dependent on reality. Interpretivism indicates the theory that interpret elements relating to this specific research study. In this study, interpretivism philosophy will be used for interpreting elements associated with this research study (Goldkuhl 2012). Moreover, it focuses on various methods for highlighting upon various aspects of problems.
The presence of two research approaches can be seen – deductive and inductive. Deductive approach relates to developing of hypothesis based on present theories and test these hypothesis for attaining accurate research outcome.In this approach, hypothesis testing is done by applying relevant methods and assess outcome of test by either accepting or rejecting hypothesis. Inductive approach relates to approaches that shifts from particular observations to larger generalizations and theories. In this study, deductive approach will be incorporatedas it investigates on the circumstances or facts relating to this research study.
Data is collected by using two methods- primary and secondary. Primary data are collected through surveys, interviews, observations while secondary data are gathered from journals, books, websites. The information collected from the secondary sources will be analyzed further with the help of qualitativemethod. This form of data analysis method will be used for including lower sample size. This method involves various processes that involve interviews and in this case interview method will be adopted. An interview of the employees of MNCs operating in Australiawill be taken (Graue 2015).
Simple random sampling design will be used for this study as it requires larger sample size and employees of the MNCs are selected randomly for the survey questionnaire method. A sample size of around 30managers and employees will be selected for doing the analysis of this study (Levy and Lemeshow 2013).
While conducting this research, the rules and regulations of research will be abided. The confidential data will be maintained in this study. The secondary data will be collected from authentic websites so that it does not hamper the research outcome. Furthermore, the questions to be asked during the interview will be framed keeping in mind the emotions of employees.
From the research done, it can be found out that the host government experience including the Australian government has been that the revenue from these MNCs have lagged behind and declined as the earnings of MNCs have grown considerably. This is because thecommon characteristics of designed fiscal regime during the year 1980s and 1990s were generally regressive tax-based. Some of the general characteristics of fiscal regime included- low royalties, flat rate income taxation combined with the allowances, increase in depreciation and higher investments. The government has given tax exemption for depression in the mining industries supported by the agreements stabilization. In this oil sector, prevalence of total oil volume instead of profitable production with proper provision for recovery of costs to investors mainly covered controlled government sharing in price escalation.
The findings of research also reflects that these agreements have continued to be inappropriate for varying economic conditions of the Australian economy. The government of this nation has now been aware of the fact that windfall taxes are presently on the political agenda and thus its introduction might hold profits. Owing to this backdrop, host nations have been trying to regressively tax as well as impose entry terms for new players. Therefore, it is necessary for the Australian government to reallocate benefits by integrating progressive PPRT.
The Australian economy has been suffering from certain problems owing to information asymmetry between these MNCs and the policymakers of this economy in form of taxable profit disclosure. The fiscal flexibility is needed to be designed of fiscal regime so that financial benefits are allocated on agreed footing when economic conditions vary. This in turn can be favorable for MNCs as well as host nations and thus might lead to ethical and accounting issues that have been identifiedby them to revealfinancial information on profits and delays regarding royalty payments delays. The Australian government can give fiscal flexibility through progressive taxation upon which whole benefit are reallocated progressively. The ineffective taxation theory on PPRT has mainly enabled the financial preparers to assess PPRT through failure in disclosing financial information, thereby benefitting MNCs employers via pay royalties. This affected the public due to failure by MNCs for delaying payment of royalties.
The government of Australia has been still utilizing regressive fiscal regime, which in turn permitted MNCs to credit tax. For controlling accounting issues used by the MNCs and consequently evading via tax credits, the policymakers of this country must never integrate tax structure whereby tax rates surges as price function. The windfall PPRT assures that price movements remain connected to profitability alterations. The tax framework have disregarded affect of cost variation and profitability output. However, the government of this nation is required to use accurate method for holding resource rent by connecting tax rates to investment return by MNCs.
Ineffectual utilization of regressive taxation theories on PPRT by the Australian government has enabled them in manipulating PPRT through failure in disclosing financial data on taxable profit. This benefits the employers of MNCs through carrying forward and tax credits. Even the financial information users from the MNCs have changed owing to its failure in revealing proper financial data on taxable profits for complying with AASB 112.Additionally, the public has been shortchanged owing to MNCs failure in delaying their royalties payment as well as influencing regulators.
Conclusion
Proper attention needs to given to the identified accounting issues via MNCs manipulation. The Australian government should change from this regressive to the progressive taxation that includes utilization of alternative taxation to aid maximize revenue while not distorting investments by the MNCs. Thus, from the above discussion, it can be concluded that the MNCs growth and performance hampered due to such accounting and ethical issues relating to PPRT.
References
Arezki, R., Dupuy, A. and Gelb, A., 2012. Resource windfalls, optimal public investment and redistribution: the role of total factor productivity and administrative capacity.
Aston, H. 2018. Tax sink hole: Gas multinationals claim $50 billion more in relief credits in a year. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/politics/federal/tax-sink-hole-gas-multinationals-claim-50-billion-more-in-relief-credits-in-a-year-20170213-gubmfv.html [Accessed 22 Oct. 2018].
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