Yellowknife (Feb 26/03) - "We're not impressed at all."

That's the way NWT and Nunavut Chamber of Mines executive director Mike Vaydik summed up tax changes for mining and resource companies in the recent federal budget.

Mike Vaydik

Vaydik said it appears the government has given with one hand and snatched away with the other.

Tabled last week, the budget reduces the corporate tax rate for mining and resource extraction firms -- including the oil and gas sector -- from 28 per cent to 21 per cent.

The reduction will be phased in over five years starting in 2004.

Changes made to balance the lower tax rate include the elimination of a 25 per cent Resource Allowance, which included provisions to enhance exploration.

"They have decreased corporate tax, which is a good idea, but on the other hand they have eliminated the Resource Allowance, which enabled companies to get a tax break," said Vaydik.

Mining Association of Canada (MAC) vice president Dan Paszkowski said the full implications of the tax changes aren't yet clear.

But he worried they could jeopardize the industry's ability to compete globally.

"We are still studying it, but the government may have created an environment where we are slightly worse off, or at best neutral compared to the current tax regime," said Paszkowski.

"We are very, very concerned that at a time when other mineral producing jurisdictions are creating a more competitive tax environment, our government is going the other way."

Paszkowski said MAC has been lobbying strenuously for a 21 per cent corporate tax rate, but isn't happy about the five-year phase-in period.

"In 2004 the corporate tax rate will be down to 21 per cent for the rest of the economy, but mining will have to wait another five years to reach the full impact of that tax rate.

"And to get the reduction, the government has charged the mining industry a price -- one being the elimination of the Resource Allowance.

"The rest of corporate Canada got the reduction for nothing."

Ottawa has introduced a new investment tax credit to encourage exploration but details are skimpy on what this entails, said Paszkowski.

"We assume it will be in the area of 15 per cent, but that isn't clear.

"Also, we don't know what the definition of exploration will be under the new investment tax credit provisions."

The finance ministry has promised an explanatory technical paper on the exploration tax credit later this week.

Paszkowski said mining and resource firms will be awaiting it with interest.

"Exploration is the bread and butter of our industry."