UPDATE 1-New Australia mining tax seen burying miners' profits

* Uniform national tax to replace state royalties -paper

* Fears new tax will cut productivity, deter investment

* Mining stocks, hit by lower metal prices, take a hit

* Tax could come as early as May if approved by PM Rudd

By James Regan

SYDNEY, Jan 22 (Reuters) - Australian miners will face billions of dollars in new taxes that threaten to slash productivity and put at risk billions of dollars in new investment, sector officials and analysts said on Friday.

Treasury chief Ken Henry has recommended scrapping state royalty taxes on mining projects and replacing them with a uniform national resource rent tax, injecting billions of extra dollars into government coffers, the Sydney Morning Herald newspaper said in an unsourced report. [ID:nSGE60K0L2]

Australian mining stocks outpaced losses in the wider market as investors fled on fears the new tax would cut into profits, compounded by a drop in metals prices.

The world's biggest miner, BHP Billiton Ltd/Plc (BHP.AX)(BLT.L), retreated 2.27 percent, while Rio Tinto (RIO.AX) fell 3.45 percent and Fortescue Metals Group (FMG.AX) dropped 3.61 percent.

"This will have a detrimental impact on the ability of the mining sector to attract investment and expand at a time when it is most needed," said Darren Brown, national manager of policy and government relations for the Association of Mining and Exploration Companies Inc., which groups more than 100 firms.

The so-called "rent" tax could be introduced as early as May if approved by Prime Minister Kevin Rudd, placing levies of up to 40 percent on iron ore, coal, copper zinc and other minerals mined in Australia each year.

Three of the world's biggest mining houses, BHP Billiton Ltd, Rio Tinto and Xstrata (XTA.L) have drawn up plans to dig hundreds of millions more tonnes of iron ore and coal this decade, based on the current state-only royalty system and would face some of the heftiest tax bills.

"Mining companies, big or small, are going to rethink their investments if they get hit with something like this," said Peter Chilton, a fund manager with Constellation Capital Management. "It will definitely impact on productivity."

Australia's mining sector has fought the reforms ever since a gold tax was established in 1991 but complain Rudd's administration has kept them in dark over a review undertaken late last year by the secretary of the treasury, Ken Henry.

The Minerals Council of Australia, known more for working hand-in-hand with the government on policy changes, has said the tax is equivalent to killing the goose that lays the golden egg at a time when commodities markets are recovering from the global financial crisis.

"The real driver is the growing perception that the industry is considered a ready milch cow," the council's chief executive Mitchell Hooke, said in comments e-mailed to Reuters.

Another possibility is that the state royalties could remain intact with a federal tax placed on top, Hooke added.

Details of the Henry tax review have not been disclosed publicly, though Rudd has promised to make them available before the next national budget in May.

Australia's complicated tax system netted A$278 billion ($251.6 billion) last year, with company and resource rent tax contributing A$56 billion or 21 percent. Australia's 30 percent corporate tax rate is the eighth highest in the OECD.

In a strong indication new taxes would be imposed on miners, Henry said in a speech to tax specialists on Thursday evening that "reform can be especially difficult when those sectional interests can be dressed up as a concern for exports and jobs."

Mining is the chief employer in some rural regions and miners are expected to argue they are already required to provide social welfare to communities with little government assistance.

At least two of Australia's biggest mining states, Western Australia and Queenland, where the majority of gold, iron ore and coal is mined, have publicly opposed the idea of a national mining tax, especially if it replaces state royalty schemes.

Western Australia relies on mining royalties to pay for police, education and health services. (Editing by Clarence Fernandez)