The Mining Charter’s Impact on Taxpayers
2017/18 South African National Budget Expectations
The Broad Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry (“Mining Charter”) was published on 15 April 2016. It is a government instrument designed to effect sustainable growth and meaningful transformation of the mining industry through effective ownership, enterprise development and local procurement, beneficiation, employment equity, human resource development, mine community development, and housing and living conditions.
Given the current industry challenges, there is concern that the Mining Charter will add to the strain faced by these companies. The industry is currently grappling with tough global economic conditions which impact on the commodity prices, increased demands by labour unions and mining communities. Treasury should therefore consider introducing incentives, such as tax deductions or rebates, which would promote compliance with the provisions of the Mining Charter. These could include:
- Manufacturing incentives to promote locally manufactured goods as required by the Mining Charter. This would assist local manufacturers who supply to the mining industry to potentially incentivise them to reduce their pricing which would assist the mining companies.
- Incentives for mining companies to use local manufacturers or additional allowances for mining companies who manufacture the goods themselves.
- The Mining Charter requires 26% BEE ownership to be in place. Treasury should perhaps allow related restructure costs to be deductible as costs of compliance (similar to annual filing fees, annual audit fees and so forth).
- Additional allowances, government grants or incentives relating to housing and mine community development.
- Specific learnership allowances or employment tax incentives for the mining industry if the required annual investment percentage in skills development is reached.
Additionally, the Mining Charter seems to suggest another form of tax by proposing a 1% on turnover contribution towards mine community development. Mining companies already pay mining royalty tax which is calculated on gross sales at a minimum of 0.5%. The introduction of this proposed contribution to mine community development will directly impact the viability of current and future mining projects as it will be payable whether the mine is profit or loss making.
It will be interesting to see how Treasury aligns the Mining Charter proposals to the Davis Tax Committee’s final recommendations which we expect to be published in the near future.
It is worth noting that many of South Africa’s mining peers are also considering tax changes, with both Canada and Australia looking at measures to improve transparency, either for extractive industries in particular (in the case of Canada) and for business broadly (as Australia is doing). The United States has adopted amended extractive industry payment disclosure regulations. Meanwhile, Russia is aiming to repatriate Russian companies out of foreign jurisdictions, and Chile’s tax reforms, while not specifically aimed at the mining sector, are likely to impact foreign-parented mining firms in particular. South Africa would do well to look at these developments carefully, in order to analyse the potential impact on our own mining economy and attractiveness for investment.
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