CAPE TOWN: The first report of the Davis Tax Committee (DTC) on taxation in the South African mining sector has disagreed with the preferred recommendation of a concurrent report from the International Monetary Fund (IMF) and concluded that a new mining tax is not required.
In the interests of neutrality, the DTC is broadly in favor of retaining the status quo of taxing mining taxpayers’ income at the same rate as non-mining taxpayers. However, it said that the tax incentives currently exclusively available to miners, such as upfront capital allowances for exploratory and developmental expenditure, should be discontinued and replaced with an accelerated depreciation regime in parity with the write-off periods provided for in the manufacturing sector.
The report notes that the Mineral and Petroleum Resources Royalty Act, which provides for a royalty to be charged on the transfer of mineral resources, was only enacted in 2010, and that it is “reasonably new and needs to be given a chance to prove itself.”
While various aspects of the mineral royalty regime “still need to be clarified and improved, particularly in relation to determination of the gross sales tax base,” the DTC takes the view that the royalty scheme has been “carefully designed” and ensures “a measure of cover (for the fiscus) in the form of a minimum revenue stream during weak economic cycles and low commodity prices.” The Committee therefore rejects calls to “introduce new tax instruments to the mining tax system, such as windfall taxes, rent resource taxes, surcharges based on cash flows, and separate flat royalty charges.”
With regard to the special taxation of the gold mining sector, the DTC would prefer that its additional annual tax incentive and special income tax rates are eliminated in the interest of tax neutrality. However, it also recognizes that gold mining remains a major contributor to employment, and jobs should not be jeopardized by immediately removing that tax framework for existing gold mines, it says.
It has therefore recommended that, while the existing tax framework should not apply to newly established gold mines, it should only be phased out for all gold mines “over a reasonable period of time.” The report does not deal with the offshore and onshore oil and gas sectors, which are to be dealt with in separate reports. The closing date for comments on this report is October 31, 2015.
