Industry experts are divided about whether mining companies can expect any major changes to their tax requirements in Finance Minister Pravin Gordhan's annual budget today.
(Image: Babakathy via Wikimedia Commons)
Andries Myburgh, director Corporate Tax and head of Energy & Natural Resources Tax at KPMG, says following the events at the Mining Indaba earlier this month, it would appear that it was government's view that nationalisation of mines is not policy, but what it will be investigating further is so-called resource nationalism as opposed to nationalisation.
This means looking at the current tax dispensation applicable to mines and whether it should, and if so how it should be changed, he said.
"I do not foresee that any changes to the taxation of mines in SA will be announced in this year's budget speech. However, I expect maybe that mention will be made that in the next year or so, this will be investigated through a consultative process with all relevant role players in the industry. To say what this would entail, at this stage, will be pure speculation," Myburgh says.Nationalisation 'out of the picture'
Otsile Matlou, head of mining at ENS, concurs that there will be a review of the current tax structure to see whether or not mining companies were being taxed as they should be.
"Nationalisation looks like it's out of the picture and many people are now thinking about how the state is going to make it up, so government may introduce some form of tax.
Matlou expected that royalty taxes will go down and will be replaced by some form of super tax - maybe akin to the one being implemented in Australia.
Myburgh noted that several issues might come up for discussion, including the introduction of the so-called tax on super profits or windfall tax - should it be introduced and, if so, in what format.
He pointed out that Australia seemed, after much initial resistance, to have successfully concluded the introduction of the Mineral Resource Rent Tax (MRRT) - which will be effective later this year. This was a form of tax on super profits.
"The response by many African countries, including SA, is that if Australia can do this why not Africa? Obviously there are major differences between Australia and most African countries in the sense of infrastructure, such as rail and port availability and capacity, electricity and water supply etc," he said.There must be consultation
Matlou also agreed that, as was the case a few years ago with the royalties tax, there will have to be a consultation process with the mining industry.
He noted in the past there had been a lot of interaction between National Treasury and the Chamber of Mines on the royalty tax to get to the principles and technical drafting of the legislation.
He said given any new taxes would have an impact on the entire industry, companies would have to make submissions to national government on what they think would work, as it relates to the whole question of SA as a mining destination.
He said an announcement of the process may well be a feature of the budget.
Myburgh added that government might also consider increasing the income tax rate applicable to mining companies, changing the current mineral royalty system or a carbon tax on mining companies, which is already a white paper.
"However, if these types of taxes are introduced, government must also introduce incentives for mining companies to actually invest into projects in SA. For example a carbon tax is proposed to be introduced, which will hit the mining industry, which is very energy consumption intensive. However at the same time government wants mining companies to do beneficiation of minerals locally. So incentives for companies to make such investments should be provided," he said.Immediate changes unlikely
"I do not think any immediate changes will be announced and what and how the taxation will be changed is mere speculation at this stage. What industry wants is certainty and predictability, if this can be provided by our government this should encourage companies to invest in mining and exploration projects in SA. The sooner government can provide such certainty and predictability the better it will be for the economy," Myburgh added.
Matlou added that there could be one other announcement, relating to the question of taxing sales of prospecting rights. There is a debate, which started few years ago and has gained momentum, whether this should be treated as capital or revenue. "Maybe the minister will deal with it once and for all," he said.
Colen Garrow, economist at Brait believes miners will probably face some increase in taxation, "especially after government deftly substituted it for the damaging rhetoric surrounding the nationalisation of the industry".
However, he cautioned that it should be remembered that the mining industry was in recession, already contracting by three consecutive quarters, most recently by -17.2% on a seasonally adjusted and annualised basis in Q3 2011.
"Burdening the industry even further will undoubtedly see it miss the next leg of the super commodity cycle," Garrow said.