While Finance Minister Pravin Gordhan received plaudits from some quarters when he announced in his Budget speech last month that an environmental tax would be introduced in the mining sector to contribute towards funding the infrastructure needed to alleviate acid mine drainage (AMD), professional services firm Deloitte has stated it expected the results of a tax review by the Davis Commission, instituted last year, to be released before any new mining taxes were introduced.

“In February last year, the Minister announced during his speech that a commission would initiate a tax review to assess the country’s tax policy framework and its role in supporting the objectives of inclusive growth, employment, development and fiscal sustainability. The findings of the review have not yet been announced and we thought that the outcome would give us an idea of where the country is at in terms of reviewing mining taxes,” says Deloitte associate director Alex Gwala.

Gwala suggests that the proposed environmental tax announcement by the Minister could have been perpetuated by the environmental challenges in the Central basin of the Witwatersrand goldfields, in Gauteng, last year, despite the Davis Commission not having yet finalised the tax review.

In August 2009, the Council for Scientific and Industrial Research issued a paper detailing the challenges associated with AMD and how much mining operations were contributing to the problem. It stated that South Africa is a water-stressed country and security of water supply had, therefore, become a key strategic issue and a driver for continued and sustained economic growth and service delivery to the people of South Africa.

To deal with these issues, Gordhan indicated in his 2012 Budget speech that a portion of the R3.6-billion, allocated to the Department of Water Affairs for water infrastructure and services, would be used to fund water drainage threats for abandoned underground mines. That announcement indicated that funds were available to treat AMD.

Gwala says that, in light of this allocation, the proposed environmental tax is, therefore, meant to bring the mining sector on board in terms of funding the costs of AMD.

“The Minister stated that this tax is being introduced to complement current efforts and ensure that the mining sector makes a fair contribution to ongoing AMD expenses,” he states.

State-owned Trans-Caledon Tunnel Authority – which is tasked with monitoring the AMD crisis – notes that the AMD project entails the installation of pumps to extract the water from the mine void and channel it to on-site treatment plants. It also includes the construction of an on-site AMD treatment plant in each basin – with the option of refurbishing and upgrading the existing plants that are owned by the mines.

Gwala notes that, with legislation usually taking about two to three years to be drafted, the mining sector is likely to see the implementation of the proposed environmental tax only in a few years’ time and not immediately.

He states that although the environmental tax will be implemented, he does not expect the tax to be too costly for the sector; however, the sector should consider how this will benefit the mines as it addresses the AMD crisis.