Tax developments in the mining industry
The South African mining industry remains a major contributor to the country’s development, despite being plagued by labour unrest in the recent past.

In his 2013 budget speech earlier this year, Minister Pravin Gordhan stated that mining taxes would be reviewed as part of a broader investigation into the appropriateness and effectiveness of the nation’s tax system to “assess our tax policy framework and its role in supporting the objectives of inclusive growth, employment, development and fiscal sustainability”.

KPMG hosted a breakfast seminar to discuss tax developments in the mining industry at its Wanooka Place office on Thursday, 29 August 2013. Topics under discussion included fiscal developments in the mining sector, e-filing developments, the Mineral and Petroleum Resources Development Act No 28 of 2002 developments and the review of the mining tax regime announced by the Davis Commission. Leading the interactive discussions was Muhammad Saloojee Director, Head of Corporate Tax at KPMG in South Africa

Rodger Baxter, Senior Economist at the SA Chamber of Mines provided context to the current mining industry and economic climate. Baxter emphasised that the mining industry remains a key player in the South African economy.

“There are perceptions that the industry does not care about the lives of workers, does not pay well and mining profits and benefits are exported to a small bunch of capitalists. Contrary to these perceptions, mining is a key foundation industry which has enabled South Africa to become the most industrialised country in Africa. The industry is a large employer of semi-skilled and skilled workers and is a critically important net generator of Forex. In addition, the industry is an equally important, very large magnet for foreign investment inflows and is a significant contributor to transformation in the economy,” noted Baxter.

Baxter believes that South African mining has not met its potential as it has faced bouts of policy uncertainty, including the nationalisation discussion, the review of mining taxation and the possible introduction of a carbon tax.

Advocate Leon Bekker discussed the recent amendments to the MPRDA, some of which came into operation in June 2013. The amendments that make the National Environment Management Act, No 107 of 1998 (NEMA) applicable to mining operations will only come into operation in December 2014.

“Unfortunately the introduction of the amendments took place unexpectedly and in a haphazard fashion, creating uncertainty with regard to the current status of the law, not the least of which is the deletion of the requirement that mines must manage and rehabilitate the environmental impact of their mining activities in accordance with an approved environmental management programme (EMP) while the provisions in NEMA designed to replace the EMP were not put into operation,” stated Bekker.

Bekker further noted that the amendments relating to the beneficiation of minerals mined in terms of mining rights issued in terms of the MPRDA were also significant.

“The amendments do not provide any particularity and the detail is left to the Minister to introduce by way of regulation. Since there are currently no regulations dealing with beneficiation, the industry remains in the dark with regard to the government’s intentions on beneficiation. This is exacerbated by the recent introduction into Parliament of new proposed amendments to the MPRDA, which replace the amendments that were recently made with regard to beneficiation, with provisions which empower the Minister to regulate both the price at which, and the quantity of, any mineral mined in the Republic must be sold to local beneficiators. It also prohibits the export of any mineral without the prior written consent of the Minister. These proposed amendments will severely inhibit investment in new mining ventures in the Republic. It is unlikely that investors will invest in a business that cannot predict the quantity and price of its product,” said Bekker.

Bekker warned that the current state of the mining regulatory environment is uncertain and in transition, all of which, together with the current depressed economic climate, is unlikely to encourage new investment in the already struggling mining industry.

Ben-Schoeman Geldenhuys, Director, Head of Mining Tax at KPMG in South Africa, took the audience through some of the proposed amendments to the Income Tax Act and the Mining Royalty legislation. In addition, he provided insight into some of the tax issues and challenges facing the mining industry, including disputes around diesel refunds, the debate surrounding tax treatments of mining visa, mining CAPEX and mining losses. Further, he discussed the potential impact of carbon taxation.

“KPMG contributes to National Treasury and SARS on mining-related tax issues contained in draft legislation and is well placed to assist in contributions to the Davis commission,” concluded Geldenhuys.


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