Mining supertax, more beneficiation in ANC's cross hairs
The ANC has released a wad of documents intended to become policy after its elective conference in Mangaung later this year, with a resource rent tax of 50% on mining super-profits at the sharp end of its proposals.
But it also proposes a far greater activist role for the state to intervene in setting prices, such as being able to compel Sasol to sell its chemicals to the manufacturing industry at competitive rather than monopoly prices.
The party likewise wants to declare coal a strategic mineral, so that coal companies sell to Eskom at cost-plus rather than at export prices linked to international demand.
New steelmaker to battle ArcelorMittal?
It also wants to facilitate the entry of a new steelmaker into the market to drive price competition against monopolist ArcelorMittal and moots the possible buyout of a 50% stake in iron-ore giant Kumba at a cost of up to R15-billion.
Control of Kumba could force it to supply iron ore at cheaper prices.
To facilitate the supply of inputs at lower prices the ANC also proposes banning the export of all scrap metals while placing export levies on some metals to encourage their local beneficiation.
Economics documents released this week include reports on the role of the state in the minerals sector, economic transformation, state-owned enterprises and communications.
The draft 400-page state intervention in the minerals sector (Sims) report, a year-long study of the state’s role in 13 countries, contains numerous proposals that, if implemented, would shake up business.
While the documents make no mention of nationalisation as an option for mining, the proposed supertax on mining—in the form of a resource rent tax (RRT) to be levied on super-profits—is likely to generate significant heat.
Resource rent tax
The RRT is a new tax to be paid above all existing taxes, although the ANC’s proposal is to reduce the present royalty tax from 4% of turnover to 1%. The idea is that this move would reduce costs, encouraging more mining. But then the state will benefit from RRT, which would be applied to mining super-profits above a suggested return of 15%.
The Sims document claims that some mining sectors have been achieving returns on investment of over 100%. It estimates that as much as R40billion in new tax receipts could be raised annually through the RRT. This compares with total tax payments last year by mining of R17-billion, according to figures supplied by the Chamber of Mines.
Critics of RRT see it as an intervention in the normal risk-reward process, while supporters see it as a way for the proceeds from extracting finite resources to be more equitably shared. Resource taxes in one form or another are being implemented or investigated by a number of resource-rich countries, including some in Africa, such as Ghana.
The Sims report suggests that the proceeds of RRT be ring-fenced into a sovereign fund that will act as a stabilisation fund so that proceeds can be drawn down over time, meaning that the fiscus is less exposed to boom-bust commodity-price cycles.
A source familiar with the mining industry says that all sectors are likely to qualify for RRT, having achieved the 15% return threshold, the exception being the gold industry, which has been struggling with declining grades and rising costs.
The most profitable companies, the source says, are those involved in ores, manganese and export coal, as well as platinum group minerals (PGMs).
Other proposed Sims interventions include specifying local content and beneficiation targets linked to mining licences and declaring certain minerals to be “strategic”.
It also proposes declaring PGMs to be included with gold in forex regulations, so that only the state is allowed to market them.
The idea is to encourage the sale of PGMs to the domestic industry to beneficiate for export, with desirable trade and employment outcomes.