Business

Industry wants clarity on mine tax

Lynley Donnelly

Despite renewed support for a tax on mining superprofits, from the ANC's elective conference, the implementation of the proposal has far to go.

The Australian government's proposed super profits mining tax has been met with resistance and a challenge to the new legislation is currently before the High Court of Australia. (Reuters)

 It also faces opposition from the industry, which has called for clarity on the policy proposal.

Enoch Godongwana, who chairs the party’s economic transformation committee, confirmed that it was supported in principle but the quantum of the tax was still to be discussed along with whether or not it would apply across the board or only to certain minerals.

No implementation plan had been mapped out. However, a lekgotla at the end of the month would look at providing guidelines, he said.

The effect of a resource rent tax on the existing royalties tax regime was also likely to be discussed.

The tax was mooted in the ANC’s policy discussion document on state intervention in the minerals sectors ahead of the party’s policy conference in the middle of 2012. The report proposed the reduction of the royalties tax to 1% and the introduction of the 50% resource rent tax after a normal, or 15%, return on investment is achieved.

“These are the permutations that we will be looking at,” said Godongwana.

The party’s policy recommendations on economic transformation, which went to Mangaung, said the state must “capture an equitable share of mineral resource rents and deploy them in the interests of long-term economic growth, development and transformation”.

Resource endowments
Proponents believe that a resource rent tax is the most equitable to ensure that countries share in the full wealth of their mineral resource endowments.

But business and mining sector players are sceptical of the proposal.

The ANC had done well to finally quash the threat of wholesale nationalisation, said Sandile Zungu, spokesperson for the Black Business Council, but the introduction of a resource rent tax had to be “viewed with suspicion”.

Local mining was beset with difficulties, including continuing labour relations strife, soaring electricity costs and other regulatory burdens. “A further tax would simply make mining in South Africa even more unattractive [to investors],” Zungu said.

There remained an ongoing debate over stark inequality in the industry, heightened by violent protests at Marikana last year. But more taxes would not address the problem, he argued.

Effective implementation of social and labour plans, already provided for in current legislation, could deal with inequality. The state’s performance monitoring and evaluation capabilities also needed to be enhanced.

“There was a range of measures that could be explored to ensure the country benefits more from mining. The measures included pre-1994 financial exemptions granted to mining companies importing capital equipment,” said Zungu. These were put in place to boost an industry that had been the number one job creator in the country and largest contributor to gross domestic product, Zungu said.

The services sector has replaced mining in importance, but these benefits have never been reviewed, he added.

Fiscal measures
Peter Leon, head of Africa mining and energy at law firm Webber Wentzel, said it appeared unclear whether the ANC’s elective conference endorsed a resource rent tax or additional fiscal measures, which “may not amount to the same thing”. Neither made “economic sense at this critical time for the industry”, he said.

Should a resource rent tax be proposed, which he did not support, it ought to be limited to specific commodities on which there were actual windfall profits.

“In Australia, for example, where the tax was introduced in July, it is limited to coal and iron ore, and is at an effective rate of 22.5% which is more than half the 50% rate proposed in the state intervention in the minerals sectors report,” he said.

The tax, which is very complex and notoriously difficult to administer, is currently under constitutional challenge in the High Court of Australia, said Leon.

The mining industry already pays royalty taxes over and above other taxes such as companies tax. The taxes generated R5.5-billion in revenue for the government in 2011, according to Chamber of Mines figures. Mines are taxed at a maximum rate of 5% on refined minerals and 7% on unrefined minerals.

According to Leon, if a resource rent tax was to be introduced, the royalty system would “almost certainly need to go because the state would effectively be capturing windfall profits twice”, which the state intervention in the minerals sectors report recognised.

The implementation of the proposal cannot happen without the muscle of the national treasury behind it. Given the complexity of the issue, a resource rent tax is unlikely to be broached without a published discussion paper that forms part of a public consultation process.

Resolutions
There is speculation that the government is reluctant to add more tax or administrative burdens to the currently troubled sector.

Treasury spokesperson Jabulani Sikhakane could not comment, saying only that the introduction of new taxes, or the amendment of existing taxes, was announced in the annual budget.

During the Mangaung conference, deputy finance minister Nhlanhla Nene was quoted in media reports as giving assurances that the state would not implement a new tax policy without extensive consultation.

These sentiments had given the industry some assurance, according to Vusi Mabena, senior executive for transformation and stakeholder relations at the Chamber of Mines.

But, the statements from the ANC remained very broad and offered little detail on the resolutions, said Mabena. “Broad statements do not assist anyone.”

How the industry interpreted the proposals, how the leaders of the ANC interpreted them and how ordinary ANC members interpreted them, were all very different, he argued. “This could lead to continued dissatisfaction at grass-roots level and the mining industry being blamed for inequality.”

Additional taxation measures
The chamber wanted to consult the government on the difference between the existing royalties tax and what the ANC was proposing. There needed to be better understanding of why ANC members believed the royalties regime was not working despite the billions it generated for the fiscus, he argued.

South Africa was the only jurisdiction that required mines to draw up social and labour plans, which could be viewed as an extra tax, said Mabena.

Despite these added measures required from the industry, persistent societal inequality remained, he said. As a result, a better understanding is needed of what blockages are causing this problem, Mabena argued. These gaps should be dealt with before the introduction of additional taxation measures.

The chamber was working hard to identify constraints to the implementation of social and labour plans for mining companies.

“The big problem is not that the industry is not [complying] with the law, but that there is not sufficient capacity at the local government level to support communities,” he said.

This was not mining companies’ core competency and there needed to be stronger relationships between local government, communities and the industry to address development and infrastructure challenges, he said.

The Rustenburg area was a prime example. “It is the fastest growing municipality in Africa. How can the local municipality deal with that human influx?” he asked.

“There is so much pressure that the efforts of the mining industry seem miniscule.”

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