Larger tax burden for South African Mining industry

 

 

At the Mangaung conference hosted by the ANC late last year, early talks of a revised mining tax code began, but didn't surface again until the middle of this year. 

 

In a statement released in July of 2013, Finance Minister Pravin Gordhan announced that documents related to the State Intervention in Mining proposal would be reconsidered as part of a complete tax review that could include revised tax rates for the mining industry.

 

The State Intervention in Mining document has lead to speculation that the ruling party would want the taxation of mining commodities to rise to 50% on all activities. A rate similar to this has been implemented in Australia, being stated as a resource rent, but has been met with a lot of opposition throughout the opposition political parties and members of industries that are being affected.

 

As part of the consideration set into motion by Gordhan, an executive committee will review every aspect of the proposal in order to determine whether or not the current tax rate on the mining industry is enough. 

 

The committee, which will be required to provide interim reports to the Finance Minister while making their decision. The decision will require them to consider factors such as the economic instability faced by South Africa, low commodity prices, declining profit margins, rising costs and commodity shortages.

 

Analysts and tax authorities have advised, however, that a higher tax rate would be crippling to the industry, which remains one of the most vital industries in driving the South African economy. 

 

Current tax systems on the mining industry make use of brackets that allow companies and startups with lower profit margins to pay less tax on the use of the commodities than those with higher profit margin, while a set tax rate across the board would mean even more of an unequal balance and causing potential startups in the industry to have to fight an even steeper battle to be sustainable.

 

More information on the revision of the mining tax laws will become available over the next few months, while a more solid decision should be expected during the 2014 State of the Union address in parliament.

 

 

Written by Wesley Geyer

Creative writer at ATKA SA