• FINANCE FORUM
ADAPTING SA TAX LEGISLATION
TO THE EVOLVING MINING INDUSTRY
By Althea Soobyah , director at Forvis Mazars in South Africa
The mining industry in South Africa has undergone significant changes in recent years , driven by both global trends and local challenges . As a major contributor to the country ' s revenue , it is crucial that the tax legislation evolves to support and incentivise this vital sector .
This article explores some of the changes in the mining industry and the current state of South African tax legislation in relation to those changes .
Changes in the mining industry The South African mining industry has faced numerous challenges , including fluctuating commodity prices , rising operational costs and regulatory uncertainties . Despite these challenges , the industry remains a key player in the economy , contributing significantly to employment and GDP .
Environmental , Social and Governance ( ESG ) has become mandatory for conducting mining operations with a focus on reducing greenhouse gas emissions and sustainability . There has also been an increased focus on the use of technology to drive operational efficiencies within the mining industry . These investments in technology based solutions do however require significant capital investments .
Current state of South African tax legislation South African tax legislation for the mining industry includes various provisions aimed at supporting the sector . The Mineral and Petroleum Resources Royalty Act regulates the imposition and calculation of mining royalties , taking into account the profitability of the taxpayer . Additionally , mining companies are entitled to upfront deductions on qualifying capital expenditure and partial deductions on employee-related and transport-specific infrastructure . However , these incentives have been entrenched in the tax legislation since 1992 with few changes to align the tax regime with the current mining climate and global changes .
The Davis Tax Committee ( DTC ) has conducted extensive reviews of the mining tax regime in 20151 and 20162 where recommendations were made on refining the approach to how companies within the mining industry should be taxed . Several recommendations were made in the report to create reform of the mining tax legislation to align to the changes in the industry .
The DTC issued two reports which focussed on findings and recommendations on how the mining tax regime could be improved and addressed various challenges faced by the industry . Some of the key findings and recommendations of the reports are summarised below :
1 . Tax rate and base : Aligning the tax rate with that of nonmining companies to ensure neutrality and equity .
2 . Capital allowances : A recommendation to discontinue the 100 % upfront capital allowance and replace it with a depreciation regime ( 40 / 20 / 20 / 20 basis ), similar to that for manufacturing assets to standardise the tax treatment of mining and non-mining sectors .
3 . Ring fencing : One of the reports proposed removing ring fences that prevented the set-off of capital expenditure against non-mining income .
4 . Gold mining : One of the reports suggested retaining the gold mining formula for existing gold mines to support employment and economic stability . For new gold mines , it recommended abolishing the formula and applying the same tax rules as for other mining companies .
5 . Additional capital allowances for gold mining : A recommendation to phase out the additional capital allowances for gold mining companies to align their tax regime with that of other sectors .
6 . Contract mining : A proposal to recognise contract mining arrangements , provided they were structured as principalagent relationships in order to incentivise contract miners to operate lawfully and to be eligible for relevant tax allowances available to mining companies .
7 . Mineral royalty : Consideration to be given to the mineral royalty regime by clarifying and improving various aspects , such as the determination of gross sales and EBIT . A review of the royalty rates was also recommended .
8 . New tax instruments : The introduction of new tax instruments like windfall taxes or resource rent taxes , was not supported .
9 . Greenfield exploration : The need to encourage greenfield exploration through regulatory improvements and possibly additional tax incentives , following a thorough examination of the current regulatory framework was emphasised .
10 . Social and labour development : The reports recommended making infrastructure community spend incurred in terms of a Social and Labour Plan tax-deductible , even if it benefited the community at large and not just direct employees .
11 . Harmonisation and improvements to legislation : A comprehensive review and harmonisation of mining tax legislation to ensure consistency and clarity was suggested with the inclusion of a separate schedule to the Income Tax Legislation pertaining to the mining industry .
60 • African Mining • January 2025 www . africanmining . co . za