Mining companies should prepare for the introduction of a resource rent tax, according to Deloitte associate director of mining tax Alex Gwala.
Gwala said that, based on decisions at the ANC’s national conference in Mangaung last month, an announcement about proposed interventions could be expected from Finance Minister Pravin Gordhan in next month’s Budget.
He was speaking at a Deloitte pre-Budget presentation in Johannesburg yesterday.
Mining companies have been the target of criticism over past months, against the backdrop of violent industrial unrest. Trade unions and politicians have proposed a series of measures that would make them less profitable.
After the Mangaung conference, President Jacob Zuma spoke of the need to “capture an equitable share of mineral resources rents through the tax system”.
Gwala said: “We don’t expect the minister to present full details of the tax [in the Budget] but mining companies need to conduct thorough assessments of what the impact would be for their organisations, to be able to lobby when the Treasury invites comment on draft legislation.”
In an interview at the World Economic Forum in Davos, Switzerland, Gordhan told Bloomberg TV that there were no immediate plans to increase mining taxes.
“We will keep the matter under review and when we think it’s appropriate we will see how the regime needs to change.”
Gwala noted that the resource rent tax would be triggered when an investor had made “reasonable returns”, but said there was no clarity on what would be regarded as a reasonable return.
“This will ultimately be defined by Treasury, although it has been suggested that the level of return will be about 15 percent,” he said.
The tax would be based on the surplus after direct mining costs but before indirect costs, Gwala added.
An increase in mining royalties is also on the table, post Mangaung. “It is proposed that the current royalty be fixed at 1 percent of revenue, double the current rate of 0.5 percent. The 1 percent is calculated on revenue and is not reduced by capital expenditure,” he said.
Deloitte director Billy Joubert noted there would be implications for employment if the cost structures of mining companies increased. Mining profits have been squeezed in recent years as costs accelerated faster than commodity prices, he said.
Gwala predicted a long process for the introduction of a resource rent tax, noting that the mineral royalty legislation had taken about five years to be drafted. It would involve consultation with all stakeholders, he said. “Government would want to avoid negative sentiments similar to those that were experienced by the Australian government when it was implementing its mining rent resource tax.”
Higher tax rates are unlikely, according to Deloitte. Joubert said this would reverse a long-standing policy of reducing tax rates and would send the wrong message to investors.
He suggested the SA Revenue Service (Sars) would focus on countering tax avoidance and said it was better equipped to deal with avoidance practices than it had been in the past. He said the Sars team responsible for addressing avoidance was “formidable”.
Musa Manyathi, an associate director at Deloitte, highlighted the anti-avoidance provision introduced last year in relation to the 15 percent dividend withholding tax, which replaced the 10 percent secondary tax on companies.
He said the primary purpose of the anti-avoidance legislation was to close the gap between the date of the declaration of a dividend and the actual date of payment, which triggered tax flows. “Transactions that exploit this gap may very well fall foul of the anti-avoidance provisions.”
He said the legislation was primarily aimed at schemes involving foreign shareholders.