South Africa’s mining royalties would come under the spotlight as part of Finance Minister Pravin Gordhan’s study on the country’s tax policies, President Jacob Zuma said during the State of the Nation address last week.
The study aims to determine how the state can collect revenue from mining houses to improve public spending.
“Later this year, the minister of finance will be commissioning a study of our current tax policies, to make sure that we have an appropriate revenue base to support public spending,” Zuma said.
“Part of this study will evaluate the current mining royalties regime, with regard to its ability to suitably serve our people.”
The SACP hoped the review would ensure that the people shared in the country’s mineral wealth, it said on Friday.
“The SACP calls for the process to be inclusive and communities in the mining areas must be accorded an opportunity to explain the exploitative practices of the mining houses. If this is kept as a technical tax review process it may not ultimately address the social ills created by the mining houses,” the party said.
The mining houses have been criticised for not doing enough to improve the lives of members of host communities.
The commission was expected not to look at the mining tax laws only, but also to look at what drove mining profits as tax was dependent on them, Deloitte associate director of mining tax Alex Gwala said.
“One can introduce as many taxes, however if the mining profits keep shrinking as they’re currently doing, the intended tax revenue growth will not be achieved,” Gwala said.
Zuma’s announcement followed the decision by the ANC that the mining industry needs to contribute more to the country’s revenue at its national conference in December.
Nationalisation is off the table. Proposed alternatives include a resource-rent tax or higher royalties.
The State Intervention in the Mining Sector report released last year recommended a 50 percent mineral resource rent tax on profits.
“A review of the current mining royalty regime indicates that government may want to introduce a more encompassing royalty regime that is less open to different interpretative views on how to apply the royalty regime,” KPMG tax partner Mohammed Jada said on Friday.
Jada said this needed to be balanced with the need to encourage further investment in the sector.
Nomura International analyst Peter Attard Montalto said: “A tax commission to assess how the state can garner the resources to boost spending seems to hint that a step change in spending is about to occur.”
He added that it seemed a greater tax burden might well be delayed until after the election next year