A decision regarding the best intervention regarding possible additional tax on extraordinary profits generated by the liquid fuels industry will be announced in the February budget, Finance Minister Trevor Manuel said on Wednesday.

This comes as the task team investigating possible reforms to the fiscal regime applicable to profits in the liquid fuels industry, last month, submitted its report to the National Treasury, recommending “substantial reforms and an investment-linked tax and subsidy regime”.

The 2006 Medium-Term Budget Policy Statement, released on Wednesday, stated that government would further explore an investment-linked tax and subsidy regime, which was, essentially, a combination of the previous subsidy regime and a progressive tax formula.

In May, a task team started its investigation into a revised subsidy regime, a cost-based administered price regime, a progressive tax formula and investment-linked tax and subsidy options for the sector, with a clear focus on the synthetic fuels industry.

The team released a draft discussion document in July, which clarified definitions for windfall profits, economic rent and super profits and how these concepts were interrelated. It received 19 written comments before it submitted the final recommendations.

Manuel told Parliament on Wednesday that the report would be published for public comment next month.

Oil and gas investment

Meanwhile, government also announced its plans to support future investment in the oil and gas industry and said that it planned to incorporate tax incentives for exploration and production into law.

South Africa currently provides a range of incentives for oil and gas companies, including a maximum limitation on company tax rates, enhanced deductions of exploration or production expenses and freedom from exchange control. The agreements will, however, expire in June and National Treasury said that it would now amend the Income Tax Act.

“The proposed amendment contains a fiscal stability clause, ensuring continued availability of incentives on a case-by-case basis as companies enter the sector. The clause will remain in place over the full life of a new-order right and will support future investment in oil and gas,” the medium-term Budget stated. Government said that the adjustment was expected to support fiscal stability when exploration rights were renewed or converted into production rights.