South Africa’s Finance Minister Trevor Manuel announced that government would continue its work on the Mineral and Petroleum Royalty Bill, and would introduce a sales-based revenue royalty charge for the country’s mining industry in five years time.
The bill, initiated by the Department of Minerals and Energy, relates to the control and development of the country’s natural resources.
Manuel said yesterday, during his 2004 Budget Speech in Parliament, that the Mineral and Petroleum Royalty Bill would take effect in 2009, ensuring that the change in the tax regime did not interfere with conversion to new-order mineral rights, in terms of the Mineral and Petroleum Resources Development Act.
“These changes to the mining and petroleum tax structure provide an opportunity to review the industry’s tax dispensation as a whole,” Manuel explained.
The Act, promulgated in 2003, includes provisions for recognising the State’s sovereignty and custodianship over the country’s mineral resources, equitable access to mineral resources, opportunities for historically-disadvantaged South Africans, and aims to promote economic growth, employment and socioeconomic welfare, and security of tenure.
The budget makes provision for medium-term expenditure allocations of R1,934-billion for the mining industry during the 2004/5 financial year, R2,070-billion during 2005/6, and R1,936-billion during 2006/7, to the minerals and energy sector.
Despite fluctuations in total expenditure, the overall trend, as set out in National Treasury’s Estimates of National Expenditure (ENE), reflects significant increases.
Expenditure in the sector has increased significantly from R592,1-million in 2000/1, showing an average annual increase of 21,8% to 2006/7.
A key challenge, as identified in the ENE, for the Department of Minerals and Energy, is the environmental effect of mining.
In order to assess and quantify the potential liabilities in terms of environmental, social and health risks and the associated costs of land rehabilitation, the department has launched a process of identifying and cataloguing all abandoned mines in South Africa into a database.
The work to assess and redress the State’s accumulated environmental liabilities, in relation to coal, gold and other mines, will be completed by the 2006/7 financial year.
Meanwhile, Reuters reported that industry officials are roundly opposed to a royalty-based on gross revenues, as this would hurt mines that are less profitable and would also have a heavy impact during the start-up phase of a mine. The industry wants royalties based on profit rather than on revenue.
Reuters also reported that Manuel told reporters prior to his speech that the royalty should be seen in the context of collective ownership of the nation's mineral rights, rather than merely a tax on companies.
"These people take what is a collective patrimony... they take and they don't give it back," Manuel was quoted as saying.
He said the choice was between a high rate based on profit and a lower rate based on sales.
The National Treasury said in its 2004 Budget Review the gold mining tax formula, which provides income tax exemption and secondary tax on company relief for certain gold mines, despite the existence of profit, was due for review.
"While a special dispensation is arguably required for marginal mines, any tax preference in this regard is more appropriate for a royalty regime than the corporate profit tax, which by its very nature automatically adjusts for profit levels," it said.
The new regulatory system for mining rights and accompanying royalties made it imperative to reassess the current fiscal regime, including tax depreciation, rate differentiation for mining sectors, allowable deductions, and STC exemptions, it added.
Other issues of concern included the special 40% surcharge for companies engaged in natural oil extraction, as the country was keen to attract more investment into its fledgling natural oil and gas industry.
The treasury said government was mindful of potential adverse impacts from the proposed royalty tax on investment, employment and output.
Its assessment suggested that economic costs could be minimized if the royalty took account of the sector's diverse production dynamics.
"Due to different market structures, the impact of the royalty will vary across the mining sectors, requiring a differentiated royalty rate. This rate differentiation will be refined to account for these diverse economic impacts," the treasury argued.
It would also study the handling of marginal mines, the elimination of potential double royalties, continuation of current royalties during the transition period and possible adjustments to other revenue charges in respect of the new order mineral rights, the treasury said.
The bill, initiated by the Department of Minerals and Energy, relates to the control and development of the country’s natural resources.
Manuel said yesterday, during his 2004 Budget Speech in Parliament, that the Mineral and Petroleum Royalty Bill would take effect in 2009, ensuring that the change in the tax regime did not interfere with conversion to new-order mineral rights, in terms of the Mineral and Petroleum Resources Development Act.
“These changes to the mining and petroleum tax structure provide an opportunity to review the industry’s tax dispensation as a whole,” Manuel explained.
The Act, promulgated in 2003, includes provisions for recognising the State’s sovereignty and custodianship over the country’s mineral resources, equitable access to mineral resources, opportunities for historically-disadvantaged South Africans, and aims to promote economic growth, employment and socioeconomic welfare, and security of tenure.
The budget makes provision for medium-term expenditure allocations of R1,934-billion for the mining industry during the 2004/5 financial year, R2,070-billion during 2005/6, and R1,936-billion during 2006/7, to the minerals and energy sector.
Despite fluctuations in total expenditure, the overall trend, as set out in National Treasury’s Estimates of National Expenditure (ENE), reflects significant increases.
Expenditure in the sector has increased significantly from R592,1-million in 2000/1, showing an average annual increase of 21,8% to 2006/7.
A key challenge, as identified in the ENE, for the Department of Minerals and Energy, is the environmental effect of mining.
In order to assess and quantify the potential liabilities in terms of environmental, social and health risks and the associated costs of land rehabilitation, the department has launched a process of identifying and cataloguing all abandoned mines in South Africa into a database.
The work to assess and redress the State’s accumulated environmental liabilities, in relation to coal, gold and other mines, will be completed by the 2006/7 financial year.
Meanwhile, Reuters reported that industry officials are roundly opposed to a royalty-based on gross revenues, as this would hurt mines that are less profitable and would also have a heavy impact during the start-up phase of a mine. The industry wants royalties based on profit rather than on revenue.
Reuters also reported that Manuel told reporters prior to his speech that the royalty should be seen in the context of collective ownership of the nation's mineral rights, rather than merely a tax on companies.
"These people take what is a collective patrimony... they take and they don't give it back," Manuel was quoted as saying.
He said the choice was between a high rate based on profit and a lower rate based on sales.
The National Treasury said in its 2004 Budget Review the gold mining tax formula, which provides income tax exemption and secondary tax on company relief for certain gold mines, despite the existence of profit, was due for review.
"While a special dispensation is arguably required for marginal mines, any tax preference in this regard is more appropriate for a royalty regime than the corporate profit tax, which by its very nature automatically adjusts for profit levels," it said.
The new regulatory system for mining rights and accompanying royalties made it imperative to reassess the current fiscal regime, including tax depreciation, rate differentiation for mining sectors, allowable deductions, and STC exemptions, it added.
Other issues of concern included the special 40% surcharge for companies engaged in natural oil extraction, as the country was keen to attract more investment into its fledgling natural oil and gas industry.
The treasury said government was mindful of potential adverse impacts from the proposed royalty tax on investment, employment and output.
Its assessment suggested that economic costs could be minimized if the royalty took account of the sector's diverse production dynamics.
"Due to different market structures, the impact of the royalty will vary across the mining sectors, requiring a differentiated royalty rate. This rate differentiation will be refined to account for these diverse economic impacts," the treasury argued.
It would also study the handling of marginal mines, the elimination of potential double royalties, continuation of current royalties during the transition period and possible adjustments to other revenue charges in respect of the new order mineral rights, the treasury said.
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