There are positives and negatives with regard to mining in the 2013/14 Budget speech, which was delivered by Finance Minister Pravin Gordhan on February 27, says law firm Norton Rose director Dale Cridlan.
While no new mining taxes or increased min- ing tax rates were announced during the speech, it was announced, however, that the mining tax regime would be subjected to further review, as part of a review of the broader tax system. This could lead to uncertainty in the mining indus- try until the outcome of that review is known, Cridlan says.
“Currently, it is not known when this review process will start and how long it will be before the findings are known, which further adds to the uncertainty,” he adds.
The Budget speech recognised that the current royalty regime has broadened the tax base, while providing relief for marginal mines. However, the planned review will consider whether the current system is still appropriate within the context of mining tax to ensure that South Africa remains a competitive investment destination, he explains.
Cridlan points out that while it was indicated in the Budget speech that government wants mining companies to remain internationally competitive, in the medium term, it may lead to less investment in the industry until the outcome of the review is known.
However, a positive outcome is that it seems that the mining tax review will involve a con-sultative process with the industry role-players.
“Government will engage with mining com-panies and the broader industry, which is an encouraging development.”
Meanwhile, Chamber of Mines CEO Bheki Sibiya stated in a media release that the leadership of the mining industry welcomed the Minister’s allocations for infrastructure development, specifically for ports and rail.
Cridlan agrees that government’s announce-ment of its plan to spend R827-billion on infrastructure development over the next few years could benefit the mining industry.
“The mining industry could benefit from this, as mining inputs such as iron-ore to create steel are required for the development to take place. Also, improved transportation networks could assist the mining industry in getting their goods to port,” he says.
Another development which might affect mining companies is the proposed intro- duction of a carbon tax with effect from January 1, 2015.
“We would need to monitor the impact this could have,” Cridlan says, adding that a policy paper has been expected since last year’s Budget speech to explain how this tax will be implemented.
“At this stage, it is not clear whether the tax will be imposed on mining companies as the minerals are being extracted or whether the tax will ultimately be passed on to the consumer. However, it was announced that the policy paper will be released later this month, after which there should be more certainty,” he says.
Meanwhile, Cridlan says that the 2013/14 Budget speech was the first in which specific reference was made to the specific revenue contribution made by mining companies.
“The Budget documentation makes reference to the fact that mining and quarrying are expected to generate R12.2-billion in tax revenue in 2013 and that R5-billion in royalties is expected to be collected. This amounts to about 10.6% of the total corporate tax revenue.
“Usually, this level of detail is not published in the Budget documentation and this could perhaps be another indication that government is focusing more on the contribution made by mining companies,” Cridlan concludes.