Mining companies are between a ‘rock and a hard place’ over proposed tax measures to curb what government says is abuse of mining rehabilitation funds, according to law firm Bowman Gilfillan partners Betsie Strydom and Wandisile Mandlana.
Mandlana explains that there is an ongoing obligation for holders of mining rights and permits issued under the Mineral and Petroleum Resources Development Act to rehabilitate any damage to the environment incurred as a result of the holder’s operations. “To ensure this is done, holders of the rights and permits are required to financially provide for environmental rehabilitation and annually assess the adequacy of the financial provision, with a view to increasing the financial provision if the assessment shows any shortfall.”
The alleged abuses of such funds stem from, besides other aspects, impermissible withdrawals or the transfer of funds in a mining rehabilitation fund to third parties who are not approved recipients in terms of the tax legislation. An example of such abuse relates to Tegeta Exploration & Resources, which acquired Optimum Coal Mine and inherited Optimum Coal’s rehabilitation funds. Impermissible withdrawals were allegedly made from Optimum Coal Mine’s rehabilitation funds.
The draft Taxation Laws Amendment Bill, published in July, focuses on antiavoidance measures, but, Mandlana says, it misses the opportunity to align the draft tax legislation with the 2015 Financial Provisioning Regulations, published under the National Environmental Management Act (the Regulations).
Strydom says that they have changed the tax treatment and it is clear through reading these changes that they are not aware of the disconnect with the Regulations, or have not addressed it. For example, she says the regulations allow withdrawals from a mining rehabilitation fund for ongoing and current rehabilitation. However, by contrast, Strydom notes that the draft tax legislation only grants tax relief if the funds in a mining rehabilitation fund are used for rehabilitation in specific circumstances. These are premature closure, decommissioning or final closure of the mining area and postclosure management of the latent or residual environmental impacts.
Mandlana notes that one major discrepancy is that the South African Revenue Service (Sars) only allows rehabilitation funds to be used for closure at the end of life-of-mine or premature closure in instances where a mine has to suddenly close for whatever reason. Sars also allows for the transfer of the money to another rehabilitation fund.
Strydom says Sars disallows the use of rehabilitation funds for ongoing rehabilitation processes while a mine is still in operation. “There is debate around whether this should be permissible . . . but it immediately creates a degree of misalignment because of what the tax legislation permits and what the mining legislation permits. Sars says you can only use that money if you are rehabilitating postclosure, while the Department of Mineral Resources states that you can also use this money for ongoing rehabilitation.”