The South African mining industry has until October 31 to comment on the first round of recommendations of the Davis Committee on Tax, several of which are seen as having the potential to fundamentally change South Africa’s mining landscape for the worse.

Many commentators are suggesting the committee’s overemphasis on revenue collection has the potential to stunt investment, curb economic growth, rob the country of job creation, deny mineworkers better living conditions and potentially sound the death knell for marginal gold mines.

The Davis Committee on Tax has recom-mended the scrapping of the upfront capital invest- ment (capex) deduction, which is a fundamental shift away from the established principle of mining being very distinguishable from manu-facturing, something that the existing mining tax regime has recognised for more than 100 years.

Then, specifically for gold mining companies, the committee has recommended two funda-mental changes to the existing gold tax regime, namely the scrapping, for new mines, of the long-standing gold mining formula and the discontinuation of the special indexation allowances that compensate for the cost of capital.

“So you’ve got three very important pillars recommended for removal,” said KPMG corporate tax head Muhammad Saloojee, who this week sounded a call to action.

“If the industry does not garner support for a collective voice, there is a risk that some of these recommendations will be concretised in the next round of reporting.

“It can only be in the industry’s interests to ensure that its voice is heard clearly,” Saloojee urged in an exclusive interview with Creamer Media’s Mining Weekly.

The subcommittee, which put forward the recommendations, did not have any specific representatives from the mining industry.

“The industry needs to come up with a strong collective voice to comment on these recom- mendations,” Saloojee urged. He also expressed concern that the new recommen-dations would result in the prospects for the emergence of new gold mines being significantly diminished – something which clashes head-on with the plea made last week by Business Leadership South Africa chairperson Bobby Godsell, who called on South Africans to see the mining of this country’s remaining 30 000 t to 40 000 t of gold as a patriotic challenge.

“Gold mining companies need to come forward with hard-core evidence and a strong collective voice to reject the removal of the gold formula and indexation,” said Saloojee, whose second call to action centred on the platinum mining industry.

In his view, the tax committee’s notion that “marginal” mines do not exist in the platinum sector should be dispelled and the gold-mining formula extended to platinum mining.

The negative economic consequences of mining companies no longer having the ability to claim 100% capex upfront against mining income should be used to persuade the tax committee of the error of its capex deduction recommendation.

“It’s more than just a timing issue. “The bigger concerns are the many knock-on effects on financial models and the ability to repay the funding based on profits available.

“By taxing those amounts earlier in the process, the risk of borrowers being in breach of their debt covenant ratio is increased, which could be hugely detrimental to the mining industry because there is already a lack of liquidity as well as both equity and debt capital to fund mining projects.

“These are some of the reasons why it is important that industry ensures that they do make recommendations, even if just around the issue of not allowing 100% of the capex deduction,” Saloojee added.

His fourth call to action centres on the National Treasury’s venture capital regime, which has failed to stimulate exploration, and the Canadian flow-through scheme, which has been a huge success in stimulating exploration, not only in Canada but also in other jurisdictions.

The fifth and final call to action is that the cur- rent employment tax incentive be made applic-able to mineworkers.

If the industry failed to make these represen-tations by the end of October, the tax committee’s unacceptable recommendations were likely to end up becoming policy and law, with devastating potential consequences for mining.