South Africa: Mining Companies Seeking Certainty On Tax Issues In The Forthcoming 2013 Budget Speech

Last Updated: 5 June 2013
Article by Muhammad Saloojee

With the world's largest mineral deposits, estimated at around US$2.5 trillion 1, mining is and has been the backbone of our economy since the 1800's.

In recent times, direct contribution of mining to the gross domestic product (GDP) is estimated at around eight percent of GDP, while mining and related industries contribute up to 18 percent of GDP. Mining is a significant provider of jobs, employing directly approximately 500 000 employees, with a further 500 000 employed indirectly. The one million (direct and indirect) jobs in the mining industry support a further five million dependants. Mining is also a major contributor to State coffers, contributing directly to around eight percent of our GDP, and collection of direct corporate taxes from mining is around 20 percent. Our wellbeing as a nation depends on the success of our mining industry, which runs not only deep in our soil, but in the heritage and hearts of our people.

Unfortunately the mining industry is at a cross-road, with the Government clearly stating that nationalisation is off the table, a number of regulatory uncertainties remain. The future success of the mining industry requires certainty on these regulatory issues, taxation being one. Taxation of mining companies has once again been at the forefront of the debate as to whether the State (as custodian of our mineral rights) derives sufficient economic benefit in light of President Zuma's State of the Nation Address. In his address, the President has requested the Minister of Finance, to commission a study of current tax policies to ensure that there is an appropriate revenue base to support public spending, with part of this study evaluating the current mining royalties' regime. Mining companies and investors have reason to be concerned. Even though the Nationalisation debate seems to be off the table, it would seem that the message is loud and clear – government intends to increase its share of tax collection from mining companies. The big question is how does government intend to do so? This question cannot be answered without first considering the current royalty regime and why ostensibly this has failed to achieve desired revenue for State coffers.

Shorn of its complexities, mining royalties in terms of the Royalties Act2 is currently calculated in terms of a formula which has as one of its core elements, "earnings before interest and tax" (EBIT). Simply stated, the royalties regime is linked to profitability with a minimum rate of 0,5 percent and a maximum rate of five percent and seven percent, depending on whether minerals are refined or unrefined. The lower rate of five percent on refined minerals seeks to encourage beneficiation. In circumstances where profits are available, royalties would be capped at five percent or seven percent, depending on whether the minerals are refined or unrefined. On the flip side, if the EBIT calculation is negative, royalties would be limited to the 0,5 percent rate. Hence, the mechanics of the royalty calculation in its current form does not allow the State to share in "super profits" as an upper cap applies. This seems to be the current bone of contention, and is the one core fundamental difference between the current royalty regime and a resource rent type tax. A resource rent tax can be described as the levying of tax on super profits which would be triggered after a "normal" return on investment has been achieved.

The SIMS report3 recommends the introduction of a resource rent tax of 50 percent on all profits above a 15 percent return on capital, and the reduction of royalties payable to one percent. The objective of a adopting a resource rent tax, as set out in the SIMS report, would be to ensure that "super-profits" earned by mining companies from South Africa's resources be invested for the benefit of the people of the country as a whole, given that the resources are of a depleting nature, which once lost to the country, cannot be restored. In addition to suggesting a resource rent tax, the SIMS report also proposes some further radical changes in the manner in which mining companies are taxed. This includes abandonment of the current gold mine formula tax, and its replacement with corporate income tax and resource rent tax, a 30 percent withholding tax on dividends4 to be paid by mining companies to certain tax havens and introduction of export duties to encourage beneficiation.

The President's State of Nation Address is not the only reason for uncertainty in our mining tax regime. It is generally accepted that our mining tax regime is archaic, complex and out of touch with current economic realities. Whilst special rules apply to encourage investment in gold mines5 and the investment of new "mining capex"6, there are a number of areas which our tax regime has just not kept pace with for instance the tax treatment of open-pit mining or black economic empowerment transactions required in terms of the Mining Charter. More concerning is the South African Revenue Services aggressive approach against mining companies whereby previously accepted mining tax treatments of certain positions are now being challenged. These include methods by which deductions for capital expenditure and assessed losses are to be applied in the calculation of the taxable income of a mining company which owns and operates more than one mine7 as well as challenging the deductibility of "prospecting expenditure" by prospecting operators.8

A discussion with most financial directors of mining companies will reveal some area of tax investigation in their business, be it on the capex deductions, treatment of mining versus non-mining income, diesel rebate queries and even mining royalty audits. The latter comes as a surprise to many, given that the royalty regime has only been in force since 1 March 2010, with the main disputes centering on interpretation of the new and complex royalty legislation. There is also the looming Carbon Tax regime mentioned in the 2012 Budget Speech which was proposed for implementation in the 2013 and 2014 fiscal years.

One thing is certain – currently there is a lot of uncertainty in our mining tax regime. So can we expect some clearer proposals on these issues in the Minister's Budget Speech on 27 February 2013? Given that the President has specifically mandated the Minister of Finance to look into mining royalties –mining companies and investors will be looking to the Minister for more details and clarity, especially on the process involving review of mining royalties, and more broadly, the tax regime. This is critical given criticism being levelled at the government regarding uncertainty on key policy issues in the mining industry which has had the effect of deterring mining investment. It is unlikely that any material charges will be announced on the mining royalty regime itself since stakeholder consultation will be required. Failure on the other hand to provide some direction on the process going forward is likely to cause even greater uncertainty in an industry which at this time can ill afford this.


1. Metals and Mining: Nationalisation - Killing the Goose That Lays the Golden Eggs, Citi Group Global Markets, 29 June 2011.

2. The Mineral and Petroleum Resources Royalty Act 28 of 2008.

3. Report commissioned by the ANC: Maximising the Development of the People's Mineral Assets: State Intervention in the Minerals Sector (SIMS) - 11 June 2012.

4. Currently withholding tax of 15 percent is levied on dividends declared to non-residents unless an applicable Double Taxation Treaty applies which could reduce this rate. A 30 percent withholding tax rate would be seen as discriminatory if only applied to certain foreign investors.

5. Gold mines are taxed in terms of a formula which takes into account the marginal tax rate, the portion of tax free revenue, and the ratio of taxable income to total income.

6. A special mining capex regime applies which allows for the accelerated write-off of mining capex against taxable mining income. Such ring-fencing applies on a "per mine" basis as well as between "mining" and "non-mining" income. A partial 25 percent ring-fencing upliftment provision also applies for so-called "post 1990" mines.

7. See for instance the recent SCA case of Armgold/Harmony Freegold Joint Venture v CSARS (703/2011) [2012] ZASCA 152.

8. Deduction for prospecting expenditure under section 15(b) of the Income Tax Act 58 of 1962.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions