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Rent Resource legislation for mines could follow ANC conference, says Deloitte.

Johannesburg, 17 January 2013 - Decisions made during the ANC Mangaung conference could see discussions around the proposed state intervention in the mining sector being concluded and influencing the February 2013 Budget speech, says Deloitte.

Depending on what is agreed by the ANC, says Alex Gwala: Associate Director, Corporate Tax at Deloitte, an announcement by the Minister of Finance, Pravin Gordhan, about the possible introduction of some proposed interventions, can be expected.

“One of the  proposed interventions is the Rent Resource Tax (RRT), which is similar to the Mining Rent Resource Tax (MRRT) that was introduced in Australia in 2012. In terms of the MRRT, a company in Australia will only have to pay tax of 30% when its annual profits reach $75 million (or R650 250 000).”

“The RRT in South Africa could be triggered once an investor has made reasonable returns. However, what is regarded as a reasonable return will ultimately be defined by National Treasury, although it has been suggested that the level of return will be approximately 15%. It appears from the current proposals, that the RRT will be calculated on the surplus after taking into account direct mining costs and a reasonable return, but before indirect costs,” says Gwala.

It is proposed, says Gwala, “that the current mining royalty will be fixed at 1% of revenue. This means that mining companies that are currently paying the minimum rate of 0.5% will witness an increase in the royalty payable as the rate doubles to 1%. The 1% is calculated on revenue, and is not reduced by the capital expenditure, nor does it take into account the earnings before interest and taxes of the company.”

It is clear that the introduction of the RRT is a revenue generating initiative. Our government will need to take into account some of the observations from the countries that have already introduced a similar tax. Some of the observations from Australia on the MRRT are that:

  • Taxes generated did not realise the revenues government anticipated, primarily because of the drops experienced in commodity prices.
  • There was insufficient consultation with the mining industry regarding the tax.
  • The backlash from the mining industry was severe and most believe that it has driven up “sovereign risk” in Australia.
  • There was a threat to test the constitutionality of the legislation in court.

“As we know that discussions have so far been limited to political organisations, once the Minister of Finance makes an announcement on RRT, it can be expected that their observations will be taken into account when the legislation is drafted and debated.”

“The issue of the drop in commodity prices impacts South Africa and the international community of which South Africa is part of. One therefore hopes that the implementation of RRT will take this into account,” says Gwala.

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Kerri Lurie
Magna Carta (PR)
Job Title:
+27(0) 11 784-2598
Alex Gwala
Deloitte & Touche
Job Title:
Associate Director, Corporate Tax
Tel: +27 (0)11 209 8232
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