Chamber of Mines –
rejects ANC proposals
to extract more revenue
from mining
 
Johannesburg, South Africa — 02 July 2012 – The South African Chamber of Mines has rejected proposals being considered by the ruling African National Congress to extract more revenue from the industry through a windfall tax and other levies.

Bloomberg News reports that a study commissioned by the ANC in 2010 has called for a 50% resources rent tax on all mining operations, triggered once companies earned returns in excess of about 15%annually. The tax would generate about R40 billion rand (US$4.9 billion) at current prices, according to the study.

“The recommendation that a resources rent tax be imposed on the mining industry is both unwelcome and insupportable,” the chamber said in a draft submission to the ANC, which was obtained by Bloomberg News. “It amounts to what will be a significant increase on the industry’s existing tax burden. In addition to weakening the industry’s position in the global marketplace, it will have a major detrimental impact on the ability of some mining companies to sustain themselves.”

South Africa is the world’s biggest producer of platinum, chrome and manganese. Anglo American plc, Xstrata plc,  Rio Tinto Group plc  and BHP Billiton Limited  have operations in the country and all are members of the mining chamber.

The ANC undertook the study after its Youth League had lobbied for the party to adopt a policy of nationalising mines to give the black majority a bigger stake in the country’s mineral wealth. The study found nationalisation would result in a near collapse of foreign investment and access to finance, widespread litigation by foreign investors, and it would be “an unmitigated economic disaster” for the country.

 “The rent resources tax proposal is, in effect, nationalisation without compensation of 50% of the return to investors once normal business taxes, including royalties, have been paid,” the chamber said. “The study appears to have paid little attention to the reality that a large proportion of the extra profits raised during a boom cycle are used by mining companies for reinvestment either to sustain existing operations or to invest in new ventures.”

The ANC’s report on state intervention in the mining sector also called for export levies on coal and iron ore to ensure security of supply, and for existing sales-based royalties to be reduced to encourage extraction, a concession that would cost about R4 billion.

Other recommendations include a 50% capital gains tax on the transfer of mineral prospecting rights and the imposition of a 30% mineral foreign shareholding withholding tax on companies based in foreign tax havens.

“Implementing higher taxation obligations without conducting a comparative analysis of what applies in other mining jurisdictions will have a detrimental impact on the South African industry’s international competitiveness,” the chamber said.

Source: Bloomberg News. For more information, click here.