[miningmx.com] – MINING and tax analysts were cautiously optimistic about the terms of reference stipulated for the imminent tax review, announced by Finance Minister Pravin Gordhan yesterday.
The tax review committee will among other things assess the appropriateness of the current mining tax regime, but Gordhan pointed out the committee has to take into account the challenges facing the mining sector, such as high input costs, lower productivity and shrinking profits.
Some view Gordhan’s terms of reference as a less “heavy-handed’ approach than the resolutions the ANC adopted at its Mangaung conference, where a decision was taken to increase taxes in the mining industry.
The terms of reference announced by Gordhan yesterday, points to a more “protagonist’ approach towards the industry, mining analyst Justin Froneman said.
He hoped the review committee would consider “some sort of tax break’ for the mining industry. “That’s just what the industry needs now because the actual return from the mining industry to the fiscus this year will be disastrous.’
Even if the committee doesn’t opt for tax breaks, Froneman said, an adjustment to royalties would go a long way. “There has been question marks around royalty taxes and it sounds like it could go the other way and that government has recognised things aren’t going very well.’
Dwindling profits, labour instability, and lower resource prices could very well bring the industry to its knees and National Treasury under the leadership of Pravin Gordhan acknowledges that, the DA’s spokesman on mining, Hendrik Schmidt, said.
“Unfortunately he is not the only factor when decisions (about tax) are to be made. There’s the ANC and the Department of Mineral Resources as well.’
Conor McFadden, partner at Fasken Martineau, cautions it’s premature to want to read anything more into the terms of reference of the tax review.
“At the moment, it’s just all speculation. Yes, it’s a good thing that Gordhan mentioned the trouble in the mining industry, but he balances it with the fact that we’ve got to look at mining’s contribution to development, job creation and so forth.’
According to him, the mining industry will always “get its own treatment’.
It’s because of the nature of the industry. There are going to be capex deductions that you don’t have in other industries and I doubt there will be any changes to that in the near future.’
McFadden is also of the view that the tax committee will attempt to strike a balance, by providing tax relief when times are bad, but raising marginal taxes again during an upswing. “A tax regime has to be flexible. When times are good, there may be a super profit tax regime, like they have overseas.’
In a company notice, Investec cautions there is limited scope to increase taxes on miners. “[In South Africa, miners are] often facing very thin and even negative margins following the pull back in commodity prices in recent months, against the background of high local inflation.’
Eugene du Plessis from Grant Thornton said it’s anybody’s guess what the tax review committee’s decision on mining tax will be.
“But [SA] mines have slipped the ranks and mines have been taxed more than they should have been. Some assistance to make the industry more investor-friendly would be good.’
