he Davis Tax Committee has shot down virtually all the remaining radical tax-related plans stemming from the “nationalisation debate” and the ANC’s 2012 State Intervention in the Minerals Sector (Sims) report. Instead, its first interim report on mining recommends changes that will probably favour most mines, even while dismantling the anomalous tax subsidy enjoyed by start-up and marginal gold mines.
The report, presented to Finance Minister Nhlanhla Nene in June, was released for public comment this week.
Like its previous reports that tacitly rejected higher corporate or personal income tax, the mining report strikes a relatively conservative chord, with the current frailty of the mining sector weighing heavily on the reasoning by the committee.
The Davis committee has unambiguously ruled out plans for windfall taxes or the resource rent taxes that formed an important part of the Sims report. It also rejects the idea that mine royalties could be ring-fenced for the benefit of the community around the mine, calling it “too big a departure from current government policy”.
Export taxes to encourage beneficiation are also rejected, largely because the one existing example, for diamonds, has proved to be a dismal failure.
The committee says that instead of imposing new taxes, South Africa should wait for the variable profit-linked mineral royalty system that was established in 2010 to prove itself.
The royalty system coincided with the end of the minerals boom and it remains to be seen how much money it brings in when times are good.
One proposal from the mining sector was positively received: that capital expenditure on social and labour plans – for instance community facilities – become tax-deductible.
The report also suggests that the issue of “domestic transfer pricing” in mining groups should be explored, but only by the separate base-erosion team in the Davis committee.
This follows a recent report from the unionfriendly think-tank, The Alternative Information and Development Centre, on platinum producer Lonmin.
The report called on authorities to shift the focus of work on abusive transfer pricing to the