Industry in the dark over Act
CONTRACT MINERS: CAPEX DEDUCTIONS PUT ON HOLD
Under the proposed amendment, only the holder of the mineral rights would qualify.
The proposed amendment to the Income Tax Act to exclude contract miners from claiming accelerated capital expenditure deductions were put on hold at the end of last year.
However, no further discussions have taken place with industry players who have pleaded with National Treasury and the South African Revenue Service (Sars) to engage in discussions – before the new year.
The amendment, which has been described as “devastating” for the mining industry, would have been effective from 1 January, 2021.
Treasury proposed in the October draft response document on the Taxation Laws Amendment Bill that government and industry be given time to investigate and find solutions “that may have less negative impact on the mining industry before amendments are made to the tax legislation”.
In terms of the proposed amendment, only the holder of the mineral rights who is carrying on mining operations would have qualified for the accelerated capital expenditure deductions.
This has been seen as a “misalignment” with business models in the mining sector where contract mining has become quite prevalent with contract miners being present on “any mine in South Africa at any given time”.
Sword of uncertainty
George Trollope, AngloGold Ashanti Vice president of taxation and South African Institute of Tax Professionals’ (Sait) mining committee vice chair, says the sword of uncertainty still hangs over their industry.
This doesn’t bode well for investments on top of existing prohibiters such as unreliable electricity supplies, labour issues and policy and political uncertainty.
Trollope says the Sait committee has been pleading with the legislator to engage with them before making further proposals in the February budget that will have severe implications for the mining industry and potentially for future employment.
“We have had no response yet. What worries me is that Treasury is now entering the budget preparation phase and there has been no engagement with us.”
In the draft response document, Treasury explained the intent behind the full expensing of capital expenditure was to recognise long lead times and risk taken on by mining companies when deciding to invest.
“Since companies engaged in mining activities for a fee are not exposed to equivalent risks, the accelerated capital allowance for mining expenditure should not be made available to them,” Treasury argued. “Their revenue base is certain and so they should not be given the same benefit afforded to companies with an uncertain revenue base.”
Trollope says this argument shows insufficient understanding of the industry. Contract miners are taking major risks.
“It is important for Treasury and Sars to understand contract mining because the risk is born by both the contractor and the mineral rights holder.”
The sector has evolved
Trollope says contract mining has become quite prevalent, mainly because of these companies’ expertise in the development of mining infrastructure.
It has the required plant and machinery to excavate and extract minerals from the soil on behalf of the mineral rights holder for a fee.