Seize opportunity to improve mining tax, pleads KPMGs Saloojee

Budget 2015 NewsSouth Africa should seize the current timely opportunity to amend its mining taxation in a manner that encourages foreign investment, stimulates prospecting, gets mining companies to start dealing with marginal mines and gives enough back to the fiscus for the benefit of this country’s people, KPMG corporate tax head Muhammad Saloojee pleaded on Tuesday.

Thats the model weve got to start working on, bringing all those factors into account, said Saloojee, who spoke to Creamer Medias Mining Weekly Online on the sidelines of the 2015 Breakfast Conversation, which was staged as a prelude to the upcoming Junior Indaba, in Johannesburg, on June 3 and 4.


He pleaded for taxation thought leadership to be expounded widely ahead of the imminent publication of the first draft report of the Davis Committee on Tax.


Nows the time. Were in a bust cycle now. Its time for reason to prevail. Once were in a boom cycle, reasons going to fly out the window. Who knows when were going to get this opportunity again, he said.


His comments followed those of Harmony Gold CFO Frank Abbott, who said during a lively question time session chaired by mining luminary and host Bernard Swanepoel that mine building had become a South African rarity.

The problem is that its very, very high risk, Abbott commented, adding that governments tended to be over exposed to mining successes but under exposed to mining failures.


Saloojee decried the lack of incentives for prospecting companies and complained that the situation had been purposefully worsened by an alarming amendment to the transfer pricing legislation, which became effective on January 1.


He warned that the far-reaching amendment was not only negatively impacting mining but also hitting everyone that had foreign funding from a related person.


This was because a 3% add back which was previously free of any tax consequences now had real tax implications after being deemed to be a dividend for transfer pricing purposes.


As a result, foreign-funded prospecting companies investing in exploration in South Africa were being confronted by real tax cash costs, which was not the case in the immediate past, following the conversion of secondary tax on companies (STC) to dividend withholding tax.


Under the STC regime, there was a deemed dividend but the obligation moved from the company to the shareholder under dividend withholding tax.


But now all of a sudden they’ve brought this back in, said Saloojee.


He advocated the embracing of Canadas flow-through model to encourage prospecting and called for the quick removal of a number of anomalies, which he said could be done by tweaking the application of the existing legislation.


You want people to be encouraged to put in prospecting ventures and removal of the anomalies could be done as quickly as the switch of a light,” he added.


Swanepoel reiterated that now was the time to converse about how the South African mining cake should be sliced and his contribution was not one sided as he drew attention to the potential to throw too many incentives in to the bargain, as was the case with the Cooke shaft in Randfontein, from which the government ended up getting no tax at all, even after 45 years of mining.


However, he suggested that some might still argue that, even though the Cooke shaft had not generated tax, it was net beneficial to the South African economy because of the number of jobs it created and because of the opportunities it provided for companies to supply goods and services.


Imara SP Reid research head Stephen Meintjies put forward a proposal to replace taxation with the collection of land and resource rentals, which is reinforced in his recently coauthored book entitled, Our Land, Our Rent, Our Jobs.


Clearly, were at a crossroads when it comes to mining taxation and we need to use this opportunity to see whats going to make the most sense, Saloojee concluded.

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