The potential impact of a resource rent tax on mines in South Africa / Lindie Venter

• Main Author: Venter, Lindie
• Language: en
• Published: 2016
• Subjects: Economic rent; Fiscal instruments; Investors; Mining tax; Resources; Resource rent; Resource rent tax; Return; Risk; Supernormal profits
• Online Access: http://hdl.handle.net/10394/15744

A problem South-Africa is facing is that the wealth created by mines (also called economic rent) may not yet get distributed satisfactorily evenly between the nation and investors. In an attempt to find a solution to the abovementioned dilemma, government initiated a feasibility study for the nationalisation of mines. This proposal was however waived for two reasons: firstly that it would be unaffordable for government to buy out private companies and secondly, that it would create discontent amongst foreign investors, which would result in them withdrawing access to financing. Consequently, the ANC, during 2012 in the SIMS report proposed a possible implementation of a resource rent tax (RRT), akin to Australia’s, to ensure that the State receives a greater/more equitable share of the wealth. Developments in the mining industry since 2012, have drawn attention to two serious issues: labour related concerns and continued strikes as well as a reduction in foreign direct investment as a result of negative investor sentiment towards South Africa. These issues are directly related to the perception that the community (including mine workers) do not benefit fairly from the wealth created by mines, which results in ongoing labour unrests and subsequently in investment withdrawal. It would seem that even though no further consideration has been given to the implementation of a RRT since 2012, it may be regarded as a possible and sensible solution. This study focuses on the possible impact on the taxation payable by the South African mining industry, if a RRT were to be introduced. Research has been conducted in order to obtain an understanding of the working of a RRT, to analyse South Africa’s current tax regime, to develop a simple hypothetical case study to evaluate both the quantitative and qualitative impact of the introduction of a RRT system on South African mining tax (for both the investor and the state). The study concludes that the introduction of a RRT can potentially result in a more fair distribution of resource rents between the investor and the state (community - rightful owners of the natural resources). Research however proved that this is likely to influence the investor’s investment decisions which in turn may result in a general downturn in mining operations and profits. Based on the qualitative results of a case study, a RRT was proven to be inefficient due to the fact that it will only tax mining companies with a higher rate of return and in effect higher risk companies. As investors are prepared to take on high risk projects for the purpose of generating higher returns, the introduction of an RRT reducing this return might influence an investor’s decision. The potential impact on investors’ decisions may be counteracted through further research with regard to variables used in the RRT model namely the percentage of tax charged and the required rate of return. A RRT is therefore proven to have some benefits, even though some aspects will require further evaluation. === MCom (South African and International Tax), North-West University, Potchefstroom Campus, 2015