South Africa Mines Chamber Rejects ANC Windfall-Tax Plan

The South African Chamber of Mines rejected proposals being considered by the ruling African National Congress to extract more revenue from the industry through a windfall tax and other levies.

A study commissioned by the ANC in 2010 called for a 50 percent “resources rent tax” on all mining operations, triggered once companies earn returns in excess of about 15 percent annually. The tax would generate about 40 billion rand ($4.9 billion) at current prices, according to the study.

The “recommendation that a resources rent tax be imposed on the mining industry is both unwelcome and insupportable,” the chamber said in a draft submission to the ANC, which was obtained by Bloomberg News. “It amounts to what will be a significant increase on the industry’s existing tax burden. In addition to weakening the industry’s position in the global marketplace, it will have a major detrimental impact on the ability of some mining companies to sustain themselves.”

South Africa is the world’s biggest producer of platinum, chrome and manganese. Anglo American Plc (AAL), Xstrata Plc (XTA), Rio Tinto Group Plc (RIO) and BHP Billiton Ltd. (BHP) have operations in the country and all are members of the mining chamber.

The ANC undertook the study after its Youth League lobbied for the party to adopt a policy of nationalizing mines to give the black majority a bigger stake in the country’s mineral wealth. The study found nationalization would result in a near collapse of foreign investment and access to finance, widespread litigation by foreign investors, and be “an unmitigated economic disaster” for the country.

Reinvestment

“The rent resources tax proposal is, in effect, nationalization without compensation of 50 percent of the return to investors once normal business taxes, including royalties, have been paid,” the chamber said. The study appears to have paid little attention “to the reality that a large proportion of the extra profits raised during a boom cycle are used by mining companies for reinvestment either to sustain existing operations or to invest in new ventures.”

The ANC is discussing the proposals at a policy conference at Midrand, near Johannesburg, and will announce its recommendations later today. The proposals will be taken to the party’s national conference in December for ratification.

Jabu Maphalala, a spokesman for the Johannesburg-based chamber, didn’t immediately respond to an e-mail and voice message left on his mobile phone.

Export Taxes

The ANC’s report on state intervention in the mining sector also called for export levies on coal and iron ore to ensure security of supply, and for existing sales-based royalties to be reduced to encourage extraction, a concession that would cost about 4 billion rand.

Other recommendations include a 50 percent capital gains tax on the transfer of mineral prospecting rights and the imposition of a 30 percent “mineral foreign shareholding withholding tax” on companies based in foreign tax havens.

“Implementing higher taxation obligations without conducting a comparative analysis of what applies in other mining jurisdictions will have a detrimental impact on the South African industry’s international competitiveness,” the chamber said.

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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