An analysis of the South African income tax implications on mine rehabilitation funding vehicles

Abstract

Mines can have significant consequences for humans and nature, and can affect anyone. The use of tax policy to encourage investment in natural resources is contentious as some taxpayers obtain a benefit not available to all. To be effective, a regulatory system for mine site rehabilitation should provide incentives to minimise damage, ensure sufficient funds are available to finance the rehabilitation, develop clear standards for rehabilitation and “ensure that mining companies receive equitable tax treatment with respect to the costs incurred”. This comparative study aimed to understand how the income tax implications of rehabilitation funding vehicle options compare to each other and to those of similar vehicles identified in Australia and Canada. In order to obtain this understanding, a number of objectives were identified. The first objective was to obtain an understanding of the rehabilitation funding vehicle options available per the Minerals and Petroleum Resource Development Act 28 of 2002 (MPRDA)/NEMA. The second objective was to obtain an understanding of the commercial terms of these funding vehicles. The third objective was to understand the tax implications of the funding vehicles identified from a South African tax perspective. The fourth objective was to conduct a comparison between the income tax implications of the South African rehabilitation funding vehicles to income tax implications of similar vehicles available in Australia and in Canada. In this mini-dissertation, the tax implications of the funding options are analysed and compared to one another. A further comparison of the South African income tax implications to those of Canada and Australian is done. This study concludes that there are some gaps in the South African income tax implications of some of the rehabilitation funding vehicles, which has resulted in some recommendations. One of the findings is that is the Canadian authorities provide for interest income where the deposit funding vehicle option is chosen where South African legislation does not provide for this interest. A recommendation is made that South African authorities should consider providing for this interest in order to encourage mining companies to use this option. Another finding was that in Canada, where the trust funding vehicle is chosen, and there are remaining funds in the trust, the mining company can transfer the funds back to the contributor but the funds are to be included in the contributors gross income. This option is not available in South Africa as the remainder of mine rehabilitation trust funds can either be transferred to another company or trust at the approval of the Commissioner or can be transferred to any other company approved by the Commissioner. The recommendations should be considered in order to ensure that a tax advantage is provided to companies to ensure that they continue to take responsibility for their environmental requirements, which will assist the government in maintaining its commitment to ensure that every citizen of the Republic has access to an environment that is protected, pollution free, and sustainable, by enacting certain regulations.