The influence of tax legislation in promoting downstream beneficiation in the South African mining sector

Abstract

Downstream beneficiation in the South African mining industry is promoted in the Mineral and Petroleum Resources Development Act (MPRDA), by the Department of Mineral Resources, the South African Mining Charter of 2004, the Precious Metals Act 2005, Act No 37 of 2005, the Diamonds Act, Act No 56 of 1986, the Mineral Beneficiation Framework for Africa and the Minerals and Mining Policy for South Africa, 1998. One of the methods that the South African Government can use to stimulate the process of beneficiation is through the introduction of tax incentives. This research evaluated the influence of existing tax and royalty legislation in promoting downstream beneficiation, and the economic decisions of mining companies to respond to the benefits provided for in the legislation. The study commenced with a theoretical analysis of tax and royalty legislation to determine existing provisions in the law that could stimulate the process of downstream beneficiation, or alternatively discourage potential beneficiators, or frustrate the activities of existing refiners. Role players in industry were engaged to analyse tax incentives in legislation that influence the economic decision making of the extractors in response to the legislation either supporting or deterring downstream beneficiation in their value chain. The data obtained from the extractors were analysed and interpreted to determine how tax legislation has influenced the promotion of beneficiation in the South African mining sector. The study found that tax legislation influenced some of the extractors to a limited extent, indicating that the intent of tax legislation to promote beneficiation was not consistently achieved. It was further observed that the available incentives did not have a sufficiently decisive impact on the extractors to beneficiate, however it was also determined that tax legislation indeed has the ability to promote beneficiation in the South African mining industry. Finally, tax legislation was not found to discourage refining activities. It is recommended that further studies be conducted to determine whether tax incentives are too simplistic to effectively apply in all circumstances or whether more advanced formulas are required based on the various types of minerals beneficiated.