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South Africa: Proposal to limit mining tax incentives to those owning mining rights

South Africa: Proposal to limit mining tax incentives

A legislative proposal would allow mining tax incentives only with respect to the company owning the mining rights.


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The Draft Taxation Laws Amendment Bill (issued 31 July 2020) seeks to address a principle derived from a 2019 decision of the Supreme Court of Appeal. In that case (Benhaus Mining (Pty) Ltd. v. Commissioner for the South African Revenue Service (165/2018) [2019] ZASCA 17 (22 March 2019)), the appellate court held that the taxpayer (a contract miner that provided various services to clients in the mining industry) was conducting “mining operations” as defined in section 1 of the Income Tax Act No. 52 of 1968 and thus was entitled to claim the accelerated mining tax allowances.

In the draft law, the following legislative language is proposed:

There shall be allowed to be deducted from the income derived by the taxpayer from mining operations if that taxpayer holds a mining right as defined in section 1 of the Mineral and Petroleum Resources Development Act in respect of the mine where those mining operations are carried on— [Emphasis added]

Comments concerning this proposed amendment are due by 31 August 2020.

KPMG observation

Only granting the mining tax incentives to the company owning the mining right may have unintended income tax and mining royalty tax consequences. Examples include situations when a company is not the holder of the mining right and has entered into contract mining arrangements with the holder, either due to the requirements of the Mineral and Petroleum Resources Development Act not yet being met upon acquiring a mine, or one company within the group holds the mining right and another company within the group performs the mining activities.

Read an August 2020 report [PDF 409 KB] prepared by the KPMG member firm in South Africa

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