South Africa: Proposed mining tax incentives deferred; tax treatment of mining rehabilitation vehicles

South Africa: Proposed mining tax incentives deferred

Recent developments concerning the mining tax in South Africa include the following.

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Mining tax incentives, proposed changes deferred

An amendment proposed to sections 15 and 36 of the Income Tax Act No. 52 of 1968 by the Draft Taxation Laws Amendment Bill (31 July 2020) has been deferred.

The amendment, as proposed, would have had unintended income tax and royalty tax consequences.

National Treasury on 13 October 2020 released a draft response document on the July 2020 bill, and stated that to avoid negative and unintended consequences from the proposed amendments, more time would be allowed to find a solution that would have “less negative impact on the mining industry.” The amendment is to be reconsidered in a subsequent legislative changes cycle.

Read an October 2020 report [PDF 93 KB] prepared by the KPMG member firm in South Africa

Mining rehabilitation vehicles

Mining companies are obliged to perform environmental rehabilitation of mining sites upon the termination or premature closure, decommissioning and final closure, of mining activities. Section 37A of the Income Tax Act attempts to align tax policy with environmental regulations and regulate mining rehabilitation vehicles used for the sole objective of environmental rehabilitation of mining areas. These rehabilitation vehicles are typically created as companies or trusts.

Section 37A grants a tax deduction for payments made to a dedicated mining rehabilitation vehicle and requires such funds to be strictly used in accordance with its objectives. The provisions of section 37A are stringent and can easily be breached in certain instances, such as:

  • The trust deed or incorporation document does not comply with the requirements of section 37A.
  • The funds in the rehabilitation vehicle are used for purposes other than closure rehabilitation.
  • When an alternate provision is made for rehabilitation (i.e., insurance policies), and the designated rehabilitation vehicle’s assets are pledged as security for purposes of the insurance contract.

Read an October 2020 report [PDF 118 KB] prepared by the KPMG member firm in South Africa 

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