We need to pay attention to the double trouble of S. A. gold stocks, high Rand price and new royalty tax. I made the final decision to dispose all of my S. A. gold holding today. I'll reenter after the smoke is cleared. Please read this news:
thebulliondesk.com
UPDATE - S.Africa finmin wants sales-based mine royalty tax
Wednesday February 18, 1:02 pm ET
By Gordon Bell
(Adds reaction from mining industry throughout)
CAPE TOWN, Feb 18 (Reuters) - South Africa's Finance Minister Trevor Manuel said on Wednesday the government still wants to base its proposed mining royalties on sales rather than profits and launched a review of tax on the sector.
Manuel said in a budget speech that consultations would continue with the sector, which has been pressing for royalties based on profits, and delayed the effective date for royalties to 2009 from an earlier mooted 2007.
The industry's Chamber of Mines said the revenue basis was "a significant cause for concern", adding it was willing to discuss the review of taxes and was keen to show it paid its fair share. It welcomed the delay in launching royalties.
Analysts' response to Manuel's speech was also mixed.
"It's positive that it appears they've realised that the royalty issue is a lot more complicated than when they initially proposed it," said James Wellsted of J.P. Morgan. "But the problem is it's unclear exactly what they intend to do."
Manuel said royalty rates would be revised but did not give numbers. If royalties were based on profits, rates would have to be higher than if they were based on sales, he told reporters.
The rates as originally proposed run from one percent for oil drilled in deep offshore waters to three percent for gold, four percent for platinum to eight percent for diamonds.
South Africa, the world's biggest producer of gold and platinum, unveiled the royalty plans last year, hitting shares of major mining firms. On Wednesday, mining shares were little moved on the budget news, but edged down on a stronger rand.
"In the area of mining, government will continue its work on the Mineral and Petroleum Royalty Bill...government plans to introduce a sales-based revenue royalty charge," Manuel said.
DELAYED TO 2009
The tax would only take effect in 2009, ensuring that the change in tax regime did not interfere with the conversion to "new order" mineral rights, he added.
Under new legislation, mining companies must reapply for mineral rights, which will be granted if they fulfil a list of requirements including boosting black ownership and management.
The industry is opposed to a royalty based on sales because they say this would hurt mines that are less profitable and would also have a heavy impact during a mine's start-up phase.
Manuel said the royalty should be seen in the context of collective ownership of the nation's mineral rights, rather than merely a tax on companies. "These people take what is a collective patrimony...they take and they don't give it back."
But the Chamber denied this: "Not only is a gross revenue royalty out of line with global best practice, but it also will prejudice investment and growth."
TREASURY TO REVIEW GOLD TAXES
Analysts said one worrying element was that the government said it might revise a special tax formula for the gold sector. Under a system set up in 1935 gold firms can offset losses or capital investments on specific mines when they make a profit.
The sector says the arrangement stimulates investment, but the head of the South African Revenue Service has publicly denounced gold taxation as "immorally and unacceptably low".
"While a special dispensation is arguably required for marginal mines, any tax preference in this regard is more appropriate for a royalty regime than the corporate profit tax, which by its very nature automatically adjusts for profit levels," the Treasury said in its Budget Review.
But the Chamber of Mines said that instead of focusing only on taxes paid by mining groups, the Treasury should examine the country's overall tax system.
It welcomed confirmation of the scrapping of government plans to offer firms the option of paying a premium, on top of the proposed royalty, in exchange for a fixed levy which does not change over the life of a mine lease.
The Treasury said the new system for mining rights made it imperative to reassess the current regime, including tax depreciation, rate differentiation for mining sectors, allowable deductions and exemptions to the secondary tax on companies.
Other issues of concern included the 40 percent surcharge for firms in natural oil extraction, as the country was keen to attract investment into its young natural oil and gas industry.
The Treasury said government was mindful of potential adverse impacts from the proposed royalty tax on investment, employment and output. "Due to different market structures, the impact of the royalty will vary across the mining sectors, requiring a differentiated royalty rate. This...will be refined to account for these diverse economic impacts," it said. (additional reporting by Eric Onstad and Hilary Gush) |
