Abstract
Mining is a major contributor to South Africa's economy, both directly and indirectly, through job creation and the sustainable development of the communities within which mining companies operate, amongst others.1 The establishment of a mine involves high start-up capital and infrastructure costs, and the assumption of myriad risks all of which have a major impact on the cash-flow implications for a newly established mine.2 In recognition of these factors and in a bid to encourage mining, from the aspects of both investment and job creation, government introduced several tax based incentives in the mining sector.3 The most popular of which is the deduction of capital expenditure incurred in mining operation also referred to as redemption allowance.4 Despite the intent behind these tax incentives, it is evident that at the time of conceptualizing and drafting these provisions, that “contract mining” was not a consideration. Further, there is misalignment between the mining income tax regime and South Africa's highly evolved mining industry practices. Thus, for most parts both have resulted in disharmony. Current mining income tax legislation and its implementation poses insurmountable burdens for mineral right holders and “contract miners” similarly. In terms of the current legislation, “contract miners” are categorized as mining on behalf of third-party mineral rights holders.5
Mineral rights holders qualify for redemption allowance (100% deduction on expenditure related to mining activity) in terms of the provisions of section 15(a) read together with section 36 of the Income Tax Act, 58 of 1962 (the Act). References to sections in this dissertation are to sections of the Act unless stated or the context indicates otherwise. At the center of the determination of the allowance is the definition of “mining operations and mining” in section 1(1), as it provides the mechanism and requirements for the deduction of capital expenditure incurred for a mining operation.