SA’s mining experts say the way the royalties tax works in practice leans away from the initial idea of a tax on turnover, and towards a tax on profits. In any event, it’s questionable whether SA’s tax is lower than the international average, particularly if the cost of BEE is included. The document itself tabulates mining corporate income tax at 28%. This is the same as Mexico, higher than Canada and a little lower than Australia.
I wonder if they've taken the whole BEE cost into account here. The shareholding cost pales in comparison to the other requirements in the Mining Charter. Whilst we are looking at mining profitability, a new Deloitte Consulting report has this to say
only a small residual portion of the inherent value of an opportunity finds its way to original private shareholders. In our experience, there are many successful mining projects where this residual value is only a lower single-digit percentage of the primary in-situ value. The remainder, in fact the lion share of the inherent value of any commercial opportunity, ends up in the economy at large, either through state treasury or through private sector spending, where it benefits all and translates into wealth and jobs.
Citigroup Global Markets estimates that “only 7% of the value generated by SA miners gets distributed to shareholders i.e. the entrepreneur and risk taker. The biggest beneficiaries are in fact suppliers to the industry, mining sector employees and the government. To turn opportunity into this value (and many fail along the way) requires substantial upfront investment capital and specialised and scarce skills.
7% is all you get once everything else is considered. Not much left to nationalise, not that Shabangu is entertaining nationalisation, although she does say that all this "fronting" brought on nationalisation. This is a head scratching moment
Manus Booysen, head of the mining, energy and natural resources practice group at Webber Wentzel said "I disagree with the minister for placing the blame for the nationalisation debate on fronting and on the inability of the mining industry to respond to the social needs of affected communities. The debate was sparked by suspended ANC Youth League president Julius Malema as a political ploy to get support.”
I wonder who Susan was chatting to before the mining indaba? This lack of transformation argument is getting old now, and it is largely incorrect anyway. More on this in a later post