Mining and tax in South Africa: Costs and benefits

New report

SUMMARY

The South African economy overall continues to benefit greatly from mining, but it is not benefiting as
much as it could, and the costs of mining are increasingly borne by communities in rural areas.

Mining accounted for 7 per cent of GDP, $20.7b worth of primary exports and employed 459,000 people
in 2006. The mining sector’s total contribution to the South African economy is estimated at $25.9b in
2006, including all taxes, procurement and wages. However, South African mining companies enjoy generous
tax treatment: they are able to deduct 100 per cent of much of their capital expenditures against tax while
gold mining companies pay a corporation tax rate according to a formula that keeps remittances to government
low. Moreover, the government is introducing a new mineral royalty system after caving in to many of the
mining industry’s demands: this will impose very low royalty rates that this report estimates will cost the
country $359m – $499m a year compared to previous proposals made by the government.

Mining companies paid taxes of $2.01b in 2006 – equivalent to 9.9 per cent of exports: a low figure. At the
same time, many companies are making large profits. Gold mining companies collectively made pre-tax
profits of $672m in 2007, of which only $127m went to the state in taxation. Platinum companies did
better: Anglo Platinum, the world’s largest platinum producer based in South Africa, made $1.6b after
tax in 2006; Impala Platinum, the country’s second producer, made a massive $2.2b.

Mining in South Africa has major costs for many mine-workers, no less than 2,869 of whom have died
in the mines over the past ten years while over 4,000 were injured in 2006 alone. Health and safety
regulation has been shown to be inadequate. Furthermore, many rural communities are now in open
conflict with mining companies, seeing few benefits from their activities or being made poorer. Some
entire villages are being ‘relocated’ while losing farmland or access to water. There is evidence of water
pollution and harmful health effects on people from gold, platinum and uranium mining. Companies’
‘community development’ spending is miniscule in comparison to profits. The South African government
needs to review its fiscal policies and audit the local impacts of mining.

To read the full report, click here