Industry hits back at mooted raw ore export tax
The Minerals Council South Africa – the industry body representing 90% of mining production in South Africa – has hit back at the mining minister’s musings about implementing an export tax on raw ore.
In a recent address to parliament, Mineral and Petroleum Resources Minister Gwede Mantashe bemoaned the poor state of beneficiation of South Africa’s mineral resources and said the government should intervene through a range of measures to encourage value-addition or beneficiation of the country’s minerals to boost employment.
These measures, he said, could include taxing primary mineral exports, an incentive scheme for beneficiation processes, such as a finite tax holiday, or an electricity tariff linked to commodity prices.
A tax on certain raw commodity exports is in force in several other mining jurisdictions, most notably in Southeast Asia and South America.
The Minerals Council CEO, Mzila Mthenjane, however stressed the need for careful and strategically informed consideration of an export tax or any other restrictions on primary mineral exports.
“Under conditions where South Africa does not have a comparative advantage to beneficiate a certain mineral – such as specific technical expertise in a particular field of beneficiation, abundant, cheap electricity, a modern, cost-competitive manufacturing base, or globally competitive labour – the unintended consequences of export restrictions may entail lower mining production as the erosion of returns on primary extraction are eroded,” the council said in a statement.
Further, local and offshore interest may be curtailed in investing in exploration and existing mining operations generally, and specifically for those minerals suitable only for the export market or where there are committed supply contracts in place.
“In contrast to the stated aim of increasing employment through beneficiation, these adverse impacts will negatively affect existing jobs and new employment opportunities, the fiscus through reduced taxes, and current account balances, and South Africa’s relevance in global commodities markets,” the council said.
The industry body is in support of beneficiation “where the economics make sense” and called for a more conducive policy environment for beneficiation processes.
The Minerals Council called for a “carrot” versus “stick” approach to achieving higher levels of mineral beneficiation in South Africa. “This would entail removing the binding constraints that have curtailed mineral beneficiation since the onset of the electricity crisis more than a decade ago, while at the same time creating a more conducive policy environment for primary mineral extraction,” it said. “With no guarantees that it will boost beneficiation, the ‘stick’ approach of export taxes will hurt the primary mining sector.”