If an export tax on minerals and other raw materials is carefully planned and cau- tiously implemented, it could be a successful instrument. However, if it is applied in isolation, it could be counterproductive, says advisory firm Deloitte tax director Jed Michaletos.
Government should put a plan in place that considers the entire value chain instead of simply considering one part of the process, such as generating revenue or deterring companies from exporting, adds associate tax director Alex Gwala.
An export tax is being applied in South Africa through the diamond export levy of 5% on rough unprocessed diamonds, which encourages mines to do more beneficiation in South Africa. Currently, the ruling African National Conindian crusher and screening plantgress is discussing the introduction of similar export levies on other minerals for the same reason, Michaletos explains.
“However, if an export tax is used to encour- age beneficiation, government and industry would need to consider factors such as the existing beneficiation capacity for the mineral. If none exists, the feasibility of setting up such a facility will have to be examined before a tax is introduced,” says Michaletosplates crusher grinding mill.
The tax would also have to be balanced off against other support from government to encourage investment in beneficiation and skills development. A programme similar to the Motor Industry Development Programme, which offers incentives for capital investments throughout the entire value chain, could be considered, Michaletos suggests.
Further, by introducing a minerals export tax, the mining industry is in effect being instructed to incorporate a newston jaw crusher machine manufacturers business into its structure, as beneficiation is a manufacturing and not a mining process, Gwala points out.
“Therefore, it is important for mining and manufacturing to be balanced for the country to realise the full benefit of beneficiation,” he adds.
The introduction of a minerals export tax would also result in the establishment of new companies which would handle the beneficiation.
An export tax would discourage quarry team south africathe export of raw material and promote the export of a processed product, which will have a different market to that of raw material. Creating a market for the further-processed product also needs to be taken into account, says Gwala.
Meanwhile, South Africa has numerous trade obligations and bilateral agreements that have to be considered.
South Africa is a member of the World Trade Organisation and it has a trade agreement with the European Union for the promotion of duty-free imports and exports between South Africa and European countries. South Africa is also signatory to the Southern African Customs Union and the Southern African Development Community protocol.
Many of these agreements have prohibitive clauses against imposing an export tax.
“Government would have to take these agreements into account when making its decision. The possibility of an export tax would either have to be negotiated with the other countries or certain countries would have to be excluded from this tax legislation,” says Michaletos.
Lastly, compliance is also an important factor.
Should the tax legislation be introduced, the South African Revenue Service will need to get up to speed with the new legislation to enforce compliance. “Companies usually rely on the revenue authorities to inform them if they are not fully complying. Therefore, a fully capa- citated revenue authority is critical when the new legislation is introduced,” says Gwala.
The possibility of an export tax is being discussed by government and Deloitte expects that, in December, some indication will be given of the taxes which could be implemented, after which the formal announcement is expected to be made in the Budget speech in February.