Chairperson, hon Ministers and colleagues, one of the clauses of the Freedom Charter states that, "the wealth of the country and its mineral resources shall be shared amongst those who live in it.'' The Bill before us complements the Mineral and Petroleum Resources Development Act, Act No 28 of 2002, which in turn vests the mineral rights in the state as custodian of mineral resources on behalf of South African citizens. Its main objective is to compensate the state for the country's permanent loss of nonrenewable resources without compromising communities who have contractual royalties with mining companies operating on their land.
This was a concern among mining houses as they claimed that it was double taxation. On the other hand, communities such as Bapo Ba Mogale are dependent on these contractual royalties for the upliftment and development of their communities. During public hearings and our deliberations the committee emphasised that it was not going to go against the objectives of the MPRDA by bowing to industry demands to do away with contractual royalties.
It is, however, up to communities themselves to negotiate with mining companies if they need an equity stake in the company. A busload of Bapo Ba Mogale's people came to the hearings to voice their interests in and support for the retention of community royalties. The community is fully aware of the implications and responsibilities they will be faced with should they decide to have an equity stake in the mining company.
Indirectly, the Bill also tries to address the issue of unemployment and poverty by enforcing beneficiation of minerals. This is done through the taxation of minerals at an exit point when they are exported. This Bill complements and gives teeth to the MPRDA's objectives of beneficiation; the State Diamond Trader and the levy imposed when some diamonds are exported are typical examples.
The determination of the royalty to be paid by the industry was another bone of contention for the mining houses. Clause 2 of the Bill states that:
A person that wins or recovers a mineral resource from within the Republic must ...
... in respect of each year of assessment -
... pay a royalty for the benefit of the National Revenue Fund in respect of the transfer ... ... of that mineral resource by that person.
The argument from the industry was that there are refined and unrefined minerals of which the difference in purity or impurity is brought about by the by-products associated with the mineral. They argued that it is not the intention of the Bill to levy royalties on refined minerals. As a result, a formula was proposed by National Treasury, which took into account some of the concerns raised.
The formula expresses the royalty levy as a percentage of the amount of the mineral extracted. Because of the difference between the refined and unrefined minerals, two royalty formulae expressed as a percentage of the value of the minerals are used when calculating the royalty levy. The maximum factor for the refined minerals is 5% and 7% for unrefined minerals. Previously, a flat rate of 3% was used irrespective of the quality of the minerals. The formulae ensure that it is automatically adjusted for cyclicality and volatility of the market. When there is a boom in the market, it provides the fiscus with higher revenue and in bad times, it provides relief for marginal mines. Initially the formula included amortization and depreciation in the total value of the mineral, that is, EBITDA, which is earnings before interest, taxes, depreciation and amortization. This valuation was a bit harsh for the industry, as marginal mines and small-venture mining operations would suffer. Therefore, the committee agreed that depreciation and amortisation be excluded, which was a great relief for the mining houses.
There is a further relief for small business in this clause of the Bill. A mining company is exempted from paying royalty levies if the gross sales are less than R10 million during the year of assessment or if the royalty to be paid is less than R100 000. However, the small mining company must be a resident as defined by the Income Tax Act and must have registered for that year.
Generally the anti-avoidance rule will kick into place should the industry try any shenanigans in order to avoid paying a royalty levy. Thank you. [Applause.]