Income tax benefits available to the mining industry : a comparison between South Africa and Australia

Abstract

The mining industry plays a vital role in the South African economy as well as supporting various sectors of the economy, for example the transport services, consulting and financial services, steel and material inputs, and electricity and water usage. The future success of the mining industry requires certainty on numerous regulatory issues, one of which is taxation. In this study the income tax benefits available to the South African mining sector were compared to those offered to the mining industry in Australia, which has the third largest mining sector in the world, in order to determine which of the two systems is more advantageous. The history of mining and the current taxation legislation applicable to the mining sector in South Africa was briefly discussed and analysed to provide an understanding of this industry. Australia recently introduced new taxation legislation and incentive scheme for the mining sector, namely the Exploration Development Incentive, effective from 1 July 2014. This was explained and analysed. The comparison of the tax benefits between the two countries led to the conclusion that South Africa offers better income tax benefits in respect of corporate income tax rate, prospecting, research and development, tax incentives and interest. Australian mining companies are better off with regard to capital expenditure, capital gains tax and mining rehabilitation. The income tax benefits received by both countries in respect of depreciation, royalties and tax losses are very similar. From this comparison it seems evident that while both countries offer substantial tax benefits to the mining industry, the South African mining industry currently enjoys an advantageous situation.