Bloomberg News

Zuma Seeks Review of Mining Taxes to Boost Revenue

February 15, 2013

South African President Jacob Zuma said mining royalties will be reviewed as he comes under pressure to reduce poverty and inequality in the world’s biggest producer of platinum, chrome and manganese.

Finance Minister Pravin Gordhan will commission a study of current tax policies later this year, Zuma, 70, told lawmakers in his State-of-the-Nation speech in Cape Town yesterday.

The review is “to make sure that we have an appropriate revenue base to support public spending,” he said. “Part of this study will evaluate the current mining royalties regime, with regard to its ability to suitably serve our people.”

With elections due to take place next year, Zuma is under pressure to do more to cut a 25 percent unemployment rate and reduce income inequalities that are among the highest in the world. At the same time, investor confidence has dropped after a series of mining strikes and the shooting of about 34 protesters by police at Lonmin Plc’s Marikana platinum mine last year.

The ruling African National Congress agreed at a conference in December to reject a call from some of its members to nationalize mines in favor of reviewing taxes on companies. Mines Minister Susan Shabangu and Gordhan have played down the likelihood of higher levies.

‘Grand Ideas’

A review of mining royalties should “read mines will pay more taxes,” Dawie Roodt, an economist and chairman of Pretoria-based Efficient Financial Holdings Ltd., said in e- mailed comments today. “The tax system is complicated and in need of an overhaul, but the president doesn’t mean it like that. He needs more money for his grand ideas.”

The cost of insuring against a debt default for five years climbed to an eight-month high of 177 this month, indicating a deterioration in risk perception. Credit default swaps on the debt have increased 26 basis points to 169 since Dec. 18, when Zuma won a second term as leader of the ruling African National Congress.

Mining output contracted for a fourth month, dropping 7.5 percent, in December from a year ago, the statistics office said yesterday. Nine loss-making platinum-mine shafts were shut in the second half of 2012, according to the Department of Mineral Resources, while Anglo American Platinum Ltd., the largest producer of the metal, last month said it plans to idle four shafts, which may result in as many as 14,000 job losses.

Mining Jobs

Zuma said he met Sir John Parker, the chairman of Anglo American Plc, which controls Anglo American Platinum, two weeks ago to discuss the planned job cuts.

“The suggestion or the talk of further assessment of taxation, that’s not new,” Anglo American Chief Executive Officer Cynthia Carroll said on Bloomberg TV’s “On The Move” show with Manus Cranny today. “We have to work together to ensure that we’re doing the right things to ensure that we are competitive and that we are able to sustain low-cost operations, profitable operations, for the future and that’s the bottom line.”

Mining directly employs about 500,000 people, makes up about 9 percent of gross domestic product and accounts for two- thirds of exports. Since March 2010, mining companies have paid royalties tax based on sales in addition to income tax, with the rate varying depending on the type of mineral.

Slowing Growth

“The mining industry is already making significant contributions in taxes,” Bheki Sibiya, the chief executive officer of the Johannesburg-based Chamber of Mines, said in an e-mailed statement yesterday. “We are hopeful that the research will make recommendations that will ensure an equitable tax system.”

A slowdown in Europe is weighing on Africa’s largest economy, which is likely to expand 2.5 percent this year, less than half the pace of more than 5 percent that’s needed to meet the government’s job-creation goals, Zuma said.

The government is committed to implementing the National Development Plan, drawn up by a panel led by ex-Finance Minister Trevor Manuel, which the ANC endorsed at its December conference, Zuma said. The plan sets out the investment needed in roads and rail, health, education and other services to boost growth and calls for a review of labor laws to encourage hiring and create 11 million new jobs by 2030.

Zuma pledged to review state workers’ salaries and ensure they were delivering value for money, clamp down on crime and corruption and speed up distribution of land to the country’s black majority. He also announced that a national health insurance fund would be established in 2014, and that the government had reached an agreement with business and labor organizations on youth employment incentives, without providing further details.

A former intelligence operative, Zuma won control of the ANC from Thabo Mbeki in December 2007, and was appointed president of the country in May 2009. As the leader of the ruling party, who took power in the country’s first post- apartheid elections in 1994 and holds almost two-thirds of the seats in parliament, he is also its presidential candidate for the 2014 elections.

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net


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