SOUTH AFRICA: BUDGET SPEECH 2022 – PROPOSED AMENDMENTS TO THE TAX TREATMENT OF MINING COMPANIES
The 2022 Budget Speech includes proposed amendments to the tax treatment of mining companies.
Impact of restrictions on the utilization of assessed losses on the redemption of mining capital expenditure
In terms of the current legislation, capital expenditure incurred by mining companies may be deducted against available taxable income, after the set-off of any balance of assessed loss incurred by such mining companies during any previous year of assessment. Amendments to section 20 of the Income Tax Act (effective for years of assessment ending on or after 31 March 2023) will result in the full balance of the assessed loss of a company not being available for utilisation.
It is proposed that this restriction on the use of assessed losses be incorporated into section 36 of the Income Tax Act. This would mean that mining companies with a sufficient balance of unredeemed mining capital expenditure should still not be subject to income tax on their mining income. However, mining companies that do not have sufficient mining capital expenditure available for redemption will most likely end up with a tax liability to SARS, whilst there will still be a balance of assessed loss available as a result of the restrictions imposed in terms of section 20.
Impact of section 23M interest limitation provisions on the mining capital expenditure calculation for non-producing mines
During 2021, amendments were made to section 23M of the Income Tax Act. Section 23M imposes restrictions on the tax deductibility of interest where such interest is paid by a South African tax resident to a non-resident person not subject to tax.
In terms of section 36(11)(b) of the Income Tax Act, mining companies that are not producing, may include as part of their capital expenditure, any interest incurred during such period of non-production.
It is proposed that the interest limitation provisions of section 23M are not applied to non-producing mining companies in calculating the interest for inclusion in their balance of capital expenditure for the year.
Progress with the review of the diesel refund administration
During the past few years, there has been an increase in the disputes with SARS with regards to the claiming of diesel refunds by mining companies. Following draft amendments to the diesel refund notes to the Customs and Excise Act, which were published for comment in 2020 and 2021, as well as industry workshops held during the latter part of 2021, it is now proposed that legislation effecting these amendments be put forward.