Anglo American CEO: S Africa Tax Plan Risk To Mine Competitiveness
06/07/2012| 11:29am US/Eastern
-- South Africa mulls resource rent tax to extract more value from mineral wealth
-- Anglo American CEO says more taxation runs the risk of making South Africa's mining sector uncompetitive
-- Anglo American CEO to invite CEOs from other mining companies to discuss way forward
-- Anglo CEO to propose 10 key mining industry commitments in a Pledge for South Africa
By Alex MacDonald
South Africa's planned resource rent tax runs the risk of making the country's mining sector internationally uncompetitive, the chief executive of the country's largest mining company, Anglo American PLC (>> Anglo American plc) has said.
South Africa is considering implementing the tax on the country's mining industry to reap more reward from its mineral wealth. A report commissioned by the ruling African National Congress, proposed a 50% tax after companies start getting a certain return on investments. The report estimated the new taxes would yield 40 billion rand ($4,768 million) a year that could be put into a sovereign wealth fund to pay for development of mining and infrastructure as well as ease the strengthening of the rand during commodity booms.
The proposal followed a protracted debate about nationalization. That debate has ebbed and attention has now shifted to whether a resource rent tax would be beneficial or punitive for South Africa's economic development. The mining industry generated 9.6% of South Africa's gross domestic product and 35% of its export revenue in 2011 and employed more than 1 million people directly and indirectly, according to Anglo American.
Anglo's chief executive Cynthia Carroll said in a speech Wednesday to members of South Africa's government, labor unions, and mining industry that she wholeheartedly endorsed Mining Minister Susan Shabangu's view that the current tax system was fair and competitive and working well.
"The existing royalty regime...combined with the existing system of taxation...already ensures a fair distribution of the benefits of mining," said Ms. Carroll. "Further changes to the fiscal regime would create a grave risk of making South Africa internationally uncompetitive."
Ms. Carroll also said that the report's idea of a sovereign wealth fund has merit, provided that it comes from existing taxes and royalties but she said the government should be mindful of not penalizing South Africa's competitiveness in the global mining industry.
"The truth is that South Africa has plentiful mineral resources which are more than capable of both growing exports and providing the commodities for which there is a real demand domestically," Ms. Carroll said. "Restrictions or taxes on exports would simply harm the mining industry without contributing to broader economic development," she added.
Taken as a whole, Ms. Carroll said the ANC-commissioned report has praiseworthy goals for South Africa's mining sector and economy but she noted that existing legislation and policies could achieve the same goals with the right investment in infrastructure and skills in place.
Ms. Carroll said that she will be inviting the CEOs of other major mining companies in South Africa to join her later in the month to discuss the conclusions of the Mining Lekgotla conference and map a path forward for the country's mining industry.
She said she would propose 10 key commitments in a 'Pledge for South Africa' that focuses on health, safety, the environment, education, equity in employment and job creation, housing and transparency among other things.
Ms. Carroll called on South Africa's government to build upon existing legislation rather than change the foundations of current mining legislation.
"The path to prosperity lies in completing the implementation of the regulatory framework already in place, rather than in creating something new," she added.
-Write to Alex MacDonald at email@example.com