The Minerals Council South Africa commended the recent budget which includes diesel purchase refunds for mining and extends electricity price neutrality regarding carbon tax. However, concerns over declining profitability and tax revenues from the mining sector persist. With significant investments in public infrastructure planned, the sector’s potential relies on stabilizing policies and effective collaboration to enhance growth.
The Minerals Council South Africa (MCSA) reacted positively to the budget delivered by Finance Minister Enoch Godongwana on March 12, which allocates refunds on all eligible diesel purchases for the mining sector. This refund is currently limited to 80% of eligible purchases. Additionally, the MCSA welcomed a five-year extension of electricity price neutrality concerning carbon tax and an increase in the carbon offset allowance starting in 2026, emphasizing the need for improved growth in the mining sector to boost the economy.
The MCSA underscored that persistent weak GDP growth stems, in part, from the struggling mining sector, which impacts revenue generation necessary for funding essential services. Chief economist Hugo Pienaar remarked that sustained economic growth is crucial to breaking the cycle of tax hikes or cuts in services, thus supporting growth initiatives within the mining sector during the interim.
Despite the favorable budget measures, the mining industry’s profitability continues to decline, putting pressure on Treasury’s tax revenue. According to Stats SA, mining profits dropped by 18.5% in 2023 and further fell by 1% in 2024, leading to expectations of a 28% contraction in corporate tax contributions from mining in 2024/25. Revenue from mining and petroleum royalties is also projected to decline significantly.
The government plans to invest R1.29 trillion in public infrastructure over the medium term, yet concerns arise about insufficient support for Transnet’s capital needs to enhance rail infrastructure for mineral exports. Without appropriate budget allocations, Transnet might need to seek private funding and contributions from the mining sector to maintain essential infrastructure.
The budget proposals will affect mining sector employees through higher personal income tax and various cost-of-living adjustments. For instance, employees earning R350,000 could face increased monthly tax burdens due to salary increases. The proposed VAT increase may also raise consumer inflation, but the Treasury aims to mitigate this impact by expanding zero-rated food items.
To optimize government revenue and avert future tax increases, the full potential of South Africa’s mining sector must be realized, particularly in light of the global demand for critical minerals. Achieving this necessitates a favorable mining policy, a stable electricity supply, improved infrastructure, and enhanced local government efficiency.
In summary, the budget presented by Finance Minister Enoch Godongwana highlights opportunities and challenges for South Africa’s mining sector. While the provisions are intended to boost growth, industry profitability remains under pressure, underscoring the necessity for strategic improvements. The Minerals Council emphasizes the critical role of the mining sector in contributing to government revenue and securing future economic stability through optimized operations and effective policies.
Original Source: www.bizcommunity.com
