Benhaus - a landmark decision, one less hoop for contract miners but a clarion call for an overhaul of the South African mining regime

K Thambi

doi:10.17159/2411-9717/1031/2020

Abstract

SYNOPSIS The mining industry has evolved, such that the means of production that were once in the hands of major players or power houses have become equally accessible to smaller entrants, i.e. junior mining companies and contract miners. Contract mining involves contractual relationships between mine owners or mineral right holders and third parties to conduct mining activities on behalf of the right holders. The current mining income tax legislation has been a considerable obstacle to contract miners. Under its terms, they have been viewed as mining on behalf of third-party mineral rights holders. As such, expenditure incurred in relation to contract mining activities was often disallowed by the South African Revenue Service (SARS). However, the recent judgement of the Supreme Court of Appeal, Benhaus Mining (Pty) Ltd v CSARS 2020 (3) SA 325 (SCA) (Benhaus), rightfully or wrongfully, appears to provide clarity regarding the fate of contract miners' involvement in the mining value chain. The taxpayer, a contract miner, was held to be conducting mining operations within the meaning of S15(a) read with si of the Income Tax Act 58 of 1962 (the Income Tax Act). This paper looks at how contract mining has traversed the mining tax landscape, the implications of the Benhaus judgment, and stresses the necessity for clear policy reform to the mining tax regime and equally to legislation framed to give effect to these policies. Keywords: Contract mining, owner mining, tax, DMRE, mining regime reforms.

Highlights

This paper looks at how contract mining has traversed the mining tax landscape, the implications of the Benhaus judgment, and stresses the necessity for clear policy reform to the mining tax regime and to legislation framed to give effect to these policies
The mining industry’s’ evolution is punctuated by factors such as legislative amendments to the Income Tax Act 58 of 1962, the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA), the Broad-Based Socio-Economic Empowerment Charter for the Mining and Minerals Industry 2018, and the Customs and Excise Act, 91 of 1964, not to mention ancillary factors such as restrictions of changes in ore grades, technological advances, national and international standards
The contracting arrangement requires a third party or contract miner to use earthmoving equipment to win ore by opencast mining methods and transport the ore to a processing plant. When applying these scenarios to tax incentives as per the current mining income tax, the results indicated that the contractor was clearly ‘conducting a process by which a mineral is won from the earth’; the income that he derived ought to be taxed in accordance with mining tax rates and the expenditures deductible in accordance with the special mining tax provisions

Summary

Introduction

The mining industry’s’ evolution is punctuated by factors such as legislative amendments to the Income Tax Act 58 of 1962 (the Income Tax Act), the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA), the Broad-Based Socio-Economic Empowerment Charter for the Mining and Minerals Industry 2018 (the Mining Charter), and the Customs and Excise Act, 91 of 1964 (the Customs Act), not to mention ancillary factors such as restrictions of changes in ore grades, technological advances, national and international standards. The taxpayer, a contract miner, was held to be conducting mining operations within the meaning of S15(a) read with s1 of the Income Tax Act 58 of 1962 (the Income Tax Act).

Results

Conclusion