* Profit tax of 50 percent proposed
* Nationalisation would be "unmitigated disaster"
* Tax havens targeted
By Sherilee Lakmidas and Ed Stoddard
JOHANNESBURG/CAPE TOWN, Feb 8 A study
submitted to South Africa's ruling ANC to reform its vital
mining sector proposes a 50 percent tax on profits and rejects
nationalisation as an "unmitigated disaster" for Africa's
Although it delivers a hammer blow to calls for
nationalisation by radical elements in the African National
Congress (ANC), mining houses will be wary of the tax proposals
as they grapple with steeply rising labour, power and safety
costs in the world's largest platinum producer.
South Africa has a poor track record of translating its vast
mineral wealth into broader prosperity and the government is
under pressure to create badly-needed jobs in the industry
without scaring off the investment it needs.
"Under the current fiscal regime our nation is clearly not
getting a fair share of the resource rents generated from its
mineral assets," an official summary of the 600-page study
obtained by Reuters said.
"A Resource Rent Tax (RRT) of 50 percent must be imposed on
all mining. It will trigger after a normal return on investments
has been achieved, thus not impacting on marginal or low grade
The study defines a resource rent as "the difference between
the price at which a resource can be sold and its extraction
costs" - in other words, profit.
As expected, the study, which was compiled after research
trips to 13 countries ranging from Chile to Australia to
Venezuela, flatly rejects nationalisation, mainly on cost
It put a 1 trillion rand ($132 billion) price tag - almost
as much as South Africa's annual budget - on acquiring all
listed and non-listed mining companies in the country.
An asset grab without compensation against an industry that
accounts for 6-8 percent of South African GDP would be even
worse, the report concludes.
"Nationalisation without compensation ... would result in a
near collapse of foreign investment and access to finance. This
route would clearly be an unmitigated economic disaster for our
country and our people," it says.
The document says new taxes raised, which it estimated at 40
billion rand at current prices, should be ploughed into a
sovereign wealth fund that could be used to temper appreciation
of the rand during commodity booms.
Once the resource rent tax is imposed, mineral royalty rates
should be cut to one percent from the current sliding scale
system, which caps royalties at 7 percent.
The study also proposes a clampdown on the use of tax havens
by foreign mining investors - a practice that activists say
bleeds capital from poor countries, especially those that rely
heavily on mining.
"Many international mining companies invest in Africa via a
subsidiary registered in a 'tax haven'," it says.
"To encourage direct investment from their primary listing
country, we should introduce a mineral foreign shareholding
withholding tax: if the foreign mining company is held in a 'tax
haven', then rate should be 30 percent and if not, the normal
rate of 10 percent should apply," it says.
The study deals a potentially fatal blow on the push for
mine nationalisation, which had already lost political momentum
due to ANC disciplinary charges against its biggest advocate,
Youth League leader Julius Malema.
Malema was found guilty of sowing discord in the party by an
internal tribunal in November and was sentenced to a five-year
($1 = 7.5782 South African rand)
(Additional reporting by Jon Herskovitz; editing by James