The MCSA praised the budget revealed by Finance Minister Godongwana, highlighting diesel refunds and carbon tax commitments that could enhance the mining sector. However, it expressed concern over the sector’s declining profitability affecting public finances. Key improvements in policy and infrastructure are needed to unlock mining’s potential and foster economic growth in South Africa.
The Minerals Council South Africa (MCSA) commended the recent budget announced by Finance Minister Enoch Godongwana, emphasizing the budget’s potential to revitalize the mining sector starting April 1. The budget introduces a refund for eligible diesel purchases, enhancing the current cap of 80% to allow a full refund for primary sectors, including mining. Furthermore, the MCSA supports the extension of the carbon tax commitment to maintain electricity price neutrality until December 2030 and a proposed increase in the carbon offset allowance beginning January 2026.
Despite these advancements, the MCSA highlighted the importance of achieving sustained growth rates within the mining sector to bolster South Africa’s economy. Chief Economist Hugo Pienaar expressed concerns over the current weak GDP growth attributed partly to the underperformance of the mining sector, which hampers public finances needed for essential services and public sector wages. He underscored that improved GDP growth is essential to overcome fiscal inadequacies and avoid further tax hikes or spending reductions.
The budget also raised concerns about the profitability of the mining sector, which has been under strain, resulting in reduced tax revenues from mining activities. Recent data indicated a consecutive decline in mining profits; they fell by 18.5% in 2023 and an additional 1% in 2024. Consequently, anticipated corporate tax collections from the mining sector are projected to decrease by 28% for the fiscal year 2024/25, alongside a significant drop in mining royalties.
The budget outlines plans for R1.29 trillion investment in public infrastructure over the medium-term, yet it anticipates a decline in infrastructure expenditure growth in the latter years. Notably, no funds were allocated for Transnet’s critical infrastructural needs, which could further complicate mineral export logistics. The mining industry may need to seek alternative funding sources for rail infrastructure improvements, highlighting the importance of private sector participation.
Employees in the mining sector will incur higher personal income tax payments due to tax increases, which vary based on salary adjustments. For example, an employee earning R350,000 who receives a 5% salary increase will face an added monthly tax burden. Additionally, Treasury proposes to soften the VAT increase’s impact by expanding the zero-rated food items basket.
To enhance government revenue without imposing additional tax increases, it is crucial for the mining sector to harness its full potential. The growing global demand for essential minerals presents a significant opportunity for South Africa’s mining industry, contingent upon creating a conducive environment characterized by stable policies, affordable electricity, efficient rail and port performance, improved water access, and local government efficiency. An uncompromising stance against corruption and crime is also essential for progress.
In summary, the recent budget announced by Finance Minister Enoch Godongwana offers promising incentives for the mining sector, particularly through diesel refunds and extensions on carbon tax neutrality. However, the ongoing decline in mining sector profitability poses risks to public finances and necessitates strategic improvements. For South Africa to maximize its mining potential and generate sustainable economic growth, a stable and supportive policy environment must be established, addressing key infrastructural and governance challenges.
Original Source: www.bizcommunity.com
