A post-implementation analysis of the South African mineral royalty regime

Abstract

The landscape of the South African mining industry has changed significantly over the past twenty years and has in recent times attracted attention by calls for nationalization of the industry. One of the proposed areas to address the concerns resulting in these calls for nationalization has been to consider whether the South African mineral royalty regime can be improved. The objective of this article is to evaluate whether the South African royalty regime effectively balances the objectives of the stakeholders in the industry and to recommend improvements where this balance may not be achieved. The analysis performed indicated that the introduction of the royalty regime increased the overall government take from the mining industry significantly and that the competitiveness of the South African mining industry as an investment destination need to be assessed. It was further found that the linkage between the royalty formula and the income tax legislation distorts the royalty levied in relation to the mineral resources that are depleted. It is submitted that the regime can be improved by defining a profitability indicator specifically for the purposes of determining mineral royalties. Lastly, it is recommended that measures to improve accountability in respect of the utilization of the royalties collected need to be considered as the lack of such measures may contribute to the perception that the nation does not receive its fair share of the mineral wealth.