Mining Tax: Income Tax Capital Allowances Granted To South African Gold and Natural Oil Mines

Since its introduction in 1956, the capital allowance has been increased and its scope widened. At present the allowance is 10% in respect of two categories of gold mine (post-1973 and other deep level mines) and 6% in respect of natural oil mines. The allowance is a significant incentive encouraging the development of new mines, to the benefit of both the fiscus and the South African economy as a whole. A strong case can be made for increasing the amount and the scope of the allowance. The Margo Report recommendation that the allowance should possibly be replaced with a system of direct grants is, in theory, neutral. However, practical difficulties exist with cash grants and there is concern with the implications elsewhere in the Margo Report that the capital allowance is excessive and that, as a consequence, such direct grants will represent an effective reduction in this incentive. I believe that the best course of action would be the retention (and enhancement) of the capital allowance and the expansion of its scope.