The 2018 Mining Charter aims to address the inequalities, systematic marginalisation, and economic exclusion of historically disadvantaged persons ("HDPs") in South Africa's mining sector.

The Minerals Council of South Africa has previously reported that generally, companies with more than 30% women on their boards have a net profit that is over 6% higher than other companies, which demonstrates the benefits of diversity in the workplace.

In this article, we will discuss how the 2018 Mining Charter promotes gender equality and how taxes in South Africa impact those efforts.

The Mining Charter contains specific measurable targets to effect transformation through seven elements, namely:

  • Ownership;
  • mine community development;
  • employment equity;
  • human resource development;
  • inclusive procurement;
  • supplier and enterprise development; and
  • housing and living conditions.

Ownership

The Mining Charter has specific requirements to ensure meaningful economic participation in the mining industry by previously disadvantaged people. For example, new rights holders must have a 30% B-BBEEE shareholding distributed among black employees (minimum 5%), host communities (minimum 5%) and a minimum of 20% effective ownership in the form of shares to a B-BBEE entrepreneur, 5% of which must preferably be for women.

The host community's interest should be held in a trust or a similar vehicle. Mining companies must work with affected stakeholders to identify the community's development needs and come up with an approved host community development programme. This programme will not replace the social and labour plan commitments in the Mineral and Petroleum Resources Development Act, 2002 ("MPRDA").

Dividends that the host community trust may receive can be used towards the community development programme. Some mining companies make extra contributions to the host community trust when it's in its infancy to boost community development programme initiatives. Dividends to the trust are subject to a dividend withholding tax of 20%.

If the community development programme consists of public benefit activities that are listed in the Ninth Schedule to the Income Tax Act, 1962 (the "ITA"), it can be registered as a public benefit organisation ("PBO") for tax purposes. This will make the programme exempt from tax, including dividends tax. In some circumstances, the trust may also qualify to issue section 18A certificates, which means that taxpayers donating to the trust can get a tax deduction for the donation. Being registered as a PBO will likely result in increased receipts for the trust to use for the community development programme.

Employees' shares are also commonly held in a trust. The tax implications for the trusts and their beneficiaries depend on whether the trust is a vested or discretionary trust.

If the trust is a vested trust in respect of capital and/or income, any capital gains or income received or accrued to the trust will be deemed to be income and/or capital gains in the hands of the beneficiaries and is disregarded in the hands of the trust.

If the trust is a discretionary trust, the tax on capital gains and/or income will be for the trust's account unless the trustees vest the capital gains and/or income to the beneficiaries in the same year of assessment in which the capital gains and/or income is received or accrued by the trust.

The ITA also provides for "qualifying equity shares" acquired under a "broad-based employee share plan" and allows the gain to be taxed as a capital gain as opposed to income. The ITA also provides an exemption from income tax gains that accrue to an employee from a qualifying "broad-based employee share plan". Although there are benefits to structuring employees' shareholding in this way, there are stringent requirements.

According to the ITA, a taxpayer must include in their income any gain in respect of the vesting of any equity instrument, if that equity instrument was acquired by a taxpayer by virtue of their employment.

Mine community development

It is imperative that mining right holders contribute to the socio-economic wellbeing of the communities around them by developing a social and labour plan ("SLP") that focuses on targeted development, proper processes, consultation and procedures. In recent years, the legislature has introduced specific sections allowing mining companies to deduct expenditure incurred in respect of their SLPs.

Employment equity

Employment equity aims to remedy the difficulties experienced by those previously disadvantaged by eliminating discrimination, implementing affirmative action measures and accelerating transformation. In terms of the Mining Charter, the board and executive management of a mining rights holder must be 50% represented by HDPs, 20% of whom must be women. The percentage of women to be employed increases toward the lower levels of management.

Increasing women's exposure to STEM skills and training is also critical for their career progression.

Human resource development

The 2018 Mining Charter aims to produce a skilled, trained and diverse workforce and develop skills that enhance productivity, employment prospects and entrepreneurship. It requires that mining rights holders invest 5% of their total remuneration payable to employees (excluding the skills development levy) on essential skills development.

This investment must be in areas such as science, mathematics, numeracy skills and literacy, and can include graduate training, bursaries and apprenticeships. The ITA provides an additional tax deduction (over and above the actual expenditure incurred) in respect of learnership agreements.

This has been a contentious issue recently, because the legislature wishes to limit the exemption that is afforded to employees receiving bursaries and scholarships. However, this would have a negative impact, as some mining companies have established PBOs which are aimed at providing bursaries and scholarships. This could be an efficient vehicle to achieve compliance with some of the 2018 Mining Charter's elements.

Inclusive procurement, supplier and enterprise development

Mining companies are required to develop or nurture small, medium and micro enterprises and suppliers of mining goods and services. This includes a requirement that 70% of all manufactured mining goods must be acquired locally, of which 60% of the contents of the goods must be locally made, and that 80% of services procured must be sourced locally.

Additionally, there are specific percentages of both goods and services that must be procured from HDPs, women and youth owned/controlled entities. The deductibility of costs incurred in respect of enterprise development should be carefully considered.

Housing and living conditions

The 2018 Mining Charter acknowledges that housing and living conditions can substantially impact productivity, community development and the mental and physical wellbeing of employees. Mining rights holders are required to provide housing appropriate for families, ensure that each person has a room, and to provide the options of home ownership to employees.

Where the employer has provided the employee with residential accommodation either free of charge, or for a rental consideration that is less than the value of such accommodation, a taxable fringe benefit is deemed to have been granted. The ITA contains various sections in relation to providing housing to employees that may provide beneficial outcomes or could lead to inefficiencies.

It is clear that tax is integral in relation to managing compliance with the 2018 Mining Charter and that planning and structuring could provide tax efficiencies. The converse is also true in that lack of proper planning leads to inefficiency and costs. Therefore, to make the most of the proverbial "dollar", mining rights holders are urged to carefully plan and implement their strategy with the appropriate attention to the tax.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.