SOUTH AFRICA: GENERAL METADATA

DATA DOCUMENTATION

GENERAL NOTES

The fiscal year in South Africa runs from 1 April to 31 March of the following year. Following OECD conventions, data are allocated to the starting calendar year so that data covering the period April 2005 to March 2006 are allocated to 2005.

The initial data were obtained from the National Treasury and the National Budgets, not the Provincial Budgets. For several estimates, estimates are also based on quotes from industry specialists in the South African Press as well as the annual reports of companies like Eskom.

METHODOLOGICAL NOTE

A large part of support to fossil fuels in non-OECD countries (and in a few member countries such as Mexico) takes the form of price controls or regulations benefitting final consumers. In many cases, this occurs through the government mandating state-owned oil and gas companies to charge lower retail prices, thereby lowering the revenues these companies collect through sales of fuel. This often results in the government subsequently intervening to compensate state-owned oil and gas companies for the losses they incurred in the downstream sector due to the regulated prices, with this compensation taking many forms. Some governments choose, for example, to compensate national oil and gas companies through targeted tax concessions (e.g., VAT exemptions) or equity injections.

This inventory focusses on the direct budgetary transfers and tax expenditures that encourage the production or consumption of fossil fuels, including those benefitting national oil and gas companies. Estimates of the support directly conferred to final consumers by regulated prices are available from the International Energy Agency (IEA), which estimates these induced transfers as part of its annual "World Energy Outlook" publication. Readers are therefore advised not to add together the OECD and IEA estimates given the significant risk of overlap and double-counting this involves.

PRODUCER SUPPORT ESTIMATE

The fiscal regime applicable to oil, natural-gas, and mining companies in South Africa consists mostly of a corporate income tax, indirect taxes, and royalties. According to the Income Tax Act 8 of 1962 and Schedules to the Act, non-resident and resident companies alike are subject to a 28% corporate income tax. In addition, the government levies a dividend-withholding tax (15%) on the net amount of dividends declared and a net tax on capital gains (18.65%). Withholding taxes also have to be paid on royalties, interests, services and disposable immovable properties, at a rate of 5% in the case of dividends paid out by oil and natural-gas companies that are not engaged in refining and that do not hold a so-called "OP26 right". The withholding tax reaches 12% for royalties (15% starting on 1 March 2014) and 15% for interests paid to non-residents and fees for services paid from 1 March 2014.

Indirect taxes that apply to oil, natural-gas, and coal-mining companies include the regular VAT and the customs duties and import tariffs that are levied on purchased inputs. Up till 2010, South Africa’s oil, natural-gas, and mining companies did not have to pay royalties. This changed with the introduction of a profit-based royalty instituted in the context of the Mineral and Petroleum Resources Royalty Act (MPRRA) of 2008. According to the Act, royalty payments are to increase with profitability, with rates varying between 0.5% and 7% of a company’s adjusted gross sales.

No measures providing specific support to fossil-fuel producers could be identified in the context of this tax system, nor do budget documents mention the existence of any budgetary transfers benefitting particular producers. While the extraction of coal and hydrocarbons was not subject to any royalties prior to the introduction of the profit-based tax in 2010, the same could be said of most non-energy minerals mined in South Africa at the time. Similarly, although small coal-mining companies operating in South Africa are now eligible for royalty exemptions under the current system, the concessions equally apply to small operators extracting non-energy minerals. Given the size of South Africa’s total mining sector, royalty concessions such as these lack the specificity required to be characterised as support measures for the purpose of the present inventory.