6 October 2000
RESIDENCE BASIS OF TAXATION FOR INDIVIDUALS
1. Thank you for providing the South African Association of Mining Contracting Companies (Association) the opportunity to comment on the draft legislation, relating to the residence basis of taxation for individuals.
2. As a background, the Association consists of major companies in the form of Cementation Mining (Pty) Limited, Grinaker Mining Contracting, RUC Mining Contracting Group, Shaft Sinkers (Pty) Limited and Samat Mining (Pty) Limited. In general, the members of the Association are subsidiaries of major South African companies and have affiliations offshore with other international companies, with whom they undertake exploration and mining construction projects on a joint venture basis. Essentially, the work consists of contacting operations to the mining and civil engineering industries in the form of exploration drilling, shaft sinking and equipping, mine development, shaft boring, raiseboring, road and rail tunneling and hydro-electric scheme construction.
4. With reference to the latest draft Bill to hand, dated 22 September 2000, the amendment of major concern is as follows:
Amendment of section 10 Act 58 of 1962:
(q) by the substitution for paragraph (o) of subsection (1) of the following paragraph:
"(o) any remuneration derived by –
[(i)] (aa) In the international transportation for reward of passengers or goods; or
[(ii)] (bb) In the prospecting (including surveys and other exploratory work) for, or the mining of, any minerals (including natural oils) from the seabed outside the continental shelf of the Republic as contemplated in section 8 of the Maritime Zones Act, 1994 (Act No. 15 of 1994), where such officer or crew member is employed on board such ship solely for the purpose of the ‘passage’ of such ship, as defined in the Marine Traffic Act, 1981 (Act No. 2 of 1981).
If such person was outside the Republic for a period or periods exceeding 183 days in aggregate during the year of assessment;
(ii) any person in respect of services rendered outside the Republic by such person for or on behalf of any employer, if such person was outside the Republic for a continuous period of 183 days or longer during the relevant year of assessment and such services were rendered during such period; Provided that the provisions of this paragraph shall not apply in respect of any remuneration derived from services rendered for or on behalf of any employer, or holding of any office, as contemplated in section 9(1) (e)."
6. The proposed draft legislation will have a major impact on South African businesses and individuals who operate or reside outside South Africa. In our view there must be sufficient time for due consultation and input from all interested parties.
7. Certain long-term international firm contract projects were in progress before the announcement by the Minister of the proposed changes to the income tax legislation, while other projects have been tendered for or were in the final stages of negotiation. On the basis that our international bids are based on current tax legislation, for which we have no contractual recourse, these projects would be unduly affected by the implementation of the proposed legislation and it is our view, that implementation of the act should not apply to existing commitments or at least be postponed for an equitable period of time.
8. It is considered that more than 1000 employees of members of the Association of Mining Contracting Companies will be directly affected by the proposed legislation. The effect on the Civil Contracting industry as well as other related industries would however be no different from the Mining Contracting industry. The total number of people that will ultimately be affected by the proposed changes will be substantial.
Individuals tax concessions related to non-residence status have assisted to keep the South African mining contracting companies competitive in the international marketplace. If the afore-said tax legislation is implemented in its proposed form, the following is envisaged:
8.1 It is unrealistic to expect the South African expatriate employees to bear the additional tax burden by not complying with the 183-day continuous period rule. The same after tax earnings will be required by individuals, otherwise there is little incentive of working internationally on a single basis and under difficult environmental conditions.
8.2 A substantial increase in employment costs of approximately 60% will be incurred for South African expatriate individuals, to achieve the same net after tax pay, if the 183 day continuous period rule is not complied with and this will generally be the case.
8.4 Although South African expatriate mining employees are currently cost competitive, more numbers of personnel tend to be used in mechanized mining contracting operations, compared to the more multi-skilled expatriate personnel from first world countries. With the increased employment cost referred to in items 8.2 and 8.3 above, together with the required use of more South African individual numbers for international project construction, we wish to emphasise, that South African mining contracting companies and their offshore joint venture partners would be forced to recruit skilled mining personnel from other countries with more economic labour resources, such as Australia, in order to maintain international competitiveness. In addition, a 91-day rule applies to the definition of residents in respect of services rendered outside of Australia by persons for or on behalf of any Employer.
8.5 Australian mining contractors are the main competitors in the global mining contracting industry. Because the acquisition of international mining contracts is highly competitive, the proposed legislation will render South African contractors non-competitive in their own right utilizing South African expatriate employees, unless relief measures similar to those in Australia are introduced and the 183-day aggregate period rule applies, as opposed to the 183-day continuous period rule in respect of the definition of residents.
8.6 It is foreseen that many of the skilled South African mining expatriates will move towards either temporary or permanent emigration from South Africa, which will probably result in skilled individuals working abroad being recruited by other international contractors and this would be a serious loss. As a South African Association, we have the current flexibility of cycling our skilled employees between both international and local South African contracts.
8.7 With reference to the remarks above, it is foreseen that the South African economy will be adversely affected for the following reasons:
9. In conclusion, we as an Association strongly appeal that the draft legislation for the residence basis of taxation for individuals in its current form be reconsidered. The implementation of the draft legislation in its present form will destroy the competitiveness of South African mining contracting companies operating internationally and will result in the loss of South African skilled individuals working abroad. We hold ourselves available for discussions, should any aspect of this submission require further clarification and trust that in the interests of our Association members, their employees and South African a fair and equitable solution can be reached to the mutual benefit of all parties.
ON BEHALF OF SAAMC
G R PARKER
MANAGING DIRECTOR RUC INTERNATIONAL