6 October 2000


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.

  1. On the international front, our main competitors in the mining contacting industry are companies from Australia, Canada, Great Britain and Germany and in order to develop our offshore operations, it is companies from the afore-mentioned countries that Association members have formed alliances over the last ten years, in order to undertake joint venture project construction work. Members of our Association are currently undertaking work in Africa, Australia, Europe, North America, South America and South East Asia.

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 –

  1. any person as an officer or crew member of a ship engaged –

[(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)."

  1. I do not profess to be a tax guru, just a straightforward miner who represents an Association whose prime function in life is to make cost effective "holes in the ground". Therefore, my appeal in respect of the proposed legislation is one, which follows apparent good business sense and is believed to be in the long-term interest of South Africa, for the reasons set out hereunder. Furthermore, it is not fully understood why in terms of paragraph (o) above, a "sailor" or "miner at sea" is in a better position in terms of sub-paragraphs (i), (i) (aa) and (ii) (bb), than an "underground miner" in terms of sub-paragraph (ii), related to the 183 day aggregate period and 183 day continuous period conditions respectively. As miners, we spend considerable periods abroad, in hostile climates, often where malaria is prevalent and work underground in environmental conditions, which are in many instances not ideal. After a period of between 2 and 3 months continuous work underground it is necessary to bring employees home for rest and recuperation. Surely there should be at least parity between "sailors" and "miners" resident conditions.

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.

    1. Regarding the draft legislation, it extends the definition of "gross income" to include in the case of a resident, the total amount in cash or otherwise received or accrued or in favour of such resident and includes the cash equivalent of "fringe benefits". The proposal to apply the "fringe benefits" provisions as defined for South African purposes, to the provision of what may be regarded as "normal expatriate inducements" in other countries where international project work is undertaken, does not address major cost variances between South Africa and other countries, nor the fact that the value of such benefits to the employee may have no relation to the cost to the employer. Regretfully, international mining contracting work is generally undertaken in unhospitable places such as barren surface areas, jungles and mountainous regions, coupled in many instances with hot, humid and diseased environments. The high cost of providing services to personnel at these project minesites in the form of accommodation, feeding, laundry, medical, transport, security, etc., surely cannot be considered as a "fringe benefit". If South African mining contracting businesses are to be internationally competitive, this matter must also be addressed and consideration given to excluding from "gross income" any "fringe benefits" as defined, which arise from service in a foreign country.

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:

      1. Loss of hard currency monies, as South African mining expatriates generally transfer their offshore earnings back to South Africa.
      2. Failure of South African mining companies to acquire international contracts in their own right because of uncompetitiveness, resulting in loss of revenues in South Africa for the export of permanent project plant and materials, construction supplies, construction equipment and consumable spares.

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.