Finance minister Enoch Godongwana has rejected a call by MK party to increase the mineral and petroleum royalties, which he says compare favourably with regimes in other countries.
He warned an increase in royalty rates could hit investment in the mining sector, negatively affecting royalty revenue.
Mineral and petroleum royalties have declined over the past few years from a high of R28.5bn during the 2021/22 commodity boom to R11.3bn in 2024/25 and are projected by the National Treasury to generate R11.7bn in 2025/26, rising to R13.5bn in 2027/28. The royalties contribute to the revenue available to the government for use in service delivery.
MK party MP Mzwanele Manyi asked Godongwana why SA maintained relatively low royalty and levy rates on mineral extraction especially compared with countries such as China. This, he said in a written parliamentary question, had to be seen in the context of SA’s “immense mineral wealth and the urgent need to maximise public benefit from natural resources of the republic”. He wanted to know the rationale for such a policy.
Godongwana replied that royalty rates applied in SA did not appear to be out of line with comparator countries.
“In work done for the International Seabed Authority, it was found that royalties on copper, cobalt, manganese and nickel are commonly at 2%-3% and 10%-12% of a defined sales value, making China an outlier in this regard (assuming the maximum rates are applied).
“The countries compared in addition with China and SA are Australia, Brazil, Canada, Chile, Democratic Republic of Congo, Indonesia, Jamaica, Japan, Peru, Papua New Guinea, Philippines, Poland and Russia.”
The minister said SA’s mineral and petroleum resource royalty regime aimed to strike a balance between encouraging investment into mining activities and ensuring adequate compensation for the country for the finite resources being extracted.
“Royalties are designed to be flexible and ensure that companies extracting minerals pay a larger share of their profits to government during commodity booms and during periods of high profitability.
“The royalty rate applied to the sales value of a mineral is determined by a formula that fluctuates with profitability and ranges from 0.5% to 7%. The minimum ensures that even if profits are low the country is still compensated for loss of resources.
“This is evidenced in the SA Revenue Service tax statistics, which show that mineral royalties doubled from R14.2bn to R28.5bn between 2020/21 and 2021/22 because of the commodity boom. They remained elevated in 2022/23 before dropping to almost R16bn in 2023/24 since companies were not as profitable in that fiscal year as commodity prices fell.”
Godongwana cautioned that while international comparisons were important for policy analysis, countries had different circumstances and it might not be suitable to replicate a policy in the SA context.
“In relation to China, their royalty rates are also flexible within the prescribed ranges. While several minerals have similar rate ranges to those applied in SA, the rates for some minerals (such as cobalt, manganese and nickel) have higher maximum rates than in SA.
“While SA’s royalty rates fluctuate based on profitability, the Chinese royalty rates are proposed by the provinces, autonomous regions or municipalities. Their legislation also provides for reductions of the resource tax in certain circumstances. As a result, it is not clear to what extent the maximum rates are applied in practice.”
An exception was oil and gas for which a standard rate of 6% was applied in China with reductions available. SA’s rates ranged at 2%-5% and Godongwana said SA’s maximum was closely aligned with China’s standard rate.
He noted this was a nascent industry in which no exploration was occurring, so lifting the rates now or in the past would not have yielded additional revenue due to the lack of investment in and extraction of oil and gas.
Manyi also wanted to know what the fiscus had forfeited in revenue forgone over the past five financial years by not applying higher royalties based on such comparative benchmarks.
Godongwana replied it was difficult to determine how much revenue the fiscus might have forgone as it was impossible to know which rate was applicable for each mineral in the various Chinese municipalities and provinces.
“Therefore, without an in-depth study, any figure cited for ‘forfeited revenue’ would be speculative and highly prone to error. In addition, an increase in royalty rates can have impacts on investment in this sector, which could negatively affect royalty revenue.”
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