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Quarries: mines or manufacturers?

The South African Revenue Services (SARS) has thrown the cat among the pigeons with a new interpretation draft note which classifies certain quarries as manufacturers rather than mines.

If the interpretation is accepted it will have far reaching effects on the industry and can lead to disproportionate costs between those that are classified as mines and those classified as manufacturers. While manufacturers will no longer have to comply with onerous mining legislation nor pay royalties, they will also not be able to claim capital expenditure allowances nor will they be able to make use of the diesel rebate scheme that miners enjoy.

The interpretation note was issued as a result of the widely varying methods used to extract sand, stone and other mineral from quarries, pits, rivers and dunes etc with varying levels of processing required to bring the product to the market. Clarification will allows SARS to collect taxes as fairly as possible.

Legal expert Camilla du Toit of Shepstone and Wylie Attorneys, briefing a tax and financial workshop held by the Aggregate and Sand Producers Association of Southern Africa (Aspasa) in Johannesburg recently, however cautioned industry role players to study the interpretation note and send comments to SARS by 30 April 2015 to ensure that all concerns are considered and addressed before the finding take effect.

“One of our concerns is that SARS new position in terms of classifying operationsgoes against the Treasury Department’s call for further beneficiation of products at our mines. Yet when further processing of minerals takes place at our quarries SARS wants to classify them as manufacturers rather than mines and that, we fear, may be counter productive,” du Toit stated.

In terms of the note SARS four main points can be used to determine what constitutes a mine or manufacturers:

  • There must be a methods or process to remove mineral from the earth
  • There must be a separation of valuable mineral from waste materials
  • Mining should take place for a mineral as defined by the inherent mineral qualities of a mineral with a value other than in bulk
  • The mineral must be extracted from the soil

Manufacturers, by comparison, are deemed to make a new product that is different to what was originally mined. “It is clear that both descriptions are open to interpretation and for this reason the industry needs to investigate this further and make a stand to assist SARS to find an interpretation that benefits everyone.”

Aspasa will be making a submission to this draft interpretation, which has to be in by end April 2015.

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