Where does mining stop and manufacturing commence? A critical analysis of section 15A of the Income Tax Act

Abstract

The aim of this article was to report on a critically evaluation of the clarity and guidance provided to taxpayers in the mining industry regarding the distinction between mining and manufacturing in the context of section 15A of the Income Tax Act of South Africa. To achieve this purpose, a literature review was conducted that outlined the broad differences between a process of mining as opposed to a process of manufacturing. The article highlights the fact that in reality, the mining of a mineral and the subsequent manufacturing of the mineral into something new often occur in a continuous process, which could be difficult to distinguish from one another (as was highlighted in the case of CSARS v Foskor). The literature review was further based on the applicable sections of the Income Tax Act, as well as relevant case law, with the emphasis of the reported case of CSARS v Foskor. It was found that, despite the introduction by the legislator of section 15A (a section introduced into the Act, as a result of the problems experienced in CSARS v Foskor), the distinction between mining and manufacturing still remains unclear and in need of further clarification when something will actually be “won” as part of a mining operation as opposed to as part of a manufacturing operation. It is suggested that the concept “won”, which is included in the existing definition of what constitutes mining for purposes of the Income Tax Act, should be included as an additional definition in section 1 of the Act, and read together with the current definition of “mining” provided for in the ITA. A suggested definition for “won” was proposed as part of the current article. This proposed addition might add substantial value to the inserted section 15A as this section only applies to taxpayers conducting mining operations. Therefore, only where a taxpayer is certain of actually conducting “mining operations” do the clarity and guidance intended by the legislator with the introduction of section 15A become available and applicable to the taxpayer. Stated otherwise, where it is easier for the taxpayer to determine if a “process of mining” is in fact conducted, by the insertion of a separate definition for “won” for purposes of mining, it will be clearer for the taxpayer to determine if the guidance provided in section 15A of the ITA is available and applicable to the taxpayer.