Following Finance Minister Enoch Godongwana’s delivery of the national Budget speech on March 12, Minerals Council South Africa says the mining sector’s employees will be impacted on in various ways.

The impacts include higher personal income tax (PIT) payments, a mixed bag on cost-of-living expenses and less scope for further interest rate relief.

For example, employees with a taxable income of R350 000 in 2024 who received a 5% salary increase in early 2025, will now pay an estimated R380 a month more in PIT.

In the case of a 6% salary increase, the monthly PIT burden will increase by R455 a month.

Moreover, the 0.5 percentage point increase in value-added tax (VAT) could lift the headline consumer inflation rate by about 0.2 percentage points in the remainder of the year. If it proceeds, the additional VAT hike in 2026 will also be inflationary.

Godongwana proposed 0.5 percentage point increase in VAT on May 1, followed by another 0.5 percentage point increase on April 1, 2026.

In both 2025 and 2026, Treasury proposes to soften the impact of the VAT hike by expanding the basket of VAT zero-rated foodstuffs.

From May 1, several categories of edible offal, as well as tinned or canned vegetables, will also be zero rated. As usual, excise duties on alcohol and tobacco will see above-inflation increases.

In contrast, the fuel and Road Accident Fund levies will not be increased this year.

This removes some upside pressure on the price of fuel.

The Minerals Council explains that, along with global uncertainties brought about by US President Donald Trump’s trade policies, the upward tilt in domestic inflation from the VAT increase suggests reduced wiggle room for the South African Reserve Bank (SARB) to reduce the policy interest rate further.

The SARB’s next interest rate decision is to be announced on March 20.

The tax measures in the 2025 Budget should be seen in a context where mining sector profitability has been under pressure, reducing Treasury’s tax take from mining.

PROFITABILITY CONCERNS

Statistics South Africa’s latest gross operating surplus (GOS) data, which provides a broad measure of profitability, indicated that for the second consecutive year, mining profits declined on a yearly basis in 2024.

After plunging by 18.5% in 2023, the GOS for mining declined by a further 1% during 2024.

Against this backdrop, provisional tax data in the Budget showed that corporate tax collections from the mining industry are expected to contract by a significant 28% year-on-year during 2024/25.

Treasury estimates that revenue from mining and petroleum royalties will be down by a similar (large) magnitude, from R15.9-billion in 2023/24 to a revised estimate of R11.3-billion in 2024/25. Treasury had banked on R16-billion in royalty payments during 2024/25.

“Sustained weak real GDP growth, in part as a result of an underperforming mining sector, means that the economy is unable to generate sufficient revenue to, among others, finance large pro-poor expenditure, as well as a bulging public sector wage bill,” Minerals Council chief economist Hugo Pienaar says.

The council adds that the only way to break the sub-optimal cycle of tax hikes or spending cutbacks to frontline services is through higher rates of GDP growth that is inclusive.

MIXED BAG

In the interim period as growth picks up, the Minerals Council supports the additional funding to the South African Revenue Service (Sars) to improve tax efficiency and broaden the tax base.

Notwithstanding the tax hikes, as a result of additional spending allocations, gross government debt as a percentage of GDP is projected to peak at a somewhat higher level of 76.1% in 2025/26.

This compares with Treasury’s forecast at the time of the Medium Term Budget Policy Statement in October 2024 that public debt would peak at 75.5% of GDP in 2025/26.

On a positive note, the Budget outlined government plans to spend R1.29-trillion on public infrastructure over the medium-term expenditure framework (MTEF) – the period from 2025/26 to 2027/28.

However, of concern is that after a projected solid increase in 2025/26, Treasury pencils in an outright decline (in real terms) for the rate of growth in public sector infrastructure expenditure in the final two years of the MTEF.

Moreover, no budget allocations were made to support Transnet’s large capital expenditure requirements to improve the quality of rail infrastructure for the major mineral export corridors.

From a mining industry perspective, this is a concern. The lack of support means that Transnet will need to find other funding sources, including through private sector participation on the major commodity corridors.

Another potential avenue is direct capex contributions from the mining sector to maintain and upgrade rail infrastructure.

Through the Budget Facility for Infrastructure (BFI), Treasury earmarked R1.3-billion over the MTEF for the expansion of the land-side container terminal at Cape Town port and R2-billion for improvements on the freight rail corridor between Gauteng and the Eastern Cape that serves the automotive sector.

This should benefit the agricultural and vehicle export sectors.

“As alluded to in the Minister’s speech, going forward, through the BFI, we hope to see more finance for infrastructure projects that will also directly benefit the mining industry,” Pienaar states.

The budget did provide some welcome support to the mining sector. Starting April 1, primary sectors such as mining will qualify for a refund of all eligible diesel purchases declared to Sars. Currently, the refund is capped at 80% of eligible diesel purchases.

In addition, regarding the carbon tax, the Minerals Council supports and welcomes the five-year extension to December 31, 2030, of the commitment to electricity price neutrality, as well as the three-year extension of the basic tax-free allowance.

Electricity price neutrality refers to a regulation that disallows Eskom from making provision in its electricity tariff application for the carbon tax. A further positive development is the proposed increase in the carbon offset allowance by five percentage points from January 1, 2026.

OUTLOOK

To prevent additional tax rises in coming years, the full potential of mining needs to be unlocked. This would be an important catalyst for improved government revenue.

The global scramble to secure critical minerals provides a golden opportunity for mining to increase its already sizeable contribution to the South African economy.

However, to realise its full potential, the mining sector requires:

• A stable and predictable mining policy environment that is fit-for-purpose.

• A stable supply of, and affordable, electricity.

• Further progress to improve rail and port performance.

• Improved infrastructure for better access to water resources.

• Enhanced local government efficiency.

• An uncompromising stance against crime and corruption.