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Note: The legislation has been amended since this article was written. Some of the provisions discussed have been amended, but the general principles remain the same.
The Mineral And Petroleum Resources Royalty Act (MPRRA) imposes compulsory royalty payments that must be paid by any person who transfers a mineral resource that was extracted in South Africa (section 2). The royalty is paid to the South African Government (section 2).
The registration of persons that must make royalty payments, and the administration of the royalty payments, are regulated in accordance with the separate Mineral And Petroleum Resources Royalty (Administration) Act (MPRRAA).
A royalty is imposed on an extractor when:
The point where the royalty is imposed is on the
transfer, not the extraction, of the mineral resource (section 2).
Transfer is defined as the first instance that the mineral resource is disposed of, consumed, stolen, destroyed, or lost (section 1).
This definition ensures that a royalty is imposed only once on the first transfer, even in cases where there are a series of transfers after the minerals extraction.
There are two different royalty rates that may be applied, one applicable to refined mineral resources, and the other applicable to unrefined mineral resources (section 3). The two rates are:
The MPRRA sets out specific formulas that must be used when calculating earnings before interest and taxes (
EBIT) and gross sales (section 5 and 6 respectively). These formulas excludes the inclusion of certain expenditures, and may result in different results being reached compared to the use of the traditional accounting formulas.
The MPRRA also includes provisions that may exempt certain extractors, or provide relief under certain circumstances.
The MPRRA exempts small business extractors from royalties if they comply with various requirements (section 7).
An extractor is exempted from royalties if:
This exemption does not apply if:
An extractor is exempt from paying royalties on samples won in the course of prospecting or exploration operations for the purposes of testing, identification, analysis, and sampling, provided that the gross sales of those mineral resources doesn't exceed R100,000 (section 8).
When mineral resources are transferred from one extractor to another, the transfer will be exempt from royalties if:
When there is a transfer of a mineral resource between two extractors as part of a disposal of a business as a going concern is not regarded as a transfer for purposes of payment of royalties.
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