PUBLIC COMMENT RESPONSE DOCUMENT
DIAMOND EXPORT LEVY
PORTFOLIO COMMITTEES ON FINANCE AND ON MINERALS AND ENERGY
COMMENTS / SUBMISSIONS BY:
The South African Diamond
Producers Organisation (SADPO),
Trans Hex Group Limited,
and
De Beers Group of
Companies.
This document is structured as follows: comments by the industry are stated, followed
in bold italics with the responses by the National Treasury and the Department
of Minerals and Energy. The document
also closes with internally-generated changes.
This proposal
is not accepted. The question of marginal mines does not arise (i.e. the levy
is neither a tax nor a royalty). The
levy is only applicable if an unpolished diamond is exported. The goal to deter unpolished diamond exports
is the same regardless of whether a mine is marginal or profitable. The issue of marginality is more appropriate
for a royalty bill.
Mere linkage
to other acts is unhelpful. This
question is best resolved by reference to the underlying facts. At this stage, we lack full detailed
information. However, we understand that
roughly 1 800 local diamond producers exist besides De Beers, Trans Hex and
This proposal
is accepted. The requirement that small
diamond producers seeking relief provide their parcels in volumes of 10 stones
or less will be dropped. Small producers
should be eligible for relief based solely on turnover. However they parcel their stones is
irrelevant.
a. Clause 6 Comment: Under
the proposed Bill, local purchases can export diamonds purchased from producers
and beneficiators duty free if those producers or beneficiators so elect. This election is based on the expectation
that the selling producers of beneficiators that certain local beneficiation
requirements will be met. If these
expectations are not met, all levies and penalties fall on the selling
producers and beneficiators, not the exempt purchasers.
This proposal
is not accepted. The beneficiation
obligations of the Bill fall on producers and beneficiators. Producers are extracting non-renewable
mineral resources, which must provide maximum benefit to the local economy
(e.g. through downstream beneficiation).
Beneficators must beneficiate most of their diamonds as a license
obligation. Administrative efficiency
also dictates focus on producers and beneficators who lie at the centre of the
Bill.
Yes, the
definition of a Diamond beneficiator is defined as per the Diamonds Act 1986. The detailed obligations associated with this
beneficiation license are provided pursuant to regulation by the Department of
Minerals and Energy. The requirements of
this license are simply not a tax-related function.
This proposal
is not accepted. The primary objective of the Bill is to encourage the local
beneficiation of rough diamonds. The means by which this Bill tries to achieve
this objective is to facilitate the sale of more rough diamonds to local
diamond cutters and polishers (diamond beneficiators). A (medium size) producer will be exempted
from the diamond export levy if he or she can proof that he or she sold at
least 15 per cent of gross sales to local beneficiators. If this requirement is dropped, the
fundamental objective of the Bill will be undermined. If sales to local dealers
qualify, local dealers could simply export the diamond rough as there is no
obligation on a dealer to cut and or polish diamonds. This is the problem with the current system.
d. Regulations: The draft regulations for beneficiators are
too open-ended. The Regulator provides favourable treatment if the Regulator believes
that the beneficator will beneficiate an amount at least equal to 80 per cent
of all the unpolished diamonds purchased during the upcoming 12-month
period. Meanwhile, the producer
requirements are based on hard data, creating an unfair disadvantage for
producers.
This
statement is not accepted. These differences
in requirements are based on timing.
Beneficators can hold a license for future exports if the
Regulator believes the 80 per cent beneficiation requirement will be satisfied
in the upcoming months. On the other
hand, the Export Levy rules apply on a retroactive basis – i.e. to previously
occurring transactions (all of which measured on an after-the-fact basis).
This
statement is accepted. The law will be
clarified to ensure that all the rules (including exemptions) for the old 15
per cent export levy will remain in effect until the new Export Levy Bill
becomes fully operational. In addition,
special rules apply for the first 6-months of the new Export Levy Bill that
allow for simplifying assumptions to achieve exemption.
3. De Beers Group of Companies
Fair market
value concepts for diamonds are more properly the subject of the Diamonds Act
(as amended). The Department of Minerals
and Energy will address these concerns at an administrative level.
This proposal
is acceptable. The primary purpose of
this monetary threshold is to differentiate between medium size and large
producers without reverting to complicated criteria. Given the reality of the South African diamond
market, a threshold of R3 billion annual gross sales to differentiate between
and large and medium size producer is more appropriate reasonable. This reduction takes into account possible
changes in local diamond mine ownership.
It should be noted that this change promotes beneficiation by extending
the “large” producer exemption, which carries a 40 per cent local sales
requirement as opposed to the 15 per cent local sales requirement for medium
producers.
This
commented is noted but should be addressed to the Minister of Minerals and
Energy, as this exemption is in terms of the Diamonds Act, 1986. At this stage, the Department of Minerals and
Energy prefers regulations so that changes can be made to cover unanticipated
practical realities.
This comment
is accepted. The focus of the Bill is on
the net loss of unpolished diamonds.
Local beneficiation requires a net surplus of diamonds. This surplus could stem from local production
and from imports. Therefore, failure to
recognise imports as a positive factor undermines any incentive to enhance to
enhance the local industry via imports.
This comment
is rejected. Penalties and fines are not
deductible for income tax purposes.
However, where a tax or a levy is included in the price of a product
(e.g. the fuel levy), it is viewed as a deductible ordinary business expense. In this case, the levy operates more like a
penalty than an underlying tax.
This comment
is accepted. Rules will be provided for
currency translations (especially since most diamonds sales are measured on a
U.S. dollar basis).
This comment
is noted and the necessary correction will be made.
4. Internally-generated
changes
a.
Section 1 definition: Amendments are now made to the Diamonds Act to upgrade the current
unpolished diamond definition. The new
definition is more properly aligned with international customs criteria. The rules also clarify that synthetic
diamonds are subject to regulatory oversight while falling outside the export
levy.
b.
Section 1 definition: Producers include both licensed producers under the Diamonds Act as
well as members of the same group selling or purchasing diamonds from those
producers. It was always intended that
this group include both domestic and foreign incorporated group members. This intention will not be directly expressed
in the final version of the law.
c.
Section 12: Although the Bill is not intended to raise revenue because all
associated diamond administration will be covered on-budget, section 12 creates
room for the Bill to create revenue if funds are required. The Bill achieves this revenue raising
function by providing the Minister of Finance with the power to reduce credits
and exemptions. If action is taken in
this regard, the final version of the Bill requires all reductions of credits
and exemptions will be applied equally and simultaneously. Any reduction of this kind must also apply
equally and simultaneous to all parties potentially impacted (i.e. no
discrimination will be allowed).
d.
Sections 11(3) and 13: The final version of the Bill seeks to
clarify the impact of diamonds acquired by the State Diamond Trader. It is anticipated that the State Diamond
Trader will purchase diamonds from producers, followed by resale to local
diamond beneficiators. As a general
rule, the export of State Diamond Trader diamonds through the system should be
subject to the levy despite any other exemptions to the contrary. In other words, the State Diamond Trader was
formed with the object to promote local beneficiation. However, some leeway is allowed in limited
circumstances (e.g. where a beneficiator polishes 80 per cent of the State
Diamond Trader diamonds purchased with the problematic 20 per cent remainder
exported under better terms).
e.
Administration: The final version of administration bill contains many practical
adjustments suggested by the South African Revenue Service. Under this final version, the customs process
will be used to monitor the entry and exit of unpolished diamonds. All licensed diamond stakeholders will be
required to submit 6-monthly returns and pay any export levy duties associated
with these returns.