SOUTH Africa has relaxed its tax laws to stimulate research and development (R&D) in oil, gas and mineral exploration at a time when new reserves are being discovered in sub-Saharan Africa almost on a daily basis.

Multinational companies are lining up to take part in developing big oil and gas finds in Mozambique and Tanzania, while exploration and prospecting projects continue at a rapid pace in mineral-rich countries such as Zambia, Ghana and Namibia.

In the midst of all this activity, South Africa could become something of an “innovation hub”, where scientists and engineers are able to develop technologies that can be deployed in different projects, according to KPMG partner Mohammed Jada.

Before October last year, taxpayers could not claim R&D expenditure incurred in oil and gas, mineral exploration or prospecting in South Africa.

But new legislation now allows for R&D expenditure in these fields to be claimed back. There is also a “super” tax incentive that applies to other industries conducting R&D work.

Taxpayers can claim up to 100% of money spent on R&D, plus an additional 50% “super” tax incentive on pre-approved projects. Based on a tax rate of 28%, this equates to a net R14 tax saving on every rand of identified R&D expenditure.

The initiative is jointly run by the Department of Science and Technology, the Treasury and the South African Revenue Service (SARS).

Mr Jada said clients, including those from oil and gas and mining companies, have shown significant interest in the tax breaks available to them since late last year.

“We have already seen one of our London-based clients move most of its R&D to South Africa and hope to see more of this in future.”

The Department of Science and Technology received 12 applications from oil and gas and mining companies for the tax break in the first three months.

Mr Jada said many mining companies engage in R&D activities without realising it. “Engineers are working and testing applications on mining sites on a daily basis and many of these activities can be classified as R&D. You don’t necessarily have to be in a white lab coat for it to be research.”

On average, energy and resources companies spend about 1.2% of total turnover on R&D, whereas the average spend in South Africa is 0.8% of turnover.

In total, South Africa’s investment in R&D as a proportion of GDP is about 0.92%, according to the latest figures. The mining sector contributes only 10%.

Australia’s mining sector contributes 24% to the country’s 1.4% R&D-to-GDP ratio.

Department of Science and Technology chief director of investment Godfrey Mashamba expects R&D expenditure in South Africa to increase. “Many companies have welcomed amendments made to the Income Tax Act and a number of mining companies that never participated in the programme have now applied for the R&D tax incentive,” he said.

Mashamba said additional R&D will boost the country’s knowledge base and its infrastructure and it is important for the economy to grow and create employment.

R&D initiatives can also help South Africa revive its century-old mining sector.

Its gold mines are getting deeper and more dangerous and some companies are considering digging even deeper.

Significant R&D is already being conducted in this regard. AngloGold Ashanti has been investigating digging as deep as 5km underground. It is planning to use off-the-shelf technologies, combining them in an innovative way to achieve mechanised deep-level mining at its Maponeng mine.

South Africa still has about 100-million ounces of high grade gold (+25g/t) at 5km below the surface.

Another company, IvanPlats, has also made known plans to bring mechanised mining to South Africa’s platinum sector when it decides to develop a thick platinum reef in Limpopo province.

Source : abdas.org