Thank you very much, Deputy Speaker. The Diamond Export Levy Bills - and there are two of them - provide for a levy on the export of rough diamonds from South Africa. It should be noted that the imposition of an export tax is already contained in the Diamonds Act of 1986.
One of the many positive aspects of our Constitution is the requirement that all taxes must be imposed by way of a Money Bill, thereby providing for greater transparency and oversight. Amendments made to the Diamonds Act during 2005 have resulted in the need for amendments relating to the export levy on rough diamonds, thereby requiring a separate Money Bill. Both sets of changes represent an interdepartmental effort with the Department of Minerals and Energy working towards regulatory reform, while the National Treasury assists with supporting fiscal measures.
The original intent of the export levy on rough diamonds was to facilitate adequate and regular supplies of rough diamonds to local cutters and polishers. The Diamonds Act of 1986 was only partially successful in this regard. The Department of Minerals and Energy accordingly amended the Diamonds Act in 2005 to improve regulatory oversight. The revised export levy on rough diamonds is intended to complement these regulatory provisions.
The export levy on rough diamonds in the Diamonds Act of 1986 is currently set at 15%. However, this Act provided for relatively generous exemptions. The proposed Diamond Export Levy Bills of this year reduce the export levy on rough diamonds to 5%, but tighten the relief provisions, thereby laying a foundation for increased effectiveness.
It should also be noted that the reduced 5% rate was not intended to undermine the power of the levy as a deterrent. According to informal police estimates, diamond smuggling costs are between 2,5% and 5% of gross diamond values. Therefore the current 15% rate merely enhances smuggling; whereas the proposed 5% rate is high enough to deter unpolished exports without hidden benefits for smuggling.
The proposed relief measures ensure that the local supply of rough diamonds is commensurate with local demand. No reason exists to force diamonds onto the local market beyond local capacity. The core element of these incentives is to encourage producers to supply the local market with rough diamonds so that they can export the remainder free from the levy. As a general rule, the Diamonds Act, as amended in 2005, requires that all rough diamonds intended for export must be offered for sale via a tender process at a Diamond Export and Exchange Centre. However, in the case of large producers, the Minister of Minerals and Energy may waive the requirement to offer all rough diamonds on the DEEC. This waiver is, for practical reasons, to ensure that the tendering process at the centre is not overwhelmed by large volumes of very small rough diamonds.
The Minister of Minerals and Energy may exempt a large producer from the tendering process if he believes that 40% of that producer's gross sales over the course of a year will comprise of sales to local diamond beneficiators and if the producer's total gross sales in the same period will exceed R3 billion. The Diamond Export Levy Bill provides a large producer with a levy exemption for an assessment period under similar conditions. Relief for medium producers and exemption for small producers is also built into the legislation.
In respect of beneficiators, it is not always possible for a diamond beneficiator to cut and polish 100% of the diamonds purchased. The Regulator may accordingly grant a beneficiator permission to export rough diamonds if the local beneficiator will cut 80% of the diamonds purchased. Once this permit is issued, the diamond beneficiator is exempt from the levy in respect of the 20% remainder for export, provided that the diamonds are first subject to the tendering process of the DEEC.
While the levy is regulatory in nature, the import credit and the exemptions may be limited in order to raise revenue if deemed necessary. At this time we see no need for this limitation, because all related administration is being fully funded in the budget.
Chairperson, let me just share with members of this House that two morning newspapers carried erroneous stories on this matter on what happened when it was dealt with in the committee. The full text of this speech sets the record straight. Neither newspaper was willing to publish a correction, but their reports were terribly erroneous.
In closing, I would like to thank the chairs of the portfolio committees on Finance and on Minerals and Energy, namely Mr Nhlanlha Nene and Mr Nathi Mthethwa, for their leadership, and the members of these portfolio committees for their constructive role in the process. Chairperson ...
The two Bills.
... I hereby table the Diamond Export Levy Bill, 2007, as well as its companion, the Diamond Export Levy Administration Bill, 2007. Thank you.
Bills referred to the Portfolio Committee on Finance for consideration and report.