Tax and SARS knowledge base
How are mineral and petroleum royalties calculated and paid?
How are mineral and petroleum royalties calculated and paid?
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Direct answer
Mineral and Petroleum Resource Royalty applies when a mineral extracted within the Republic is transferred. It is administered by SARS and is not simply a tax on accounting profit. SARS says the royalty is payable on gross sales for the particular mineral resource, with the statutory formula applying inputs such as adjusted gross sales, EBIT and whether the mineral is refined or unrefined.
The business should prepare the MPR3 from a controlled mineral-by-mineral workpaper. Classification, the transfer record, refined status, sales data and statutory formula must be traceable. Do not use a broad revenue percentage copied from another mine or a prior year.
What this means in practice
SARS's current MPR3 guide distinguishes refined and unrefined resources. The guide records general rate ranges of 0.5% to 5% for refined resources and 0.5% to 7% for unrefined resources, subject to the statutory formula and special oil-and-gas changes. Those ranges are not a shortcut to the answer. A company needs to identify the correct mineral type and apply the current formulation to its own records.
The current MPR3 material also notes changes for oil and gas in refined form for years of assessment beginning on or after 1 January 2024. A group with mixed historic and current periods should not use one calculation sheet without testing the applicable year. The royalty file should state the year of assessment, mineral classification, processing status, relevant transfers and every formula input.
The SARS MPRR page notes that small businesses may be exempt in certain circumstances. This must be assessed against the current statutory rule and the mining business facts. It is not safe to conclude that a small company is automatically exempt because its accounting profit is low or negative. SARS specifically states that a minimum royalty rate can apply even where a taxpayer is making a loss.
Step-by-step
- Confirm registration and the relevant taxpayer profile.
Confirm that the entity is correctly registered for MPRR and that eFiling access, authorised users and banking controls are current. SARS indicates that the income-tax reference number is also used for mineral-royalty purposes. Resolve profile issues before a return deadline.
- Build a transfer register by mineral.
Record every transfer of extracted mineral by date, buyer, quantity, grade, price, contract and invoice. Link it to assay, stockpile, refinery or processing evidence. Separate mineral types and do not combine sales merely because they appear in the same ledger account.
- Confirm classification and refined status.
Obtain technical and legal support where the mineral type or refined/unrefined status is uncertain. Keep the supporting reports and the logic used. A classification choice can affect the calculation, so it should be reviewed before the MPR3 is submitted.
- Prepare adjusted gross-sales and EBIT workpapers.
Reconcile the tax workpapers to the general ledger, sales records and financial statements. Identify formula inputs, adjustments and any estimation process. Obtain senior approval for the computation and retain the version filed.
- Use the current MPR3 workflow.
SARS's MPR3 guide sets out the eFiling return and payment process. Complete the relevant fields carefully, compare them to the approved workpaper and keep proof of submission and payment. Treat the first and second estimates, final return and final payment as separate control points where they apply.
- Monitor penalties, interest and corrections.
SARS notes consequences for underestimation and late payment. Investigate a significant difference between estimates and the final royalty immediately. Keep correspondence, voluntary correction analysis and payment records together.
Documents and records to keep
Keep licences and registration records, mineral-transfer and sales registers, contracts, invoices, assay reports, refinery records, stock reconciliations, classification analysis, adjusted gross-sales and EBIT workpapers, estimates, MPR3 submissions, payment proof and SARS correspondence. Retain a version-controlled reconciliation to the financial statements.
Important limits and exceptions
This article does not calculate a royalty, determine whether a mineral is refined, identify an exemption or state a filing deadline. Oil-and-gas amendments, mineral classification, transfer facts and tax-year rules can change the outcome. Do not confuse the MPRR formula with income tax, VAT, mining royalty agreements or accounting profit.
When to get tailored advice
Obtain specialist mining-tax advice for a new mineral, mixed mineral product, cross-border transfer, related-party sale, refinery arrangement, loss-making operation, estimate shortfall or uncertain refined status. Seek urgent help where an MPR3 return or payment has been missed or the sales and tax records do not reconcile.
TaxProof can help assemble the MPR3 evidence file and reconciliation. We cannot determine the royalty or a tax classification without current statutory analysis and complete technical data.