The economic impact of taxation on mine water in South Africa

Abstract

Water pollution by mines is a major problem in South Africa. This study examined the contribution that an additional tax on the consumption of water by the mining industry can provide. In the past, the rising demand for water resources was addressed through supply-side mechanisms. Mines are the biggest polluter of drinking water in South Africa and the question is whether this is still the most appropriate way to address the problem. This study proposes that the authorities should consider an additional tax on mines and investigates the effect it will have on the demand for water, as well as its pollution, and the effect on the country’s economy, various industrial sectors and consumers, and in particular the poorest citizens. The research applied advanced economic general equilibrium modelling in its empirical investigation. The results of the modelling are significant both in the short- and long-term scenarios studied. It was found that an additional tax on the consumption of water by mines will produce the desired results, with little negative consequences for the industry and the country as a whole.