CHAPTER 8: TAXATION

8.1 ACCOUNTING POLICIES RELATING TO TAXATION

8.1.1 INCOME TAX EXPENSE

Income tax expense or benefit comprises the sum of current and deferred tax.

The current tax payable or receivable is based on taxable profit for the year. Taxable profit or loss differs from profit or loss as reported in the statement of comprehensive income as it excludes items of income or expense that are taxable or deductible in other years in the determination of taxable profit or loss (temporary differences), and it further excludes items that are never taxable or deductible (non-temporary differences). The group’s liability for tax is calculated using tax rates that have been enacted or substantively enacted at the reporting date.

8.1.2 DEFERRED TAX

Deferred tax is provided using the balance sheet method on all temporary differences between the carrying amounts for financial reporting purposes and the amounts used for tax purposes.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the associated unused tax losses and deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient future taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated using tax rates that have been enacted at the reporting date. The effect on deferred tax of any changes in taxation rates is charged to the statement of comprehensive income, except to the extent that it relates to items previously charged directly to equity.

Deferred tax assets and liabilities are set off when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends and has the ability to settle its current tax assets and liabilities on a net basis.

8.2 SIGNIFICANT JUDGEMENTS AND ASSUMPTIONS MADE BY MANAGEMENT IN APPLYING THE RELATED ACCOUNTING POLICIES

Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. This requires management to make assumptions, on a subsidiary-by-subsidiary level, of future taxable profits in determining the deferred tax asset to be raised.

8.3 INCOME TAX (EXPENSE)/BENEFIT

	Group		Company
For the year ended 31 December	2018 Rm	2017 Rm	2018 Rm	(Restated) 2017 Rm
South African normal tax
Current	(841)	(955)	4	(21)
– Current year	(810)	(852)
– Prior year	(31)	(103)	4	(21)
Deferred	(777)	(562)	227	(118)
– Current year	(772)	(505)	258	(67)
– Prior year	(5)	(57)	(31)	(51)
Foreign normal tax
Current	(25)	(17)
– Current year	(25)	(23)
– Prior year		6
Dividend withholding tax	(10)	(8)
– Non-resident	(9)	(6)
– Resident	(1)	(2)

Total income tax (expense)/benefit through profit or loss	(1 653)	(1 542)	231	(139)
– Continuing operations	(1 653)	(1 542)	231	(139)

8.4 RECONCILIATION OF TAX RATES

	Group		Company
	2018 %	2017 %	2018 %	(Restated) 2017 %
Tax as percentage of profit/(loss) before tax	19.1	35.7	(9.2)	(6.1)
Tax effect of:
– Net capital gains/(losses)¹	0.2	(1.6)	9.5	(7.4)
– Expenses not deductible for tax purposes²	(1.6)	(28.2)	(4.8)	69.3
– Exempt income (not subject to tax)³	0.1	0.4	4.3	(16.3)
– Special tax allowances	0.1	0.1
– Post-tax equity-accounted income and investment income	10.6	25.6	29.3	(17.1)
– Remeasurements of foreign tax rate differences	0.6	1.1
– Prior year tax adjustments	(0.4)	(3.5)	(1.1)	3.0
– Deferred tax assets not recognised	(0.1)	0.9
– Imputed income from controlled foreign companies and investments	(0.6)	(2.5)		2.6
Standard tax rate	28.0	28.0	28.0	28.0
Effective tax rate for operations, excluding income from equity-accounted investments, impairment charges and share of tax thereon	30.3	28.3
¹In 2018, recognised a deferred tax asset in company on the accumulated capital losses due to the expected disposal of Tronox Limited.
²Expenses not deductible for tax purposes:	(1.6)	(28.2)	(4.8)	69.3
– Consulting, legal and other professional fees	(0.4)	(0.6)	(1.4)	1.1
– BEE credentials		(34.2)		64.7
– ESD grants	(0.1)		(0.5)
– Share-based payment expenses	0.5	(0.7)	1.2	0.8
– Penalties and interest on taxes	(0.1)	(0.1)	0.1	0.1
– Contingent consideration fair value adjustment	(1.2)	(2.4)	(4.2)	4.5
– Other	(0.3)	9.8		(1.9)

³The company received a dividend from ECC of R300 million which is eliminated on consolidation.

8.5 DEFERRED TAX

	Group		Company
At 31 December	2018 Rm	2017 Rm	2018 Rm	(Restated) 2017 Rm
The movements on deferred tax are as follows:
At beginning of the year	(5 417)	(4 985)	165	210
Statement of comprehensive income (expense)/benefit	(777)	(562)	227	118)
– Current year	(772)	(505)	258	(67)
– Prior year	(5)	(57)	(31)	(51)
Items charged directly to equity	(147)	116	(18)	73
– Share-based payments movement	(29)	116	(20)	73
– Adjustments on initial application of IFRS 9	4		2
– Adjustments on initial application of IFRS 15	(122)
Items charged directly to other comprehensive income	(27)	23
– Revaluation of financial asset FVOCI¹	(12)	12
– Post-retirement employee obligations	(15)	11
Reclassification from/(to) non-current assets held-for-sale	17	(9)
At end of the year	(6 351)	(5 417)	374	165
– Deferred tax asset	523	571	374	165
– Deferred tax liability	(6 874)	(5 988)

¹For 2017 this was classified as available-for-sale.

	Group
	At 31 December 2017			Movement during the year				At 31 December 2018
	Assets Rm	Liabilities Rm	Total net liability Rm	Recognised in profit or loss Rm	Recognised in other comprehensive income Rm	Reclassification from/(to) non-current assets held-for-sale Rm	Recognised directly in equity Rm	Assets Rm	Liabilities Rm	Total net liability Rm
Property, plant and equipment¹	488	(5 983)	(5 495)	(666)		(27)		131	(6 319)	(6 188)
Share-based payments	167	57	224	23		5	(29)	165	58	223
Other accruals and provisions	182	80	262	(18)		44	4	(197)	489	292
Bad debt reassessment	27		27	27				16	38	54
Restoration provisions	480	204	684	(36)		56		348	356	704
Decommissioning provisions	61	65	126	(3)		3		58	68	126
Leave pay accrual	24	20	44	2		2		24	24	48
Retention payables	2	87	89	(1)				2	86	88
Prepayments	(24)	(18)	(42)	7				(6)	(29)	(35)
Environmental rehabilitation funds	(133)	(202)	(335)	(58)		(86)		(192)	(287)	(479)
Income received in advance		108	108	19		1	(122)	5	1	6
Inventories	(10)	10		25				(9)	34	25
Unrealised foreign currency gains/(losses)	1		1					1		1
Finance lease receivables	5	(21)	(16)	(4)					(20)	(20)
Local tax losses carried forward	580	18	598	(26)		(14)		334	224	558
Revaluation of financial assets FVOCI²	42	(112)	(70)		(12)			27	(109)	(82)
Post-retirement employee benefit obligation	68		68	5	(15)	1		54	5	59
Deferred tax assets not recognised or derecognised	(1 381)	(104)	(1 485)	(77)		30		(235)	(1 297)	(1 532)
Investment in RBCT	(11)	(197)	(208)					(11)	(197)	(208)
Unclaimed donations	3		3	3		2		8		8
Finance lease payable				1					1	1
Total	571	(5 988)	(5 417)	(777)	(27)	17	(147)	523	(6 874)	(6 351)

¹Includes borrowing costs capitalised.

²For 2017 this was classified as available-for-sale

	Company
	At 31 December 2017 (Restated	Movement during the year		At 31 December 2018
	Asset Rm	Recognised in profit or loss Rm	Recognised directly in equity Rm	Asset¹ Rm
Property, plant and equipment	(57)	1		(56)
Share-based payments	148	14	(20)	142
Other accruals and provisions	54	(27)	2	29
Restoration provision	10			10
Leave pay accrual	4			4
Environmental rehabilitation funds	(7)			(7)
Unrealised foreign currency gains/(losses)	1			1
Bad debt reassessment	(5)	5
Capital losses		227		227
Assessed losses	17	7		24
Total	165	227	(18)	374

¹ The deferred tax asset recognised for the company is supported by sufficient forecast profits to be utilised. The forecast profits are based on agreements in place with commodity businesses within Exxaro and other external parties.

Calculated tax losses

	Group		Company
At 31 December	2018 Rm	2017 Rm	2018 Rm	(Restated) 2017 Rm
Tax losses available for set-off against future taxable income on which deferred tax was raised
– Local	(1 993)	(2 136)	(86)	(61)
Current year tax losses on which no deferred tax assets were raised	52	299

8.6 NOTES TO THE STATEMENTS OF CASH FLOWS RELATING TO TAXATION

8.6.1 TAX PAID

	Group		Company
For the year ended 31 December	2018 Rm	2017 Rm	2018 Rm	2017 Rm
Amounts payable at beginning of the year	(340)	(129)	(20)
Amounts receivable at the beginning of year: non-current assets held-for-sale	27
Amounts charged to the statement of comprehensive income	(876)	(980)	4	(20)
Arising on translation of foreign operations	(4)	3
Interest income on tax receivable not yet received		3
Reclassification to non-current assets held-for-sale		(27)
Amounts payable at end of the year	186	340		20
Tax paid	(1 007)	(790)	(16)

8.7 TAX EFFECT OF OTHER COMPREHENSIVE INCOME

	Group
		2018			2017
For the year ended 31 December	Before tax Rm	Tax Rm	Net of tax Rm	Before tax Rm	Tax Rm	Net of tax Rm
Unrealised exchange gains/ (losses) on translation of foreign operations	67		67	(62)		(62)
Share of other comprehensive income of equity-accounted investments	136	(3)	133	26		26
Revaluation of financial assets FVOCI (previously available-for- sale)	33	(12)	21	(26)	12	(14)
Remeasurement of post- retirement employee benefit obligation	54	(15)	39	(40)	11	(29)
Recycling of (gains)/losses on translation of foreign operations	(14)		(14)	58		58
Share of recycling of other comprehensive income of equity-accounted investments				(1 331)		(1 331)
Total	276	(30)	246	(1 375)	23	(1 352)

Exxaro Resource limited Report Selector 2018

Acronyms

Group and company annual financial statements

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