The new provisions in the draft Mines and Minerals (Development and Regulation) Act requiring non-coal mining companies to contribute 100% of their royalty to the proposed District Mineral Foundation and coal mining companies to contribute 26% of their profit to the Foundation, has put the mining sector in a spot, says the Federation of Indian Chambers of Commerce and Industry (FICCI). “At present the outgo from companies’ profit is between 40-45%, which includes payment towards income tax, cess and other State/Central taxes. With the additional profit sharing of 26% for coal and 100% royalty for other minerals, the outgo will go beyond 60%. The new provisions will make the domestic mining and mineral based industry globally uncompetitive.

“It will hamper the growth and employment generation potential of the mining Industry and also discourage investments.”

These apprehensions were expressed by Tuhin Mukherjee, Chairman, FICCI Mining Committee and Managing Director, Essel Mining and Industries; P. K. Mukherjee, Co-Chairman, FICCI Mining Committee and Managing Director, Sesa Goa and and Anand Goel, Member, FICCI Mining Committee and Joint MD, Jindal Steel and Power while addressing a press conference on July 27.

The FICCI Mining Committee office bearers explained that mining in India is already one of the most highly taxed sector globally, with an estimated effective tax rate of around 43% (for iron ore), as compared to 35-40% for most of the major mining countries like Brazil, South Africa, Australia, Canada etc. Currently, following is the tax incidence on mining in various countries: Australia: 39%, Brazil: 35%, Chile: 28%,
Congo: 36%, Russia: 35% and China: 32%. In India, the effective tax rate would rise to over 60% in the case of coal and 55% in the case of iron ore after these new provisions are implemented.

“FICCI has suggested the adoption of a uniform policy for coal and noncoal minerals. For coal also, royalty based payment should be there and not the one based on profits as suggested now. Any mechanism for doing these needs to pass four tests:
1. The mechanism needs to be simple to implement from a compliance perspective and difficult to avoid/manipulate
2. The resultant effective tax rate needs to be internationally competitive
3. The impost needs to be sustainable throughout the long term and volatile commodity cycle
4. The mechanism for compensating the impacted communities needs to be derived from a consultative approach involving the community, the miners and the government.

The royalty system, says FICCI, “is well established, and is less prone to manipulation than a profit-based mechanism. It also tackles the captive miner issue more effectively. While simpler from an administrative perspective, the imposition of a doubling of royalty will have a much more damaging impact on the survival of mines during the inevitable downturns in commodity prices. Also, the mechanism should be adopted based on a consultative approach between the miners and the impacted communities. International experience has shown that a consultative framework between miners, government and impacted communities achieves the most satisfactory and sustainable outcomes.”