Miners seek tax rationalisation as Covid mutes demand for minerals

At a time when the coronavirus (Covid-19) pandemic has severely impacted the demand for minerals in the country, miners are seeking a rationalisation of the steep duty currently levied on mining.

Mining is easily the most taxed activity in India when compared with other resource rich nations like Brazil, Australia, Chile or South Africa. The effective tax rate (ETR) on mining in the country is a cocktail of levies such as royalty, District Mineral Foundation (DMF), National Mineral Exploration Trust (NMET) and other taxes and comes to 60-65 per cent depending on the route of allocation of minerals - discretionary allotments or online auctions.

On a comparative note, the ETR for Mongolia at 31.3 per cent is half of India's. Other mineral rich nations also boast of attractive ETR rates - Canada (34 per cent), Chile (37.6 per cent), Indonesia (38.1 per cent), Australia (39.7 per cent) and South Africa (39.7 per cent).

Countries competing for mineral sector investments usually offer ETRs in the range of 40-50 per cent. By that yardstick, India has slumped on the attractiveness index for mineral sector investments. That apart, an earlier report by PricewaterhouseCoopers (PwC) established that India has the highest government cost of investing in a mining operation.

“India has highest rates of taxes and duties in the World. Added to this the premium payable on auctioned mines is too steep. The muted demand of minerals due to Covid-19 effect will further increase the cost of production, logistics et al," said R K Sharma, secretary general, Federation of Indian Mineral Industries (Fimi).

Fimi has persistently taken up the issue of steep tax rates on mining in India. In its latest submission to the Union Finance Ministry, it held that the government needs to revisit the total taxes and duty structure and rationalise them for long-term sustainability of the industry.

The mining sector is rooting for a uniform tax subsuming all levies and capped at 40 per cent. In India, the combined cascading effect of taxes on mining is very high compared to other resource rich countries. This makes the country less competitive in global markets.

Over and above royalties, miners are mandated to contribute to the DMF - the rate is 30 per cent (of the royalty) for mines awarded before enactment of the amended Mines and Minerals Development & Regulation (MMDR) Act 2015 and 10 per cent for the new mines allocated through transparent e-auctions. Miners are also required to shell out two per cent of the royalty to the NMET.