Here's why cut in corporate taxes failed to cheer the mining sector

Fimi feels even after the govt slashed the corporate tax rates, the taxation rate is still steep for the mining sector

The government’s latest move to pare corporation taxes has failed to perk up the mining sector already burdened with a slew of levies like royalty, the goods and services tax (GST), and mandatory contributions to the District Mineral Foundation (DMF) and the National Mineral Exploration Trust (NMET). The Federation of Indian Mineral Industries (FIMI) feels that even after the government slashed corportion tax rates, the taxation rate is still steep for the mining sector.

“The effective rate is 58 per cent for existing mines and 54 per cent for new mines granted through auctions. Globally, the rates are as low as 31 per cent with the highest being 45 per cent,” said R K Sharma, secretary general, FIMI.

Apart from royalties on respective minerals, miners have to pay to the DMF pegged at 30 per cent of the royalty for older mines and 10 per cent for mines won through auctions. 

They also have to pay two per cent of royalty to NMET, dividend distribution tax and corporate tax.

The sector has been clamouring for ‘one tax regime’ in mineral production along the lines of GST with the effective taxation rate (ETR) capped at 40 per cent.

Over and above the ETR, the mining sector is burdened with a plethora of other taxes and levies such as net present value (NPV) for surveys and mining in forest land.

The levies also include auction premium, performance security, GST on royalty, stamp duty, compensation afforestation charges and 10 per cent tax as levied by the Supreme Court in Goa and Karnataka besides Forest Development Tax (FDT). 

All these levies and payments to the government make the domestic raw materials costly, resulting in costlier finished products in the economy and leading to imports and reduced gross domestic product (GDP) from mining.

The mining sector’s contribution to GDP is only 1.53 per cent, compared to 7-7.5 per cent in resource-rich countries like Australia and South Africa.

It is obvious that the mining sector in India is heavily taxed, not only in comparison to international levels but also against other domestic sectors. 

The government needs to realise that the taxation regime for mining in India affects all downstream industries and employment opportunities in the economy while fuelling the already skewed balance of payments through additional import of minerals. 

There is need to rationalise tax structure in the mining sector for sustainable development and deriving long-term benefits in terms of sustained raw material security for industries,” Sharma said.

He felt that despite its immense employment potential, the country’s mining sector is growing at a very sluggish pace. The sector has the potential to create 50 million jobs by 2025 but with the imminent lapsing of merchant mines by March 2020, 264,000 jobs are at stake.