Global investors shun India as steep taxes make mining unviable

26 June 2017

A higher tax burden on the mining industry in India compared to other resource-rich countries is making mining an unviable activity and driving away investments from the sector.

A huge gap has been found between the effective tax rate (ETR) on mining in India vis-a-vis other mineral-rich nations such as Australia, Canada, South Africa, the US and Mongolia. Data by the Federation of Indian Mineral Industries (Fimi) shows that the ETR on an iron ore mine in the country, after including a cocktail of levies, comes to 64 per cent in the case of new mines allocated after the amended Mines and Minerals- Development & Regulation (MMDR) Act, 2015. For the older mines, it is still higher at 69 per cent. The ETR excludes service tax at 15 per cent of the royalty, 10 per cent tax levied by the Supreme Court in Goa and Karnataka and the Forest Development Tax (FDT) levied by the Karnataka government. That apart, Odisha, the largest iron ore producer, levies the highest royalty rate on even the lowest grades of iron ore fines.

A comparison with other countries establishes India’s steep taxation on the mining sector. In Canada, the ETR varies from 34 per cent to 39.5 per cent, depending on the mining jurisdiction. The ETR is 45.5 per cent in Indonesia’s West Papua province, and 38 per cent in that country’s Sulawesi region. Other countries with ETR lower than India include Namibia (44.2 per cent), South Africa and Australia (both 39.7 per cent) and Chile (37.6 per cent). At 31.3 per cent, Mongolia has the lowest ETR on mining.

R K Sharma, director general of Fimi, said, “The high taxation on mining in India, along with inordinate delays in the grant and development of mines, has already led to several major international players exiting the country. While resource-rich nations are competing to attract investors to explore, mine, contribute to socio-economic growth and create new employment opportunities by unlocking their own mineral potential, in India, we are making it difficult for investors with state-of-the-art technologies to invest in exploration and development of mineral resources.”

According to a World Bank report, countries that compete for mineral sector investment and generally offer terms of ETR between 40 per cent and 50 per cent.

In the recent survey of mining companies by Canada-based Fraser Institute, India ranks among the 10 least attractive jurisdictions globally (97th among 104) in terms of Investment Attractiveness Index for mining and exploration.

“In designing our policies and rules, we must always remember that the Indian mining industry cannot produce minerals in isolation today as their viability is closely dependent on the trends in global commodity prices. It is imperative that policy decisions and Government interventions should closely consider the international dynamics and attractiveness of other mining jurisdictions,” said Sharma.

The cost of mining operations is set to rise after the introduction of auctions. As per the bidding parameters, there is an upfront payment of mining lease equal to 0.5 per cent of the value of the estimated resource. The successful bidder also has to provide a performance security of an amount of 0.5 per cent of the value of estimated resources. Then there is royalty, DMF (District Mineral Foundation) equal to 10 per cent of the royalty, two per cent levy of the royalty the proceeds of which go to the National Mineral Exploration Trust (NMET).

“The mining industry is subject to commodity prices fluctuations. The steep tax burden has already shrunk our margins. The high taxation is based on an assumption that miners are making windfall gains which is not true. If the mining sector continues to be heavily taxed, it will not only affect us but also the downstream industries and employment opportunities,” said a senior official with a standalone mining company.

Source-business-standard

Click here to add your own text