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Saturday, 25 July 2015 01:52
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Finally, govt realises perils of high mineral royalties

 

When the government was auctioning coal mines, it spoke of how states would get R2 lakh crore in royalties over three decades, thanks to the way the auctions had been structured. And when it amended the Mines and Minerals Development Rights (MMDR) Act, it allowed for miners paying states an additional royalty on top of what they paid the Centre—this contribution to the District Mineral Foundation (DMF) was to be 100% of royalties for existing miners and 33% for new mines. Apart from the fact that fresh mining is unlikely to take off when mineral prices are at multi-year lows, the problem is that India’s royalties are in any case very high compared to those globally. In the case of iron ore, India’s royalty rates are 15%—plus another 15% in the case of existing mine-holders—as compared to 6.5-7.5% in Australia and just 2% in Brazil. In the case of zinc, it is 9.4%—plus another 9.4% as per the new MMDR Act—versus 2.5-5% in Australia. It doesn’t help that, as the finance minister acknowledged in the FY16 budget, India’s corporate tax rates are also higher than those in other countries, even without taking into account the CSR levy.

Which is why steel and mines minister Narendra Singh Tomar has done well to say, to FE, that he plans to lower the DMF levy. Even the public sector SAIL, Tomar says, will have to fork out a whopping R1,700 crore extra based on its current production were the DMF rate to be fixed at 100%—and this is at a time when, thanks to the global slump in steel prices, SAIL is in a soup anyway. Though mining is a state subject, and the prime minister had got a lot of political capital by promising the states more money from mining royalties, he will do well to heed what his steel and mines minister is saying, and convince states that a lower DMF is in their interests in the long run. If the mining sector grows, even with lower imposts, the increase in the revenues collected will benefit all stakeholders.

 

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