Mining Industry is in danger – Part-9

Due to the latest amendments to the act and the rules notified, now there is no possibility of new mineral discovery.

As green field areas cannot be auctioned under the existing regime, these would remain unexplored, maybe for a long time till GSI identifies the same. The role of GSI is very important in this regard and also in providing pre-competitive baseline data of high standard but there are limitations in the role of GSI in terms of carrying out detailed exploration.

In this context, it maybe stated that many large Mineral deposits in India have not been discovered by GSI. A few examples can be cited as that of Rampura- Agucha lead/zinc deposit, Banwas copper deposit and Jhamar Kota rock phosphate deposit etc. in Rajasthan alone. These deposits are chance discoveries by individuals or by other agencies or based on old workings etc. The GSI has undoubtedly done commendable work in identifying potential areas and hundreds of prospects but all these may not qualify for Auction mainly because of insufficient (G-3 or G-4) level data on one hand and no economic viability for investment decision on the other. As the economic viability of a mineral deposit is prima facie the sole criteria to attract the private investment, certain relaxations in the Auction rules in terms of incentives may deserve merit, in order to attract investment in Greenfield or unexplored areas.

Conclusion :  The national planning commission constituted a High Level Committee to study and submit a report about the amendments to be bring in act to encourage the mining industries. It is available in http://planningcommission.gov.in/reports/genrep/rep_nmp.pdf 

Unfortunately, since now the BJP Govt., has come to power, they completely ignore the High Level Committee report by making irrelevant amendments. So direct and indirect new employment in private sector for two million people is not generated.

Mining Industry is in danger – Part-8

The negative impact in mining sector for discouragement of private investment in mineral exploration and development.

Discouragement to Private Investment in Mineral Exploration and Development

 The National Mineral Policy 2008 of Government of India vide item 5.2 states that “while Government Agencies would continue to perform the tasks assigned to them for exploration and survey, the private sector would be the main source of investment in reconnaissance and prospecting and government agencies would spend public fund primarily in areas where private sector investment are not forthcoming”. However on the contrary, 11 Central and State PSUs have been notified as agencies for carrying out exploration under section 4(1) of the MMDR ACT 1957. This may not yield any result, since detailed exploration is not the core activity of these agencies. On the other hand, the National Mineral Exploration Policy 2016 (NMEP) states that Private agencies could be engaged to carryout exploration work in identified blocks/areas with the right to a certain share in the revenue (certain percentage of royalty/premium) when Mineral blocks on the basis of successful exploration are put on e-auction.

It may be mentioned that private investment is a function of risk and return in prospecting and because of uncertainty in this proposal, the private investment is not foreseen and may not materialize.

Mining Industry is in danger – Part-7

The export duty rates in India are again on the heights which are ranging from 10% to 20% for Ore extracted and 10% to 40% for processed ore. The rates are 10% for refined metals. Mica has the highest export duty of 40% with no exemption. The export duty on iron ore and concentrates has the export duty of 30% with an exemption of 20% resulting in the effective rate of 10%.

International Comparison of Taxes on Mining Exports: 2012

 Country Ore extracted Processed ore Refined metal
Argentina 5.00% 5.00% 5.0% – 10.0%
Australia N/A N/A N/A
Brazil 0% 0% 0%
Canada N/A N/A N/A
Ghana N/A N/A N/A
India 10% – 20% 10% – 40% 10%
Philippines N/A N/A N/A
Russia depends depends depends
South Africa N/A N/A N/A
Ukraine N/A N/A N/A
United Kingdom N/A N/A N/A
United States N/A N/A N/A

Source:  (Basic data) PricewaterhouseCoopers, 2012

Mining Industry is in danger – Part-6

The royalty rate also very high in India compared to other mineral rich countries.

International Comparison of Minerals Specific Royalty Rates: 2012

 

Country Iron Ore Coal Copper Gold
Australia 6.5%-7.5% 7%-10% 2.7%-3.5% 0% – 2.5%
Brazil 2% 2% 2.02% 1%
Ghana 5% 5% 5% 5%
India 15%* 14%* 4.20% 2%
Indonesia 3% 3%-7% 4% 3.75%
Kazakhstan 2.8% 0% 5.7% 5%
Philippines Min 5% Min 5% Min 5% Min 5%
Russia 4.8% 11-57/tonne 8% 6%
South Africa 0.5% – 7% 0.5% – 7% 0.5% – 7% 0.5% – 5%
United States 2%-5% 2%-5% 2%-5% 2%-5%

Source: (Basic data), PricewaterhouseCoopers, 2012 and Ministry of Mines, Government of India (2014)

* Recent Rates, 2014

Mining Industry is in danger – Part-5

The Corporate Income Tax rates in India are very high compared to the other major mining countries. The effective tax rate is around 34.61% for income exceeding Rs. 100 million for the domestic company and for the foreign company the rate is 43.26% (KPMG, 2015). A minimum alternative tax (MAT) is levied at 18.5% of the adjusted profit of the companies where the tax payable is less than 18.5% of their book value.  The government has also started charging “carbon tax” which would add to the percentage furthermore.

Mining sector is capital intensive and utilizes specialised mine equipment that is usually imported.  Higher import duty on mine equipment has a direct negative impact on mine projects, especially in the initial years of the mine project.  Even the royalty rates in India are at the highest level. The rate of royalties on iron ore is 15% and that on coal is 14% which is way more than the other countries of the world .

       International Comparison of Corporate Tax Rates: 2015

 Country Corporate Tax Rate
Argentina 35%
Australia 30%
Brazil 34%
Canada 26.5%
Chile 22.5%
China 25%
Germany 29.65%
India 34.61%
Indonesia 25%
Mexico 30%
Peru 30%
Philippines 30%
Russia 20%
South Africa 28%
Tanzania 30%
Ukraine 18%
United Kingdom 23%
United States 40%

 

Mining Industry is in danger – Part-4

The Risk involved in Mining has shifted towards Mining Business and Return towards Government.

The case was other way around few years back as shown in the figure below:

From the above mentioned, facts it is very clear that the margin for doing Business in Mining has been substantially reduced. It would be an impetus for Indian Mining Industry if the overall taxation is reduced to around 40% (Global Average).It may also be mentioned that after the enactment of the amended act, out of 42 mines only one dozen mines could be allocated through auction. No fresh mine has come to the production as of now.

Mining Industry is in danger – Part-3

After amendment of new mining law,  the overall tax rate is increased.

 Graph showing increase in overall Taxation after enactment of MMDR Amendment Act, 2015

Mining Industry is in danger – Part-2

Table Showing Direct and Indirect Taxes paid by Mine owners -Effective Tax Rate (ETR):

All over the world, in India alone approximately 59.8% of total revenue has to be paid to Govt., by way of various tax by the existing mine owners and 64% by the new mine owners. The comparison chart is given below.

 

Mining Industry is in danger – Part-1

In the world Except water, food, and timber all products are from minerals. Unless, the mining operation is not going there is no development for human being.  For the reasons best known to them, some people protest the mining activity. On going through the draft mining report prepared by FICCI the following facts are came to light.

High Taxation on Minerals: Pre and Post enactment of MMDR (Amendment) Act 2015

 Mine owners have to pay a mix of other Direct and Indirect taxes administered by different authorities. The same has been furnished in the table below:

 

Beach Mineral Producer Association got approval from National Accreditation Board for Education and Training (NABET)

Certificate is given below.