India makes tentative moves towards single tax rate for mining sector

Beach Minerals

Aug 10 2018

 India’s Steel Ministry has made the first tentative move towards achieving a single unified tax for the mining industry, subsuming the plethora of taxes currently payable by miners.

Ministry officials acknowledged that the goal of having a single rate of tax for the mining industry would be protracted, considering that several of the levies, including royalties, accrued to the kitty of state governments and that all mineral-rich states would have to be brought on board if a single rate of tax on minerals was to be evolved under the Goods and Service Tax (GST), the unified indirect tax regime introduced across the country last year.

However, the official said that the plan to move towards a single tax rate could start with iron-ore mining, wherein iron-ore was taxed at 5% and finished steel at 18%. The option could be explored in related mining taxes, like royalties subsumed in the GST rate, and enable the entire chain from raw material to finished steel to claim input credit at every stage of value addition.

The Steel Ministry will prepare the draft proposal to be submitted to the department of revenue under the Finance Ministry, but the final decision would rest with the GST Council, the apex body of federal and state government representatives governing the GST regime.

The challenge before such a reform for the mining sector would be that, while the total tax incidence on the miningindustry might not be lowered, the adjusting multiple taxes into a single rate and shift of accruals from the state government to the federal government could lead to a loss or revenue for state governments. The federal government would have to make provisions to compensate state governments for such a loss, officials said.

The net effective rate on mining, which amounted to about 64% in the case of mines allocated prior to 2015 through preferential allotment and 60% for mines allocated through the auction route thereafter, comprised royalties, contributions to District Mineral Fund (DMF) and National Mineral Exploration Trust besides the GST rate as applicable, making Indian mining industry one of the highest taxed in the world.

Officials said that while the aim of a single rate of tax on mining would not be to bring down the net effective rate of tax, a single rate would ensure lower compliance costs for miners and offer the option of claiming input tax credit from their buyers across the production chain.

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