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Advisory body seeks ‘ideal tax’ in proposed India minerals policy

6th November 2017

By: Ajoy K Das

Creamer Media Correspondent

     

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KOLKATA (miningweekly.com) – The Indian government’s apex policy advisory body has advocated that the new National Mineral Policy (NMP) “define an ideal taxation system” for the mining sector and explore the possibility of merging current multiple levies into a globally competitive tax regime.

The National Institute for Transformation of India (NITI) Aayog, in its submission to the committee entrusted with preparing the draft NMP, has said that the ultimate tax burden on mining operations in India averaged about 60% of total revenues, against a global average of 40%.

It said that India was constantly adding to the taxation burden of the mining industry with a plethora of taxes ranging from royalties, the district mineral fund (DMF), the National Mineral Exploration Trust (NMET), statutory levies of provincial governments, compensatory afforestation charges and one-off costs of seeking regulatory approvals that entailed a cumulative burden of about 60% of revenues, making the Indian mining sector an unattractive destination for foreign direct investment.

Considering that auctions have been made mandatory for the allocation of mineral assets, the policy advisory body has recommended that general financial advisers acting as consultants to the Mines Ministry be replaced by agencies with specialised domain knowledge and expertise so that guidelines were in line with international codes and practices.

NITI Aayog has also found merit in suggestions put forth by various stakeholders for a single maximum cap on the total tax levies on mineral extraction, irrespective of the end purpose of each of the present multiple levies.

For example, royalties as a revenue stream of provincial governments, the DMF for rehabilitation and development of districts where mining projects were located, and NMET to fund government exploration projects could be subsumed into a single maximum rate and the total tax collected from the mining sector be subsequently devolved by the government for respective objectives.

However, a section within the government pointed out that while the new NMP could lay down an administrative and regulatory framework for the mining industry, any proposed changes in the taxation regime would need legislative changes in coordination with the Finance Ministry, which then would need ratification from the apex Cabinet Committee for Economic Affairs.

At the same time, NITI Aayog, in a communication to the Mines Ministry, has sought the granting of ‘right of first refusal’ to private investors allocated exploration rights.

Under the present dispensation, if an investor secured an area under non-exclusive reconnaissance permit, it could either keep data for itself or submit it to provincial governments for the latter to initiate the auction of a mining lease or composite licence. However, the non-exclusive reconnaissance permit holder could not hold any direct claim for a mining license for the area it had explored.

Hence, the Mines Ministry would have to make amendments to the Mines, Minerals Development and Regulation Act 2015, if ‘right to first refusal’ was to be granted to a non-exclusive reconnaissance permit holder.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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