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India’s Mines Ministry rules out levy concessions, directs creation of DMFs

12th May 2015

By: Ajoy K Das

Creamer Media Correspondent

  

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KOLKATA (miningweekly.com) - Ruling out any concession on levies placed on mining operations, as stipulated under new legislation, India’s Mines Ministry has directed all provincial governments to immediately set up District Mineral Funds (DMFs).

In a communication to governments of all mineral-hosting provinces, the Ministry said that DMFs needed to be put in place as a necessary framework for allocating mineral resources through the auction route, without being delayed by the mining industry’s demands for  the lowering of various levies.

The Ministry's directive comes in the wake of several representations from the mining industry seeking a reduction in contributions towards DMFs on the plea that it would make Indian mining prohibitive, making it one of the highest taxed industries in the world.

Most of the provinces which had the mandate of establishing the DMFs were going slow in creating the fund, expecting the federal government to respond to industry representations and take more time in tweaking the rules.

But the Mines Ministry had come down on the provincial governments for the delay, as the creation of the fund was one of the prime preconditions for commencing the maiden auction for allocation of mineral resources, as mandatory contributions would need to be made part of the auction rules and incorporated in the bid documents, a Ministry official said.

The creation of the DMF had been envisaged in the newly promulgated Mines, Minerals Development and Regulation Act (MMRDA) 2015, which also laid down the legal framework for allocation of mineral resources through auction. Under the new Act, miners would be required to make contributions into the fund of not less than 33% of total royalty payable.

Provincial governments would set up DMFs across every district in mining regions, under a ‘not-for-profit’ trust, and the accrued fund would be used for the benefit of project affected local populations.

While the decision on not reducing contributions towards DMFs has already been taken, the government was also unlikely to accede to other relaxations sought by the mining industry.

According to officials, the Mines Ministry was unlikely to accept suggestions that upfront payment to the government and submission of a deposit by way of performance guarantee, be reduced.

The draft rules under the MMRDA, which were currently in the works, would not change the mandatory upfront payment by a successful bidder, which was currently set at 0.5% of the value of the resource, and a lower percentage as performance guarantee.

The Ministry had also declined any reduction in interest rate payable by the bidder in the case that mandatory payments to the government were delayed.

The Federation of Indian Mineral Industries (FIMI) had been seeking a lowering of levies and mandatory payments, arguing that the higher cost of raw materials would lead to high-cost manufacturing of finished products and ultimately increase imports, as in the case of steel products.

“The levies imposed by the government under the new MMDRA will ultimately be passed on to the consumer, making final products more expensive and only making imports more competitive,” FIMI secretary general R K Sharma said.

Last year the government hiked royalty rates for 23 of the 51 notified minerals. The rate applicable for iron-ore and chromite was hiked to 15% from 10%, for manganese to 5% from 4.2%, for bauxite to 0.6% from 0.5%, for lead to 14.5% from 1.7% and for phosphates to 12.5% from 11% on an ad valorem basis.

Edited by Esmarie Iannucci
Creamer Media Senior Deputy Editor: Australasia

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