KOLKATA (miningweekly.com) – As the Indian government begins work on a new version of the National Mineral Policy (NMP) 2008, the Finance Ministry has said that it will not be possible to incorporate any direct or indirect tax benefits in the new policy document.

The Finance Ministry said this week that use of direct and indirect tax instruments as a policy measure to boost the mining sector would be counter-productive.

It was pointed out that with the advent of the pan-India uniform Goods and Services Tax, there was almost no leeway for the government to offer incentives through indirect tax for the mining sector.

At the same time, with direct taxes, the government was not in favour of offering “tax holidays” for projects and even in the case of existing tax holidays for various older projects, the government had set “sunset clauses” for such incentives.

The Federation of Indian Chambers of Commerce and Industry has sought “tax holidays” for exploration and mining projects in remote regions of the country.

These inputs from the Finance Ministry came as the Mines Ministry started the process of seeking feedback from various stakeholders for review of the NMP, as a precursor to framing a new version of NMP 2008.

According to the minutes of the meeting between the Mines Ministry, industry representatives and chambers of commerce, the Federation of Indian Mineral Industries (FIMI) wanted the new NMP to address the very basic nature of the mining industry.

Providing statistics on the nature of the Indian mining sector, FIMI said that mining leases up to 50 ha accounted for 74% of leases covering 9% of the total area under mining. The fragmented nature of the industry, where small mines accounted for the majority of leaseholding, was not sustainable and, further, as it was the “public face of the industry” it invited criticism of “unscientific mining”, FIMI said.

Further, expressing concern over low private investors’ participation in exploration, FIMI said that unless the statutory framework allowed for a seamless transition from reconnaissance to prospecting and finally to mining, coupled with easy transferability of concessions, exploration in the country would not take off.

Critical of the auction process for the allocation of mineral assets, FIMI maintained that such a process was not in play anywhere else in the world.

According to the industry body, the cost of competitive bidding, the cost of land, the payment for compensatory afforestation, royalties, contributions to the District Mineral Fund and the National Mineral Exploration Trust, and indirect tax of 18% added to the cost of raw materials produced and compelled mineral user industries to look at imports.

Industry body ASSOCHAM also flayed the auction system in its presentation, claiming that it was a “race to the bottom with no economic justification”.

Several industry bodies favouring an alternative to auctions sought direct allocation of mineral assets to companies that have already set up downstream plants in the region, or committed mega-investments with in-built provisions for payment of augmented royalties and/or sharing of super normal profits with provincial governments if business cycles ensure above normal profits.

According to representatives of the Mines Ministry, the government would look to ease restrictions on the sale of iron-ore from mines secured through auction and ensure that the successful bidder was not put at a disadvantage in selling iron-ore to group companies or plants operated as joint ventures with domestic or foreign partners.