KOLKATA (miningweekly.com) – Signalling an imminent revision in royalties payable, barring coal, lignite and sand, the Indian government has constituted a study group to review existing rates, recommend any revision and suggest policy changes in administration of the royalty regime.

According to a government order, the additional secretary to the Mines Ministry will act as the chairperson of the group of 24 members, representing various related Ministries, officials of mineral-bearing state governments and representatives from industry organisations.

The study group has six months to submit its report.

Issuing the order, the Mines Ministry noted that a similar study group had been constituted in 2013 and based on its report, the government in 2015 increased royalty rates on minerals, except coal, lignite and sand. The royalty rate is effective for a period of three years.

The imminent revision in royalty rates is significant with most mineral industry segments flagging high royalty rates as the single biggest contributory factor to rendering Indian mining uncompetitive and to the lack of globalisation of the industry.

Industry representative bodies, including Federation of Indian Mineral Industries (FIMI), claim that the country’s royalty rates are among the highest in the world, pushing up the average cost of production of Indian mining by 30%.

Even within the government, the Steel Ministry has cited high royalty rates compared with global averages as a contributing factor to higher costs of production that is passed on to downstream consumers and ultimately finished products.

For example, the Steel Ministry has pointed out that while the royalty for iron-ore fines, lumps and concentrates was fixed at 15% at the last revision, it averaged between 2% and 4% in Australia, depending on mine location, 0.5% to 7% in South Africa, 7% in Canada, and 2% in China and Brazil.

The Steel Ministry has suggested that multifarious levies imposed on mining, including royalties, the district mineral fund and the national mineral exploration fund, be subsumed into a single rate.

Another issue flagged by the Steel Ministry, and likely to be up for consideration by the study group, is that a single levy should be applicable for the entire life of a mining block, instead of the current practice of periodic revision of royalty rates every three years.

Government officials said that the study group would also need to undertake a review of the royalty rates against the backdrop of the uniform rate of indirect tax under the Goods and Service Tax (GST), introduced in India last year, which did not exist at the time when royalty rates were last revised.

The Steel Ministry is likely to submit that a single rate subsuming royalties and other central and state levies payable by miners would make it a “pass through tax” that is offering the benefit of input tax credit available to the tax payer under GST.