Falling iron ore exports take toll on tax revenues

Written by Gireesh Chandra Prasad | Gireesh Chandra Prasad | Panaji | Updated: Dec 2 2013, 09:11am hrs
The Supreme Courts ban on iron ore mining in Goa has dealt a blow not just to the Indian economy, but also to the Union governments indirect tax receipts. Besides falling tax receipts from the services sector catering to the mining industry, a direct fall out of the ban is the erosion of revenue from the 30% duty on iron-ore exports from India that has progressively declined from 117 million tonne in 2009-10 to less than seven million tonne in the April-September period of 2013-14.

Goa, which accounted for 70% of Indias total iron ore export of 62 mt in 2010-11, had collected R2,850 crore from iron-ore export duty that year. In the April-October period of 2013, export duty receipts from iron-ore exports from Goa remained zero.

The apex court banned iron-ore mining in Karnataka in July 2011 and in Goa in October 2012 on account of illegal mining and damages to the environment. The court suspended all iron-ore mining operations in Goa, including transportation of iron. Although the restart of the mining is allowed in many mines (Category A and B) in Karnataka, production continues to crawl as many mines haven't been opened as yet due to delays in requisite state government approvals.

Sesa Goa, the leading miner in Goa, which contributed R1,198 crore to the exchequer by way of iron-export duty in 2011-12, has not made any payment in the April-October period of FY14 as exports dried up. Port service providers such as Mormugoa Port Trust, South West Port, Sesa Goa and VM Salgaocar & Bros that paid about R32 crore of service tax in the first seven months of 2012-13, has paid only R20 crore in the same period of 2013-14.

The ban on iron-ore mining came by the end of monsoon in 2012. Upto June, we got export duty receipts, after which it froze, said a central government official.

Besides the ban, the drastic drop in exports is attributed to the increase in the iron-ore export duty from 20% to 30% on all grades of iron ore (except pellets) with effect from December 30, 2012, and the differential railway freight on movement of iron ore for exports compared to railway freight on movement for domestic consumption.

The decline in tax receipts comes at a time when collection of excise duty (the tax on manufacturing) another major components of industrial production has seen a contraction due to the overall economic slowdown. The slowdown has in turn led to a reduction in growth in custom duty receipts as raw material imports too declined.

The revenue department has set a collection target of R5.65 lakh crore for this fiscal from excise, customs and service tax. In the first half of this fiscal, indirect tax receipts grew only 3.5% from last year, mainly on account of the 11% contraction in excise. Custom duty receipts rose only 5.6% during the period despite a sharp depreciation in the value of the domestic currency against the dollar. Service tax collections, however, rose 16% during the period.