Metal and mining companies such as SAIL, NMDC, Vedanta and Hindalco will have to take a cut in their margins if provisions of the new Mining Bill are approved by the Cabinet and subsequently, Parliament.
As per the Bill cleared by the group of ministers recently, the Centre and6 states could levy cess on all minerals ? 2.5% of the royalty in case of the former and 10% in case of the latter. In addition, mining companies will have to pay four times the money they pay to the states at present as contribution towards sustainable mine closure plans.
As reported earlier, the GoM, headed by Pranab Mukherjee, cleared the provisions for coal miners to share 26% of post-tax profit with the local people affected by the mining activity. As for miners of non-coal minerals, an amount equal to 100% royalty will have to be earmarked for this purpose.
If the proposals become law, companies would need to make an annual cash contribution of R1 lakh per hectare to the state government over the life of a mine. This amount would go as contribution for implementing the mine closure plan, key for environmental rehabilitation and in providing succour to workers and communities dependent on mining activity for sustenance.
Additionally, the Bill also proposes to give states a free hand to levy cess on both major and minor minerals by a sum not exceeding 10% of the amount of royalty paid by companies for a particular mineral. Several states including West Bengal were already levying cess and local taxes on minerals at differential rates. The Centre had originally challenged the West Bengal?s move to levy state-specific taxes on coal produced in the state but the Supreme Court a few years ago ruled in the state?s favour. The Centre, therefore, does not share coal royalty proceeds with West Bengal. Royalty on minerals are levied and collected under the central law but appropriated by states.
As per the GoM, the proposed central cess on minerals would be used for better administration of mining activities.
?The proposals in the draft Bill is disastrous for the mining industry. If the government does not private industry to flourish in the sector, it should nationalise the sector,? said a top official of a private sector mining company.
?The proposals in the draft Bill will prevent much needed investments to flow into the mining sector. Overseas companies will not be interested to invest in a highly regulated and highly taxed sector,? said Federation of Indian Mineral Industry (FIMI) secretary general RK Sharma.
The GoM clearance of MMDR Bill has paved the way for taking its draft for Cabinet approval before being introduced in Parliament and its subsequent passage.
The passage of new Bill has been delayed by close to two years for want of consensus.
The current government regulations permit 100% foreign direct investment (FDI) in most mining activities under the automatic route. Despite this, the actual FDI flows have been a measly $150-200 million. This has not deterred the government from setting the ambitious target of increasing FDI in the sector to over $20 billion in the next few years.
India has 85 billion tonne of mineral reserves which are yet to be exploited. Encouraging FDI in the sector, many feel, can prove to be important for the development of the Indian mining and minerals industry.
