Iron ore mining companies may have to cough up royalty as high as 10% per tonne. The study group constituted by the ministry of mines on royalty has recommended shifting to ad-valorem basis and has suggested different rates for different minerals.

In case of iron ore, it has suggested a flat 10% royalty for all grades. At present, mining companies pay a royalty of Rs 4 to Rs 27 per tonne depending upon various grades of iron ore.

?The study group headed by special secretary in ministry of mines Pradeep Kumar has recommended shifting to the ad-valorem system of royalty for most minerals expect for lime stone,? sources close to the development told FE.

The ministry of mines is likely to prepare draft proposals regarding this in a month, which will be presented to the Cabinet for its approval.

At present, the country follows quantity-based royalty, also known as specific rate royalty, and it is charged on rupee per tonne. The present system is easy to administer but is inefficient as royalty collection is a function of quantity extracted and rising prices do not get reflected in it. In ad-valorem system, royalty is calculated by applying a percentage value to gross sales value.

The Federation of Indian Mining Industry (Fimi) has been opposing the move towards ad-valorem system as they would have to pay out a much bigger amount to the government. Further, Fimi also feels since the finance ministry has already imposed export tax on various grades of iron-ore, moving to ad-valorem system will mean double taxation resulting in loss of competitive edge for miners.

Additionally, Fimi has pointed out that since the government?s first priority is to contain inflation, additional burden on minors mean higher iron-ore prices and would ultimately resulting in hardening of steel prices, which would hurt the economy.

However, the Centre and the state governments have been in favour of moving to the ad-valorem system as this will boost the royalty revenues three- to four-fold.

The present Mines and Minerals (Development & Regulation) Act, 1957, allows the rates of royalty enhancement only once in three years.