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Govt to reduce tax burden on investors in non-coal blocks: Cascading of royalty to be removed

Royalty is levied on per tonne basis or as a percentage of sale price on ad valorem basis.

non coal blocks
According to the proposal, royalty and other levies will not be part of the ASP, but will apply on it.

The Union mines ministry is considering a proposal to exclude royalty and other levies from the average sale price (ASP) of non-coal minerals such as iron ore, limestone and bauxite to encourage investments in the sector.

The idea is to avoid cascading of taxes, that is levy of tax on tax. Royalty is currently being paid on ASP, which already includes royalty in a range of 2-20% and a clutch of other levies including payments towards the district mineral fund (DMF) and national mineral exploration trust (NMET).

According to the proposal, royalty and other levies will not be part of the ASP, but will apply on it.

Bidding for non-coal minerals take place on the basis of the revenue to be shared with the government by the investors/miners as a percentage of ASP. Whoever offers the highest revenue share gets the block.

“Removing the cascading impact of royalty on royalty is expected to increase participation in future auctions, thereby making additional revenue available to the state governments. This is expected to give fillip to the sector,” said the mines ministry in a note floated to seek stakeholders’ comments.

ASP is the weighted average of sale value of minerals. It is used in various auction parameters for non-coal minerals such as premium, upfront payment, reserve price for bidding, net worth requirement of bidder to determine the eligibility for participation in the auction and performance security.

Royalty is levied on per tonne basis or as a percentage of sale price on ad valorem basis. A miner’s contribution to the DMF, NMET and other statutory contributions are calculated as a percentage of the royalty. It is collected and retained by the states.

Since the implementation of the MMDR Amendment Act 2015, all auctions take place on percentage of ASP payable by the bidders. A total of 186 blocks, including 32 in the current fiscal, have been auctioned so far.

The mines ministry feels that charging royalty on the sale value which includes royalty is not appropriate way to collect revenue and leads to cascading effect on both royalty and premium. It also creates complications in charging royalty rates.

As such, the ministry plans to introduce a new section by amending the MMDR Act. As per the note, the provision shall specifically provide that ex-mine price for determination of ASP shall exclude GST, export duty, royalty, DMF & NMET and such other levies as may be prescribed.

The adoption of the new formula will be applicable for all mining leases, whether auctioned or granted before or after the commencement of the proposed MMDR Amendment Act.

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