Mining industry pushes for single GST to supersede multiple levies

Royalty rates on minerals are the highest among resource-rich nations and a cocktail of levies makes India top the list of nations with steep effective taxation rate on mining

The country’s mining sector, distressed by a multitude of levies like royalty and contributions to the District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET), has advocated a uniform Goods & Services Tax (GST) to overcome the multiplicity of taxes. 

Royalty rates on minerals in the country are the highest among resource-rich nations and a cocktail of levies makes India top the list of nations with steep effective taxation rate (ETR) on mining.

The cumulative effect of royalty, DMF and NMET amounts to 19.8 per cent of the IBM (Indian Bureau of Mines) sales price, blunting the competitive edge of mining. Miners also feel this is a case of double taxation since royalty is calculated on the average iron ore sales price published by IBM.

The besieged mining sector has now appealed to the 15th Finance Commission, flagging its case for a unified tax regime where all levies are subsumed by GST.

“The overall taxation on mining industry should be rationalised and aligned to the world standard and graded based upon the level of value addition done on the primary ore by the concerned lessee. The value addition can be in the form of beneficiation, pelletisation and steel production. The direct and indirect taxes so paid should be allowed to be set off as applicable to GST," said Manish Kharbanda, executive director and acting legal head at Jindal Steel & Power Ltd (JSPL).

In the case of iron ore, the royalty rate is 15 per cent of the average sale price published by IBM. The rate is the highest in the world, eminently surpassing Australia (6.5-7.5 per cent), Brazil (two per cent), South Africa (0.5-7 per cent) and China (0.5-4 per cent). Besides, the miners are lumbered with DMF charged at 30 per cent of the royalty for older mines and 10 per cent for mines granted through auctions, NMET at two per cent of royalty and a GST of five per cent.

Federation of Indian Chambers of Commerce & Industry (Ficci) in a submission to the 15th Finance Commission, has asked for bringing mining levies at par with other mineral-rich economies like South Africa, Australia and Kazakhstan.

Subhrakant Panda, chairman of Ficci’s Odisha council and managing director, Indian Metals & Ferro Alloys (IMFA) Ltd said, “Ficci Odisha has made certain suggestions to the 15th Finance Commission which will help augment economic activity in Odisha and boost growth & employment. We have sought prioritisation of value addition to minerals, policy intervention for global competitiveness, and augmenting infrastructure which will help the state broad base industrialisation.”

Mining is the most taxed activity in India compared to anywhere in the world. The ETR on mines granted before the new Mines and Minerals- Development & Regulation (MMDR) Act, 2015 is 64 per cent while for mines won through auctions, it stands at 60 per cent. On a comparative note, the ETR for Mongolia at 31.3 per cent is half of India's. Other mineral-rich nations also boast of attractive ETR rates- Canada (34 per cent), Chile (37.6 per cent), Indonesia (38.1 per cent), Australia (39.7 per cent) and South Africa (39.7 per cent).

Countries competing for mineral sector investments usually offer ETRs in the range of 40-50 per cent. But a previous report by PricewaterhouseCoopers (PwC) established that India has the highest government cost of investing in a mining operation.