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Centre steps in as Karnataka's new mining taxes threaten steel sector

The Centre is exploring legal measures in response to Karnataka's new mining taxes, which could impact the mining and steel industries; the taxes, awaiting Governor's assent, have raised concerns

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Rimjhim Singh New Delhi
3 min read Last Updated : Jan 13 2025 | 11:37 AM IST
The Centre is evaluating legal strategies to mitigate the impact of Karnataka’s newly proposed taxes on mineral-bearing land and mineral rights. This is in response to concerns raised by the mining and steel industries, according to a report by The Economic Times.
 
A crucial meeting held in New Delhi on Thursday, chaired by Union Minister of Heavy Industries HD Kumaraswamy and Law Minister Arjun Ram Meghwal, focused on exploring legislative options to address the potential consequences of Karnataka’s new law.

Karnataka’s Tax Bill

In December last year, the Karnataka Legislature passed the Karnataka (Mineral Rights and Mineral Bearing Land) Tax Bill, 2024, which is now awaiting the Governor’s approval. The Bill outlines new levies on mineral rights, which have sparked concern among industry stakeholders.
 
Minister Kumaraswamy, in response to the new taxes, criticised the Karnataka Congress government for imposing what he termed ‘steep taxation’ on the mining sector. He warned that if other states followed Karnataka’s lead, it could lead to the collapse of the steel industry, forcing India to rely on imports, The Economic Times report reads.
 
Kumaraswamy also mentioned that new taxes were introduced to fund the state’s five guarantees but warned they could undermine the Atma Nirbhar Bharat vision, especially with India’s target of producing 300 million tonnes of steel annually by 2030. He said steel demand is expected to rise to 280 million tonnes in five years.
 
The meeting, attended by officials and representatives from the mining and steel industries, discussed the potential negative impact of Karnataka’s proposed taxes. An official statement emphasised that the new levies were three times higher than those elsewhere, potentially harming mining activities.

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Supreme Court ruling on taxation powers

The Supreme Court, in a landmark judgment on August 14, 2024, ruled that states can levy taxes on mineral-bearing land and mineral rights, with retrospective effect from April 1, 2005. However, the ruling exempted interest and penalties on dues prior to July 25, 2024, and allows mining leaseholders to pay outstanding taxes in installments over 12 years, starting April 1, 2026.
 
The ruling reinforced the authority of states to impose taxes on mineral rights, asserting that the Mines and Minerals (Development and Regulation) Act, 1957 does not limit this power. The court also allowed states to use the value of minerals as the basis for taxing mineral-bearing lands.

Karnataka’s proposed tax structure

Karnataka’s proposed tax structure varies by the type of mineral deposit. The state expects to raise Rs 4,208 crore annually from mineral rights taxes and an additional Rs 506 crore from mineral landowners. The Bill outlines a tax of Rs 100 per tonne for bauxite, laterite ore, chromite, iron ore, magnesite, and ore of all grades, Rs 50 per tonne for copper and gold, Rs 25 for limestone, Rs 20 for lime shell, and Rs 40 per tonne for other major minerals.
 
The Karnataka Cabinet, led by Chief Minister Siddaramaiah, approved the Bill on December 6 last year. This move followed the Supreme Court’s July 25, 2024 ruling, which clarified that states hold the legislative power to tax mineral rights — reversing a 1989 decision that had granted this power solely to the Centre.

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Topics :Mining industryKarnatakaMining in IndiaBS Web Reports

First Published: Jan 13 2025 | 11:37 AM IST

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