New Mines Bill – ASSOCHAM reaction

The government’s proposal to impose 26 per cent tax on profits from coal mining and 100 per cent royalty on other minerals will make the Indian mining and mineral based industry as the most heavily taxed in the world and make it globally uncompetitive, industry body ASSOCHAM said .

Instead of 100 per cent royalty contribution, mining companies may be required to make a one-time upfront payment of 26 per cent of the market value of land at the time of grant of mining lease, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

Alternatively, an amount less than 10 per cent of the royalty by a mining lease holder and a matching contribution by the state government may be considered. When these funds are utilised, the percentage of royalty required to be paid may be increased, it said.

The royalty proposal will lead to an annual revenue loss of Rs 6,000 crore to the government on account of various taxes like income tax, dividend distribution tax, dividend and disinvestment collections, said Mr D.S. Rawat, secretary general of The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

Besides, the valuation loss of public sector companies like CIL, MOIL, SAIL, MNDC, NALCO and others could be Rs 75,000 crore. Similarly, the valuation loss of private companies like HINDALCO, BALCO, SESA GOA, JSW and others is estimated at Rs 25,000 crore.

The current effective taxation in Australia is 39 per cent, Congo 36 per cent, Russia 35 per cent, China 32 per cent and Chile 28 per cent.

In India, it will be more than 60 per cent in case of coal and 55 per cent in case of iron ore. “To make dividend payout of 10 per cent to the government and shareholders, and further paying out 26 per cent of profit or 100 per cent royalty will be disastrous. It will seriously impact employable funds and consequently the growth of mining companies,” said Mr Rawat.

As the industry passes on additional burden to consumers, the prices of power, steel and other commodities will increase and fuel inflation further. An annual payment of Rs 15,000 crore (outgo on account of the MMDR Act) is proposed to be used exclusively for a small number of affected persons.

This will create pockets of super rich in mining areas, leading to a huge disparity and dis-satisfaction among the rest. People will start migrating to these areas and in a similar fashion land owners of other industrial projects can demand an identical structure for parting with land, said ASSOCHAM.

The draft amendment has not defined the mechanism for compensating ‘impacted communities’ and this issue is likely to be contentious. A bulk of funds could be unutilised while the industry starves for investments and the government loses tax revenues.