Date | Nov 01, 2017:
Revamp the taxation structure applicable to the mining sector in India; reduce the “widespread instances of corruption prevailing in the administration” of mining rules and regulations through “technology-based monitoring approach”; avoid the tendency to incorporate financial conditions while granting the environment clearance; and involve mining sector consultants to evaluate mineral blocks before they are put up for auction — these are some of the suggestions that the Niti Aayog has given to the mines ministry, which is currently in the process of formulating a new national mineral policy.
On August 2, 2017, the Supreme Court had passed a judgment, wherein it directed the Central government to revisit the National Mineral Policy, 2008, and announce a “fresh and more effective, meaningful and implementable policy” before the end of this year. The mines ministry formed a committee after this judgment and its first meeting took place on August 28. During the meeting, ministry officials asked all stakeholders, including the Niti Aayog, to send their comments and suggestions on the National Mineral Policy.
In its comments, the Niti Aayog has listed a number of taxes and charges that miners pay, which ultimately take their taxation burden to around 65 per cent of the revenue. “With the global average taxation applicable for mining is 40 per cent, India is constantly adding to the taxation burden for mining industry with royalty, DMF (District Mineral Foundation), NMET (National Mineral Exploration Trust) and host of other statutory levies implemented by the states. Adding to this are the one-time regulatory costs related to ECs (environment clearances) and FCs (forest clearances) mostly on account of NPV (net present value) for forest land, CA (compensatory afforestation) charges, CA land procurement, etc, taking the taxation to around 65 per cent.”
According to the Niti Aayog, it is “necessary to define an ideal tax system for the industry to make it more lucrative, especially for the foreign investors, under the Make in India initiative” of the Central government. Niladri Bhattacharjee, partner (strategy & operations and mining & metals), KPMG India, said that the load of taxation and logistics cost on the Indian mining industry is high as compared to international benchmarks. “Also, several regulatory payments like DMF, NMET, etc., have not been subsumed into GST (goods and services tax). Next, the bidding price quoted by the bidder during auction is subject to GST and the interpretation is that the act of auction by the government is a form of service being provided and hence the tax. Ultimately, the end-consumer has to bear the burden of the tax. The tax structure should therefore be reviewed from all these perspectives,” Bhattacharjee added.
According to the new mining law — Mines and Minerals (Development and Regulation) Amendment Act (MMDRA), 2015, which came into effect from January 2015 — non-coal mines have to be auctioned by the respective state governments. Under the old mining law, the states had the powers to grant the mining lease to any company as per their discretion. In June 2015, several mineral-rich states presented a non-coal mineral auction plan to the Centre. Showing their readiness, the state governments told the Central government that 100 mines would be auctioned by December 2015. However, until now, the states have been able to auction only 29 mines.
Anjani Agrawal, partner and national leader (metals and mining), EY, told The Indian Express: “Taxes and levies, in various names and forms by governments have proliferated over the years that squeeze the margins further in an environment of subdued commodity prices. In the current framework of awarding concessions (leases) only through auction route, the bidders need assurance on the level of aggregate taxation that needs to be factored in in the business model. It would be essential and advantageous for the states to promise in the bid invitations, a cap on the net taxes & duties (irrespective of their names, sources and forms) that can be imposed on the mining business over the 50-year life-cycle of the mining lease.”
The Niti Aayog has suggested that the mining blocks that are being placed for auction should be evaluated by agencies “having expertise in mineral commodity and as per international codes, as the in-house expertise and experience of SBI Caps (SBI Capital Markets Ltd) have failed to draw potential international investors even though there exists 100 per cent FDI (foreign direct investment) in mining”. SBI Caps has been acting as a consultant to the Ministry of Mines on mineral auction process.
Kameswara Rao, leader (energy, utilities and mining) at PwC India, said: “The states were not fully equipped to run these auctions and the poor response is not a surprise. In many cases, the blocks placed were uneconomic in terms of size, location and extractable resources, or the contract terms were restrictive. If states invest in pre-development of mines (which means improving access, putting basic consents in place, undertaking preliminary studies using professional agencies, etc), they will get a better response and earn far higher returns. This approach is commonly used in mature mining countries.”
In its suggestions, the Niti Aayog pointed to the corruption prevalent in the mining sector. “Since there are widespread instances of corruption prevailing in the administration of the MMDRA Act, 2015, and other mining rules and regulations in the state and central government departments, it is suggested to have a technology-based monitoring approach rather than adopting the colonial system of monitoring and administering the mining leases. Therefore, the powers vested with the state and central departments have to be revamped so that the mining industry is transparent in all aspects,” the Aayog stated.
According to Agrawal, considering the judicial pronouncements related to the Indian mining industry, it is “clear that integrity and transparency have not been strong points of the industry and that may be true for multiple groups of stakeholders”. He added that “uncertainty and ambiguity breed corruption” and, hence, the focus should be on removing them altogether. The Aayog has also suggested the ministry that the practice of incorporating financial condition while granting the EC should be avoided. “For example, inclusion of condition like ‘5 per cent of the project cost towards enterprise social responsibility’ adds to the cost of doing business and should not be included on a subjective basis,” it stated.
According to the Niti Aayog, due to increasing importance of rare-earth and nuclear minerals, a subset of the MMDRA Act, 2015 — which would be exclusive for the rare-earth and nuclear minerals — should be derived from the Act in order to give importance to the private sector. “Immediate necessary actions should be taken for establishing the guidelines and reframing the MMDRA Act, 2015, for the exploration of all the rare-earth and nuclear minerals. It should be carried out under the umbrella of the Atomic Minerals Directorate (AMD). Currently, China is dominating with over 90 per cent of the world market share,” the Aayog stated. The AMD works under the Department of Atomic Energy, which works under the Prime Minister’s Office.
Rao said that India has far lesser reserves of rare-earth minerals as compared with other minerals. “More importantly, as the cost of extracting them in an environmentally secure manner is huge, our focus has been on rare-earth minerals that go into alloy making rather than those used for special applications,” he added. However, Agrawal said: “India must evaluate its potential needs, resources and viability of producing strategic minerals that should include rare earths, nuclear energy sources and other critical resources essential for a modern economy and strategic defence requirements. There are several that need urgent policy intervention to reduce India’s dependence on external sources that may not be reliable due to socio-political reasons.”
(Source: http://indianexpress.com/)