Tax incidence on key minerals such as coal and iron ore would rise to over 50 per cent, if the proposed benefit sharing mechanism as envisaged in the draft mining legislation is implemented.

The Federation of Indian Chambers of Commerce and Industry (FICCI), in a representation to the Prime Minister, said such high taxation would have serious implications and render the Indian mining industry uncompetitive.

For minerals such as bauxite, the effective tax incidence would double to over 100 per cent.

“The provision will impair the financial health of mining firms, driving them to financial losses and subsequent closure. Such financial losses will result in elimination of all modern firms and would only encourage non-scientific and low technology firms with large negative impact on environment,” FICCI said.

Benefit-sharing

A Group of Ministers recently agreed to a benefit sharing mechanism in the proposed mining legislation, wherein coal companies are expected to contribute 26 per cent of their net profits for the benefit of project affected people.

Similarly, the non-coal companies are expected to contribute an amount equivalent to the royalty towards such an initiative.

The Mines Ministry is in the process of finalising the Mines and Minerals (Development and Regulation) Act, 2011, which is likely to be introduced in the current Parliament Session.

FICCI also said that high taxation would affect valuations of private firms and hit their capital raising plans. It would also lead to huge valuation loss and revenues in case of big ticket disinvestments such as Coal India, SAIL and NMDC and strongly discourage risk capital for mineral exploration.

FICCI has suggested that instead of royalty contribution, mining companies may be asked to make a one-time payment of 26 per cent of the market value of land at the time of grant of mining lease.

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