Update tax laws to attract investments: Mining sector

Vishwanath Kulkarni New Delhi | Updated on February 24, 2011

The mining industry is pinning its hope on the Union Budget 2011-12 not only doing away with export duty on iron ore pellets but also expects that tax laws are updated, in line with proposed new mining law, to attract investments in mineral exploration phase.

“We want the 15 per cent duty on export of iron ore pellets to go,” said Mr R.K.Sharma, Secretary General, Federation of Indian Mineral Industries (FIMI).

Stating that the Government encouraged value addition and exhorted miners to produce pellets from iron ore fines, Mr Sharma said “the pellets are being clubbed with lumps, attracting an export duty of 15 per cent.”

Mr Sharma hoped that the Government does not hike the duties further on iron ore exports. Currently, the iron ore fines and lumps attract an export duty of 5 per cent and 15 per cent each.

The domestic steel industry and the Steel Ministry have been demanding a ban on iron ore exports. Calling for a phased ban on iron ore exports, Assocham on Wednesday demanded an increase in export duties on iron ore fines to 15 per cent and on lumps to 30 per cent of the FOB price.

Further, industry also wants the tax laws to be updated in line with the proposed new legislation. The Government expects to introduce the Mines and Minerals (Regulation and Development) Bill 2010 in the Budget session of the Parliament.

Removal of cap on claiming deduction on expenses incurred during exploration would encourage investments in mineral exploration, said Mr Sanjeev Jain, Executive Director, Ernst & Young. The Section 35E of the IT Act, which allows deduction for expenditure on prospecting certain minerals, needs to be updated. Presently, the tax laws provide that only five year's expenditure prior to commercial production (including the year of commercial production) will be allowed as deduction. Typically, the exploration and mine development period varies between 8 and 10 years. Considering that it may take two-three years to develop a mine, only three years' exploration expense will be allowed as deduction. “The claim should be allowed over the period of mine lease or there should be no cap,” Mr Jain said.

In fact, the Anwarul Hoda Committee, set up by the Planning Commission to review the country's mineral and mining policy, had recommended that all exploration costs, including unsuccessful exploration costs, need to be allowed in full and the taxpayer should be given an option to claim the entire cost in the year of commercial production or spread it over the lease period.

As the proposed mining law lays emphasis on mine restoration for environment conservation, companies need to make provisions every year towards the restoration expense. Such a provision is clearly on revenue account. However, a specific provision in IT laws treating such provision as an allowable deduction will avoid unnecessary litigation and instil confidence in investors, Mr Jain said. “The Finance Minister could consider granting the long-awaited infrastructure status to the exploration and mining industry or at least a tax holiday as enjoyed by the oil and gas industry. The tax holiday can be made available to at least those players who invest in exploration and prove new deposits,” he added.

Published on February 24, 2011

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