Given India’s vast national mineral resources, mining and extraction ought to be a valuable and viable economic activity. Currently, mining contributes 2.3% to India’s GDP compared to 17% in Chile, or 8% in Australia. Imposing an excise duty would not solve the problem of illegality.
Instead it would further add to the taxation burden of Indian mining industry. First, excise duty or Cenvat is levied on the manufacture of goods, i.e., when raw materials are converted or processed into a different product.
Mining activity is limited to extraction and processing of ore, which is also supported by various judicial pronouncements. Hence, technically levying excise duty may not be feasible. Secondly, mining is already a heavily taxed sector in the country with an incidence of around 43% compared to other countries like Brazil, Australia, Canada, South Africa, etc, where the incidence is in the range of 35-40%.
Imposing an additional duty via excise will further make the sector unattractive for the investors whereas the need of the hour is to attract investments into exploration for tapping the huge resource potential in the country. Thirdly, mineral is a cyclical industry and the tax system needs to recognise this. Excise duty, which would be levied on production value, would not be able to adjust for wide fluctuations in mineral prices, which to a great extent is taken care of in case of royalties.
Fourthly, state governments need to be more engaged in improving the quality of mineral administration. All states need to make the system of royalty collection and issue of transport permit totally online. Vehicles engaged in transportation of ore can be fitted with GPS system for better tracking. Royalty payment goes to state governments whereas excise goes to the Centre.
If the Centre needs to have revenue from mining, it could be through the royalty route, with an appropriate offsetting of state levies. Hence, in the light of the above, the universally applied system of taxation on mining is on the basis of royalty and applying any other tax instrument may not be appropriate. The need is to have an effective law-enforcement system to check illegal mining.
Instead it would further add to the taxation burden of Indian mining industry. First, excise duty or Cenvat is levied on the manufacture of goods, i.e., when raw materials are converted or processed into a different product.
Mining activity is limited to extraction and processing of ore, which is also supported by various judicial pronouncements. Hence, technically levying excise duty may not be feasible. Secondly, mining is already a heavily taxed sector in the country with an incidence of around 43% compared to other countries like Brazil, Australia, Canada, South Africa, etc, where the incidence is in the range of 35-40%.
Imposing an additional duty via excise will further make the sector unattractive for the investors whereas the need of the hour is to attract investments into exploration for tapping the huge resource potential in the country. Thirdly, mineral is a cyclical industry and the tax system needs to recognise this. Excise duty, which would be levied on production value, would not be able to adjust for wide fluctuations in mineral prices, which to a great extent is taken care of in case of royalties.
Fourthly, state governments need to be more engaged in improving the quality of mineral administration. All states need to make the system of royalty collection and issue of transport permit totally online. Vehicles engaged in transportation of ore can be fitted with GPS system for better tracking. Royalty payment goes to state governments whereas excise goes to the Centre.
If the Centre needs to have revenue from mining, it could be through the royalty route, with an appropriate offsetting of state levies. Hence, in the light of the above, the universally applied system of taxation on mining is on the basis of royalty and applying any other tax instrument may not be appropriate. The need is to have an effective law-enforcement system to check illegal mining.
Tuhin Mukherjee is Chairman of
FICCI Mining Committee
FICCI Mining Committee
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