TAX NEWS - June 2010

India Tax: Miners' body slams windfall tax plan

Two days after the steel minister BS Handique announced the possibility of windfall tax on iron ore, the Federation of Indian Mineral Industries (Fimi) has opposed the move.

In a letter to the steel minister on June 10, Fimi's secretary general RK Sharma, has asked the minister to relook at the matter.

Sharma said, "Since the government is unable to stop illegal mining, the proposal to put windfall tax is more like regularising the illegal mining and export of illegally mined our ore."

The minister, on June 7, had said, "We have already moved the finance ministry. We are for it (windfall tax). We have sent the letter," mines minister B K Handique said, arguing that the move would not only deliver 'justice' to locals in mining areas through corporate social responsibility (CSR), but also check rampant illegal mining.

Sharma said that the government is not able to control illegal mining because of lack of political will.

"How will it collect windfall tax from these (illegal) miners?" he asked. Sharma added that if this windfall proposal is accepted and implemented, this will ultimately lead to a situation when only legal miners will pay the so called "windfall tax" till they find their operations economically viable and close down when they no longer find them profitable. "Despite the good intentions, in course of time, it will be the illegal miners who will rule the roost and defeat the very purpose," he said.

Fimi argues that India's role in iron ore trade depends heavily on the Chinese demand. It said that the demand has dropped by over 25% in the last one month and the Indian iron ore industry is already going through a tough time. "The economic viability of iron ore has been further dented owing to rising railway freight to the extent of Rs 700 per tonne since the presentation of railway budget and increase in export duty on the exports of lumps from 10% to 15% and continuation of export duty at 5% on fines.," Fimi said.

The steel ministry has made the proposal following the footsteps of the Australian government which has recently put 40% tax of profits of miners. Fimi, argues that the profits miners make in India on per tonne of iron ore mining is Rs 250 as against Rs 1,000 per tonne in Australia.