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Mining industry seeks tax relief to boost mineral exploration

Mining industry seeks tax relief to boost mineral exploration
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First Published: Tue, Feb 26 2008. 10 16 PM IST
Updated: Tue, Feb 26 2008. 10 16 PM IST
New Delhi: The mining industry is seeking fiscal incentives on mineral exploration similar to the oil sector, which gets tax relief on investments in machinery. Miners also want deductions for environment-friendly rehabilitation programmes, much like the oil industry.
Under the 1997 New Exploration Licensing Policy, or Nelp, the oil sector gets 100% deduction on depreciation cost of exploration equipment within the first year and some 50% on certain capital machinery during the production stage. At present, the industry recovers depreciation costs over two ­decades.
Known as the “site restoration fund”, the oil sector can also claim 20% of profit as expenses for bettering the environment.
Experts say there is an urgent need to align tax measures with the priorities of the mining industry and boost mineral investigation, especially when private investment has plunged 83% in the last three years.
India currently spends a mere $5 million (Rs19.95 crore) on mineral exploration, while Canada and Australia each spend $400-600 million. As a result, there have been no new discoveries made in most of the major minerals for the past two decades.
Exploration also has not taken off because there is still no clarity in the mining Act over the automatic transfer of an exploration permit to a mining licence—an issue the new mineral policy has addressed but now pending before the ­cabinet.
“The fight is always over proven deposits as little exploration has happened,” says Sanjeev Jain, associate director at Ernst and Young (E&Y). “The fiscal laws in India are unfavourable for mining compared with any other mining economies of the world as well as the oil and gas industry in India, which operates on a similar model.”
According to an internal E&Y study that compared India with 10 major mining countries, India is the only country that gets partial tax deduction for the expenditure incurred prior to commercial mining—the stage when most money is spent in search of an economically viable deposit.
Most of the surveyed countries offered tax relief on expenses incurred for the full pre-commercial period; at present, miners in India can obtain benefits in only four of the 10 years of exploration. The countries that formed part of the study include Brazil, Australia, Canada, the US, Argentina, Peru, Mexico, Chile and Kazhakstan.
Mining costs, according to N.L. Rungta, chairman and managing director of Rungta Mines Ltd, accounts for 80-90% of its total expenditure. “Mining is the mother of all industry and we have to be ultimately on a par with internationally accepted standards,” he said.
Mexico adjusts inflation costs against depreciation costs of machinery. Nations such as Peru and Chile have imposed hedges against inflation to draw machine depreciation benefits. In Peru, the entire amount can be claimed in five years.
Apart from royalty on minerals, the mining sector pays 13 major kinds of taxes, sometimes more at the state level. This is excluding excise duty, value-added tax and state entry and municipal taxes. Due to the parallel rise in transport charges, the tax burden is huge and needs to be eased, said H.C. Dagga, chairman of the mineral committee at the Federation of Indian Mineral Industries.
Apart from Central taxes, states have imposed a variety of taxes, such as cess on mineral bearing land, transport and social infrastructure taxes. In contrast, Peru has introduced tax stability clauses to allow miners to recoup profit.
To minimize impact of multiple taxes, the industry is also demanding that a service tax of 12.36% be offset against investment as in the steel industry. It also seeks fiscal relief for high-speed diesel to power processing plants.
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First Published: Tue, Feb 26 2008. 10 16 PM IST