Sunday, 23 May 2010

Profiteering by iron ore miners - India's windfall tax proposal

India's Mines Minister B.K. Handique calls it "profiteering" by the merchant miners as iron ore prices have risen by about 170 per cent between 2003-04 and 2009-10. Hence Mr Handique's letter to the nation's Finance Minister Pranab Mukherjee a week ago calling for the imposition of a Windfall Tax on mining profits.
The Indian Express newspaper reported that the intensified pitch for the tax "comes close on the heels of Australian Premier Kevin Rudd recently announcing his government’s determination to impose a Resource Rent Tax, which is also understandably aimed at curbing the profiteering of Aussie mining behemoths like Rio Tinto, BHP Billiton etc."
Minister Handique told The Express:
“We have told the Finance Ministry that while ore prices continue to surge, its cost of production hasn’t changed much. So, iron ore mining remains highly attractive for the miner. It is also a fact that higher returns have not translated into higher spends on CSR for local communities. What’s more, it has fuelled a rapid growth in ore production along with corresponding increases in boundary disputes, acrimonious litigation, misuse of transport permits of illegally mined minerals and recently in mafia activities.”
The India website of The Wall Street Journal said the proposed windfall tax on non-fuel minerals such as iron ore was to claim part of what the government considers high profits earned by the mining sector. "Our proposal is to levy a windfall tax on domestic sales as well as exports of minerals when their (prices) are substantially higher than the cost of production,"Minister Handique said in an interview with the Journal. 
"On the lines of a similar proposal in Australia, the new tax is also meant to raise additional revenue for the government. But unlike in the former, India has a predominantly captive production model where mining leases are mostly given out to producers with their own plants to make finished products such as steel. The plan will need to be approved by the Finance Ministry before it can be implemented although it doesn't need parliamentary approval, as is the case in Australia."
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