Taxation of Non-Fuel Minerals Sector in India
Publication dateJan, 2000
DetailsReport submitted to the Department of Mines; Government of India.
AuthorsJ. V. M. Sarma and Gautam Naresh
The mineral sector, an important segment of the Indian economy, is completely dominated by the public sector. This study enlisted various taxes and levies by all levels of government in India and analyzed the impact of the overall tax regime on the mineral sector with a view to suggesting possible reforms. For designing a tax regime, the specific issues that need to be resolved are: (i) how much to tax; (ii) how to coordinate the two roles of the government- one as the owner of the mineral resources, and the other as an agent responsible for achieving economic and social development; (iii) whether a separate tax regime is needed for the mineral sector; and (iv) how to combine different levies in a multi-levy system. The profile of the major taxes and non-taxes in India, levied by all the three tiers of government - central, state, and local reveals that they are: corporate income tax, union excise duties and custom duties by the central government, prospecting and mining lease fee, royalty, dead rent, surface rent, stamp duty and registration fee, sales taxes, and environmental protection fees, and charges by state governments and tax on entry of goods, besides other general taxes. An assessment of the burden of the various levies on the prices of selected minerals and variations across states has been attempted by adopting two measures of tax impact on mineral prices, namely, the domestic tax burden and the effective rate of protection (ERP). From a review of mineral levies in India, the tax system does not appear to be designed to take into account the risk that characterizes mineral exploration and extraction. In the medium-term, the following changes are recommended - rate rationalization of the income and corporate tax structure; conversion of the specific royalty rate structure into ad valorem structure; combining state sales tax with royalty, abolition of the octroi and other local levies that hinder the transport of minerals; and rationalization and simplification of the various local levies.