Taxing time for India's metal, mining companies: Macquarie

New Delhi, Oct 3 (PTI) Enactment of the new Mining Bill
is likely to have a negative impact on existing pure-play
mining companies, with their profits impacted by as much as 12
per cent, global research firm Macquarie says.
On September 30, the Union Cabinet approved the Mines and
Mineral Development and Regulation (MMDR) Bill, 2011, which
has provisions for 26 per cent profit-sharing by coal miners
and an amount equivalent to royalty by others with project-
affected people.
As per the provisions of the Bill, coal mining companies
will have to share 26 per cent of the profits from their mines
with people impacted by projects.
In the case of non-coal miners, the new law will provide
for payment of an amount equivalent to the royalty paid to the
state government to project-affected persons.
According to a research report by Macquarie, the new Bill
is expected to reduce the profits of pure-play mining
companies like NDMC and Hindustan Zinc in the 2011-12
financial year by 9 per cent, but the expected impact is much
worse in the case of Coal India, which could see its profits
eroded by as much as 12 per cent.
Giving details, Macquarie said, "The government collected
USD 1 billion in terms of royalty in fiscal year 2010 (from
minerals other than coal) and a 26 per cent tax on mining
profits for Coal India could add another USD 650 million to
this fund."
Apart from compensating project-affected people through
profit-sharing and royalty, the new Bill also obligates mining
firms to pay a 10 per cent cess to state governments and 2.5
per cent to the Centre on the total royalty paid.
Enactment of the new Mining Bill would result in the
profits of captive mining (steel) companies such as Tata Steel
being whittled down by 9 per cent, while SAIL would see its
profit decline by 7 per cent, Jindal Steel would witness a 3
per cent reduction and JSW Steel would take a 1 per cent hit.
With regard to captive mining companies (base metals),
the new Mining Bill could impact profits of Sterlite
Industries by 6 per cent, Nalco by 4 per cent and Hindalco by
1 per cent.
"A cess on royalty of 10 per cent going to state and 2.5
per cent to the central government will be levied. Including
these proposals, the metal sector in India for some
commodities will be at the highest end of taxation," Macquarie
said.
The Bill is likely to be tabled in the Winter Session of
Parliament.
Macquarie further said the Bill still has a lot of areas
that need further clarity, such as how should coal mines
allocated for captive use be taxed, will companies be given
benefits for CSR expenses, etc. PTI DRR
MNS