National Mineral Policy 2006 - Department of Mines

the value addition question considered in Chapter 5. If the major mining states were assuredof a substantial increase in their royalty revenue it would mitigate to some extent theirconcern about not getting their fair share of economic benefit from their mineral deposits.METHODOLOGY FOR CALCULATION OF ROYALTY6.5 For calculation of royalty three systems are prevalent worldwide. These are: quantitybased or rate per tonne, ad valorem or percentage of revenue, and profit based or percentageof profit.6.6 Quantity based royalty, also known as specific rate royalty, is charged on the basis ofa unit of quantity such as weight, e.g. $ or Rupees per tonne. This system is easy toadminister but is inefficient in fiscal terms as the collection of royalty revenue is a function ofthe quantity extracted, and rising prices do not get reflected in the receipts. It is generallyused for low-value and high-volume minerals. An ad valorem or value-based royalty iscalculated by applying a percentage rate to the gross sale value. This is usually ‘ex-mine’ orpithead value (sale realisation) less allowable expenditure. In the profit-based system, royaltyis a percentage of the net profit earned by the miner. This system is usually project-based, andprofit is calculated by obtaining all project revenues and deducting all project costs fromthem. A pure profit-based royalty is more equitable and has less effect on companyinvestment decisions on exploration and mining than the other two systems described above.However, the major drawbacks of the profit-based system are uncertainty in yield andproblems in administration.PRESENT ROYALTY REGIME IN INDIA6.7 The royalty rates for major minerals are fixed by GOI and levied on the mineralsconsumed or removed from the lease area as per Section 9 of MMDR Act, 1957. The rates inrespect of each are specified in the Second Schedule of the MMDR Act. Section 9A of theAct provides for levying dead rent for the area included in the ML from which minerals arenot extracted. The dead rent rates are specified in the Third Schedule of the MMDR Act. Alessee has to pay either royalty or dead rent, whichever is higher. Enhancement in the rates ofroyalty is allowed once in three years. The revenues on account of royalty, as fixed by theCentral government, for the major minerals are collected and retained by the state122