National Mineral Policy 2006 - Department of Mines

governments. In the case of minor minerals, state governments have powers both to fix andcollect royalty and dead rent.6.8 Annexure 9 gives the present rates of royalty on minerals, including coal, as reflectedin the Second Schedule of the updated MMDR Act. In all, there are 51 minerals in theSchedule. While the regime has been moving towards ad valorem rates over the years, asmany as 22 minerals still attract specific rates. Of these 22, for six minerals, namely coal, ironore, limestone, china clay, asbestos, and graphite, different rates apply for different grades.Iron ore is the most important among these, accounting for more than 50 per cent of the valueof major non-energy minerals produced. The specific rates of royalty vary widely from aslow as Rs 4 per tonne (for iron ore concentrates) to as high as Rs 800 per tonne (chrysotileasbestos). In order to assess the tax burden on minerals resulting from royalty, the ad valoremincidence of specific rates has to be looked at. As will be seen later, the ad valorem incidenceof the specific rates of duty on iron ore was low in 2004–05, being in the range of 1–2 percent. On the other hand, in the case of limestone, the specific rates work out to 25–35 per centon the basis of the price prevailing in the domestic market in the years 2001–02, 2002–03,and 2003–04. For 39 items, the rates are fixed in ad valorem terms, ranging from as low as 1per cent (manganese concentrates) to as high as 20 per cent (gypsum). A unique feature of theSecond Schedule of the MMDR Act is that for minerals corresponding to base metals as wellas precious metals the rates are in terms of a fixed percentage of the value of the metalcontent on the basis of the London Metal Exchange price. In the calculations made in thePlanning Commission, the ad valorem incidence on bauxite and zinc ore works out to 20 and12 per cent, respectively. The rates of royalty and dead rent can be revised not more thanonce every three years as provided in Section 9(3) of the MMDR Act. A study group, withmembers from the state governments and industry, is constituted every three years for makingrecommendations in this regard. The last revision in the rates of royalty and dead rent wasnotified by the Central government on 14 October 2004, and the next revision is due inOctober 2007. The Ministry of Mines should set up a study group to work out detailed ratesof royalty, dead rent, and other levies on the basis of recommendations made by thisCommittee.6.9 Internationally the ad valorem royalty system is more commonly used. It has the basicadvantage of providing buoyancy to revenues in line with rises in the price of minerals. Thesystem also has the advantage that the rates are price neutral and unaffected by its rise or fall.123