National Mineral Policy 2006 - Department of Mines

Another point to be borne in mind by the Study Group is that the royalties on base metals,noble metals, and precious stones need to be at low levels as an incentive for exploration inthese minerals in which the country is grossly deficient.6.19 The Committee considers that the valuation of the mineral for the purposes of royaltyshould be based on the transaction value and should include the profit element over andabove the unit cost of production. For export consignments the system is quite appropriate asthe FOB price is taken as the basis and the transport cost from the pithead to the port as wellas the loading and unloading charges and the port charges are deducted therefrom. Fordomestic sales also, the sale price rather than the pit mouth value should be taken intoconsideration. Thus the profit element must be added to the cost of production. The idealwould be to use the sale price to the end-user as opposed to the middleman as the basis fordetermining the valuation. From the sale price the element of transport and loading andunloading costs must be deducted as in the case of FOB price for export consignments. In theabsence of the sale price, the present system of 20 per cent mark-up on the pit mouth valuecould continue on an ad hoc basis. For captive mines, the reported price is suspect and shouldnot be used as the basis for calculating the average monthly value. It should be ensured thatthe IBM takes into account only arm’s-length transactions in recording the monthly statewiseand mineral-wise prices.IMPLICATIONS OF ILLEGAL MINING6.20 If the aim is to augment the revenue of states from royalties on mineral products areview of the structure of royalty rates and the method of collection is not the only avenueopen to state governments. Prevention of illegal mining is equally important for augmentingrevenue from the mining sector. Illegal mining is known to be widespread not only in majorminerals but also in minor minerals for which the state government is competent to frame itsrespective Minor Mineral Concession Rules (MMCRs). Not only is mining taking place atmany places without a valid lease, but even where there are valid leases there are instances ofthe government being duped by clandestine and undeclared removal of extracted minerals. Insuch cases, illegal mining also has other undesirable consequences as listed below:(i) Unscientific mining;(ii) Environmental and ecological degradation;(iii) Illegal felling of trees and destruction of the forest cover;130