National Mineral Policy 2006 - Department of Mines

ailable, cognisable criminal offence, for which, in the mineral-rich states, there should bespecial courts.FISCAL REGIME AND ITS STABILITY6.23 Developing a long-life mine is a high-cost high-risk venture. Mining involves hugeinvestments and high risk undertaken in the context of uncertain market and geologicalconditions. Uncertain conditions demand a higher return on investment than do investmentsthat are more risk free. If high taxation and other imposts reduce that return, investment willnot take place regardless of geological potential. Therefore, one of the important factors inthe decision making process for investment is the fiscal regime in a country. It was for thisreason that the MMDR Act provides that the royalty rates should not be revised in less thanthree years. Sudden imposts in the period between revisions of royalty can significantlyundermine the profitability of a project. The Committee is of the view that royalty and deadrent are the main imposts on minerals and neither the state nor the Centre should seek to levyadditional burdens on mining activity. Cess was levied by Orissa at the high rates of 20 percent for bauxite and 15 per cent for iron ore. The constitutionality of the issue of whether thestate can impose such a cess on any mineral for which a royalty has been prescribed iscurrently sub judice. The Committee nevertheless observes that lack of fiscal stability canadversely affect the investment environment in the mining sector. In considering theimposition of such a cess in future, state governments should bear in mind the adverse impacton the investment environment in the state.6.24 Though the NMP of 1993 states that fiscal measures will be so designed as to promoteexploration and development and encourage beneficiation, there is no significant incentive byway of tax breaks currently obtaining to give effect to this policy apart from the lower royaltyfixed for beneficiated iron ore. Representation has been made before the Committee that amore meaningful provision is needed such as by providing for deduction of expenditureincurred on reconnaissance and prospecting from profits at the mining stage. It has beenstated that under the Income Tax Act, 1961, deduction of expenditure incurred during onlyfour years prior to the commencement of commercial production is allowed although thereconnaissance and prospecting stages could take as long as eight years. Development ofmines takes another two years. In such situations, the expenditure incurred in the previous sixyears is not allowed for deduction. Further, under the present dispensation the deduction of132