National Mineral Policy 2006 - Department of Mines

expenses have to be made in equal instalments in the first 10 years of commercial production.The suggestion has been made that the mining companies should be given the option ofdeduction either in the first 10 years or over the life of the mine. It has also been pointed outthat the ambiguities in Section 35E of the Income Tax Act, 1961 allowing set-off ofunsuccessful exploration costs need to be removed. The Committee feels that there is merit inthese representations and suggestions.6.25 To encourage exploration, which is a pre-mining activity, the Committee wouldrecommend that the current restriction of four years for allowing deduction of expenditure onexploration and development from the income tax should be eliminated. All expenditure onexploration and development in the preceding 10 years before the commencement ofcommercial production should be allowed for deduction in mining operations. Further, themining companies should be given the option to claim deduction either in the first years ofcommercial production or during the useful life of the mine. Clarity also needs to be broughtin Section 35E of the Income Tax Act, 1961 for set-off of unsuccessful exploration cost.OTHER SOURCES OF REVENUE6.26 The Committee would recommend the following:(i) A conscious decision needs to be taken to encourage physical value additionwhich improves ore quality and usage at pit mouth such as concentration,beneficiation, calibration, blending, etc. Wherever the miner adds value throughthese processes the royalty may be charged on the ore at pit mouth on the cost ofextraction before processing. Alternatively, the ad valorem rate for beneficiatedor concentrated ore should be proportionately lower, as in the case ofbeneficiated iron ore in Western Australia.(ii) The penalty for non-payment of royalty is cancellation of the concession. Amoratorium or a suitable structure for deferment of royalty payment to supportinvestment in deserving cases, to be spelt out clearly in MCR, could also bepermitted in deserving cases.(iii) Rates of dead rent should be rationalised so that they act as an effectivedeterrent against a mine owner who does not undertake mining as per theapproved mining plan and prefers to keep large areas idle and keeps the mineralresources undeveloped. In other words, an escalating scale of dead rent should133