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India’s Coal Ministry proposes new tax on captive coal mines

India’s Coal Ministry plans to impose a new levy on coal produced from captive mines by steel and cement manufacturers.

In a note prepared by the Coal Ministry, it has proposed that the tax be levied in addition to the royalty paid by steel and cement producers to the provincial governments where the captive coal mines were located.

However, it has been clarified by the Ministry that captive coal mines operated by thermal power producers would not be brought under the ambit of the proposed cess.

The Ministry has rationalized the levy on the grounds that, while captive coal mines owned by steel and cement companies ensured stable input costs for the latter, the prices of their finished products were market-determined and hence the new levy would equalise this unfair advantage in input costs.

In contrast, power companies with captive coal mines would not attract the levy as power producers did not enjoy market determined rates for power generated, as power companies supplied distribution companies according to long term power purchase agreements based on fixed tariffs.

The quantum of the levy would be finalised in consultation with the Finance Ministry, which would be the final authority in announcing the cess, government officials said.

The additional levy was also intended to neutralise the advantage steel and cement producers enjoyed on account of having captive coal blocks allocated through the government preferential dispensation route as opposed to auction, which meant steel and power companies had not paid market determined price for the natural resource.

The national auditor, Comptroller and Auditor General, had indicated in a report that the allocation of captive coal blocks through preferential allotment as opposed to by auction had lost the exchequer an estimated $37-billion.

However, government officials could not confirm any timeline for giving effect to the cess as the election code of conduct was in force currently, ahead of the Indian national elections starting next month. Under the code, political parties, including the government, were restricted from making any announcement which could impact voting decisions.

Source: www.miningweekly.com