Mining for better RoI, better sharing next

The Centre has tightened its control over minerals by amending the 1957 Act that gave it jurisdiction over mining in the country. The legislative changes tighten rules over taxes and levies state governments can impose on mineral-bearing land. The Centre derives its jurisdiction over minerals through oversight of mining, and it can decide what constitutes mineral-bearing land. This is of special import in the case of rare earth elements, graphite, nickel, cobalt and lithium identified as minerals critical for the RE and semiconductor industries.

The jurisdiction issue arose because states have increased cess and royalty, sometimes after mining operations had commenced, rendering the job of regulating the minerals sector more complex for the Centre. Supreme Court also weighed in on the matter, drawing a distinction over royalties and taxes. New rules will be framed over how states can impose mineral levies. These are explicit about the Centre's oversight, irrespective of the nomenclature of the impost. The amendments don't specify tax rates or ceilings, but require states to consult GoI before they make any changes. Pending state levies that have been challenged in court have been invalidated, although states won't have to return amounts already collected.

The industry could do with a more predictable fiscal regime. Investment decisions were being affected by multiple levies intra-state and multiple rates inter-state. Prospecting for minerals has lagged due to the investment climate, affecting domestic supply. Structural changes to the economy require a more robust approach that go beyond revenue mobilisation concerns of state governments. The Centre and states will need to evolve a compensatory mechanism for forgone revenue once new tax guard rails are in place. Tighter GoI control is a necessary step. But the sufficient condition involves equitable revenue distribution with states. The Centre has set the ball rolling against unilateralism over minerals. It must carry the process forward now by bringing states on board.