Windfall tax for iron ore exports

 Mines Minister B K Handique has written to Finance Minister, Pranab Mukherjee, seeking in-principle approval for the proposal.

Windfall tax is levied by several countries on some ‘super profit’ making industries. Iron ore in India has grown to be one such high-yield sector. As per government data, about 50 per cent of the iron ore produced in the country is exported. Exports have nearly tripled over the last decade, from 37.49 million tonne in 2000-01 to 105.86 million tonne in 2008-09. From April 2009 to January 2010, exports surged 10.5 per cent to 89.20 million tonne.

However, the flip side is the high profit from the sector could result in an increase in illegal mining. “Unreasonable profit could lead to the producers indulging in illegal mining. Windfall tax will come in handy to prevent such menaces,” sources in the ministry told Deccan Herald.

The ministry has been exploring various steps to curb illegal mining particularly in states like Karnataka and Orissa, which have led to law and order problems and fuelled boundary disputes, acrimonious litigations and misuse of transport permits.

Taking into account the harm increased illegal mining could do to the industry, the government wanted to move from the present royalty regime to a profit-based system. Also, if such a tax was imposed, it would be an additional source of revenue for the government, Handique said in his letter to Mukherjee. At present, the government earns a revenue through taxes on iron ore exports and royalty on the minerals.

Once the proposal gets the nod of the Finance Ministry, the modalities of imposing tax, like the threshold export price above which the tax can be imposed and the rate, will be drawn up.

The Confederation of Indian Industries (CII)  has welcomed the windfall tax proposal. However, iron ore producers, under the aegis of the Federation of Indian Mineral Industry, have opposed it.