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WELCOME WELCOME To The Members of To The Members of The Working Group on Mineral The Working Group on Mineral Exploration and Development Exploration and Development (other than Coal and Lignite) (other than Coal and Lignite) for the for

  1. WELCOME WELCOME To The Members of To The Members of The Working Group on Mineral The Working Group on Mineral Exploration and Development Exploration and Development (other than Coal and Lignite) (other than Coal and Lignite) for the for the Twelfth Five Year Plan – – 2012 2012- -17 17 Twelfth Five Year Plan Sub- -Group Group – – III III – – Presentation Presentation Sub st July, 2011 1 st July, 2011 1 1

  2. FISCAL MEASURES MEASURES 2

  3. TERMS OF REFERENCE “ To examine the present investment, taxation and trade policies for the mining sector and to review the actual realization of private investment (including Foreign Direct Investments) and suggest structural changes in a way that enable high risk venture capital to flow into the sector along with state-of-the-art-technology and project investment during the XII th Five Year Plan and in the perspective of 10-15 years thereafter.” 3

  4. FDI POLICY The Foreign Direct Investment (FDI) in mining sector (exploration, mining mineral processing and metallurgy for all non atomic and non fuel minerals) have been opened upto 100% through the automatic route w.e.f. 10.02.2006 4

  5. FDI in the Mining Sector (In US$ Million) (In US$ Million) Sector 2007- -08 08 2008- -09 09 Sector 2007 2008 2009- -10 10 2010- -11 11 2009 2010 Upto February, Upto February, 2011) 2011) Mining 28.32 49.55 158.71 Mining 28.32 49.55 158.71 82.99 82.99 Source: DIPP Source: DIPP 5

  6. Levies and taxes applicable to minerals sector Number of taxes are applicable to mining sector 6

  7. Mines and Minerals Development and Regulation (MMDR) Act 1957 Various charges/ levies are : • Reconnaissance Permit fee • Prospecting fee • Mining Lease Fees • Surface rent • Security deposit • Dead rent • Royalty • Mine Closure Charges • Stamp duty (or transaction fee) 7

  8. Forest (Conservation) Act 1980 and/or Indian Forest Act A) Forest product tax and forest passes / taxes B) Compensatory taxes/levies : • Transit fees • Clearing of jungle • Land development work • No. of plants to be planted • Fire protective works • Other miscellaneous charges • Security guard charges • Net Present Value (NPV) 8

  9. Environment (Protection) Act, 1986 The Water (Prevention and Control of Pollution) Act, 1974 The Air (Prevention and Control of Pollution) Act, 1981 State Water/Air Pollution Consent Fee Labour Welfare Fund Act/Labour Welfare Cess Act : 9

  10. Income Tax Act 1961 Direct Taxes • Corporate tax : • Withholding tax • Taxes on Capital Gains • Minimum Alternate Tax (MAT) • Service tax 10

  11. Indirect Taxes • Customs duty • Excise duty • Sales Tax • Export Tariff 11

  12. Other Taxes/Charges • Municipal/octroi/Toll tax/Entry tax • Real Estate Tax • Road tax • Village Panchayat Levies • Taxes on change in land use • Water rent • Corporate Social Responsibility charges 12

  13. MINERAL EXPLORATION: A HIGH RISK VENTURE • The results of exploration provide the information required to evaluate the potential profitability of developing or expanding mineral operation at a particular site or area. However as only a small proportion of investment in mineral exploration leads to the discovery of mineral deposits that can be economically developed, exploration is a risk activity. 13

  14. REVIEW OF INVESTMENT IN MINING AND EXPLORATION • The world non-ferrous exploration budget was estimated at $12.1 billion in 2010. Against this the exploration budget of India was negligible. • During 2011, the exploration budget of top ten countries accounted for 69 of total of total world exploration. The share of these countries was as follows. • Canada 19% • Australia 12% • United States 8% • Mexico 6% • Peru 5% • Chile 5% • Russia 4% • China 4% • Brazil 3% • Argentina 3% • Other 113 countries 31% 14

  15. TAX INCENTIVES OFFERED BY CANADA FOR MINING SECTOR • For taxation purposes, mining activities are divided into two distinct stages: • Extraction and processing • Semi-fabrication and fabrication. 15

  16. The extraction and processing stages Include concentrating, smelting and refining are given special treatment under the corporate income tax regime of both the Federal and Provincial Territories 16

  17. At the Federal level, this special treatment includes the following tax provisions • Deductions of provincial/ territorial mining taxes and royalties. • Canadian Exploration Expenses. • Investment Tax Credit for Pre-production Expenditure. • Flow-Through Share (FTS) and the Mineral Exploration Tax Credit (METC). • Foreign Resource Expenses (FRE) and Foreign Exploration and Development Expenses (FEDE). • Canadian Development Expenses (CDE) and Canadian Oil and Gas Prospecting Expenses (COGPE). • Special class of Capital Cost Allowance. • Accelerated Capital Cost Allowance (ACCA). • Investment Tax Credit for qualified property acquired for use in the Atlanta and Gaspe Peninsula. • Treatment of foreign ores • Deduction for mine reclamation trust fund contribution 17

  18. INCENTIVES AVAILABLE FOR MINING INDUSTRY IN INDIA • Availability of tax holiday • Depreciation allowances • Withholding tax rates • Deduction in r/o of export turnover • Expenditure of prospecting, extraction and production of minerals 18

  19. STRUCTURAL CHANGES NEEDED IN INDIAN MINERAL SECTOR • Ownership of mineral resources • Granting of licences to explore and mine • Financial arrangements for companies • Environmental requirements for projects • Other legislation affecting the mineral sector • Availability of useful and relevant geological information • Governance and perceived political risk • Transparency of arrangements • Ability of companies to access capital • Tax incentives available. 19

  20. ACCESS TO CAPITAL FLOW THROUGH SHARES • A Flow Through Shares (FTS) is a mechanism that allows business Corporation to obtain financing for expenditures on mineral exploration and development in Canada. By issuing flow- through shares, a company can renounce, or flow through, certain expenses to the purchaser of the share. • These expenses are deemed to be incurred by the investor and not the corporation. • Reduce income subject to tax in the hands of investor. • Two fold advantages. • Receive 100% deduction for the amount of money invested in the shares. • Value of investment appreciate in the event of success for exploration. • Long standing and unique feature of Canadian regime. • FTS have financed a significant amount in exploration activity in 20 Canada.

  21. Institutional Finance New African Mining Fund (NAMF) is a specialist equity fund created by African Development Bank and is based on Johannesburg and Mauritius which invests in early to later stage junior, exploration, mining and beneficiation activities. 21

  22. RECOMMENDATIONS • All expenditure incurred prior to commercial production should be eligible for amortization over the minimum mining lease period of 20 years or a lesser period at the option of the lessee. • For reclamation of mined out area, the mining companies may be allowed to earmark a percentage of book profits each year to meet rehabilitation cost. • To increase the exploration activity SEBI and Stock Exchanges need to come out with a policy framework. For this a concept of Competent Person to certify the mineral resources as per UNFC system may be introduced. . 22

  23. RECOMMENDATIONS • “ Flow-through–shares” mechanism may be introduced in Indian mineral sector so that public money can flow in exploration activities. • Institutional finance as offered by African Development Bank may need serious consideration. • Creation of exploration bonds on the lines of Infrastructure Bonds. 23

  24. INFRASTRUCTURE DEVELOPMENT 24

  25. TERMS OF REFERENCE To review the status of infrastructure such as roads, ports and railways both physical and financial for the mining sector and assess the requirement during the XIIth Plan period and in the perceptive of 10 to 15 years thereafter; to relate infrastructure creation and revenue generation, particularly for development of PPP models and to suggest measures to fill up the existing gaps and building up of additional infrastructure; to define the roles of the Central Government, the State Government and the private sector in creating such infrastructure; and develop policies for best utilization of revenues from mineral wealth to be used for the long term development of the sector and the affected population. 25

  26. IMPORTANCE OF INFRASTRUCTURE IN MINING • The importance of infrastructure for sustained economic development is well recognized. High transactions costs arising from inadequate and inefficient infrastructure can prevent the economy from realizing its full growth potential regardless of the progress on other fronts. • The development and growth of the mineral sector is dependent on availability of adequate infrastructure viz. roads, railway lines, railway wagons, port facilities, power, water and communication facilities. • Mineral deposits generally occur in remote and backward areas with poor infrastructural facilities which often inhibit their optimum development. A major thrust needs to be given to development of infrastructural facilities in mineral bearing areas with special emphasis on linking infrastructure 26

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