Karnataka’s New Mineral Tax to Impact Steel Industry Margins

Samrita JosephDecember 20, 20241 Mins read71 Views

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The Karnataka government has introduced a two-part mineral-bearing tax that is expected to pressure the profitability of steel companies. The levy, which applies retrospectively from April 1, 2005, is set at ₹100 per tonne for all miners. Additionally, a variable tax will be imposed based on the miner category, effective January 2015.

Tax Details by Category

1. Auctioned Mines: A minimal levy of ₹1 per tonne of iron ore mined (affecting JSW Steel).

2. Non-Auctioned Mines: A tax at three times the royalty rate, equivalent to 45% of the price set by the Indian Bureau of Mines (impacting Vedanta and private miners).

3. Public Sector Units (PSUs):

For leases renewed before and after January 12, 2015, and completing 50 years, a tax of 22.5% applies.

For leases renewed before January 12, 2015, for 50 years, the tax rises to 45%.

Revenue Goals and Implications

The government aims to generate an additional ₹4,200 crore annually, alongside ₹506 crore from mineral-bearing land taxes. This follows a Supreme Court ruling in July, empowering states to impose taxes on minerals and recover dues from April 2005 over 12 years.

Steel manufacturers are likely to struggle with these levies, as the industry already faces challenges from cheap imports. Companies like Vedanta and NMDC are expected to feel the brunt of the new tax regime, while JSW Steel will face higher input costs due to the levy on captive mines.

According to Ashish Kejriwal, Director of Research at Nuvama Institutional Equities, Vedanta’s significant tax burden of 45% and ₹100 per tonne will severely impact its operations. NMDC will also find it challenging to absorb the costs, while JSW Steel may experience indirect effects from increased prices.

Industry Outlook

Amid mounting production costs and narrowing margins, some private miners may consider ceasing operations in Karnataka. The additional financial burden could lead to higher steel prices, affecting end consumers and the industry’s competitiveness.