Naveen Patnaik seeks 50% mineral resource rent tax on iron ore

Reiterating his earlier demand for a level playing field to the mineral bearing state, Orissa chief minister Naveen Patnaik has sought imposition of Mineral Resource Rent Tax on iron ore at 50% of the surplus rent and accrue it to the mineral-bearing states. At present, the states get only 10%per cent royalty on iron ore.

In a letter to the Prime Minister Manmohan Singh, Mr Patnaik has pointed out that the mining companies are generating ‘supernormal rents’ from iron ore mining due to growing demands for the resource. “The insatiabe demand for iron ore in the export market has resulted in iron ore becoming a highly profitable commodity with returns from mining being far in excess of economically acceptable rates. In less than a decade iron ore prices have increased more than tenfold,” the letter said.

Mr Patnaik also claimed that the huge profit was evident from the audited operational profits of 80% of sales revenue from iron ore mining, ‘which is unheard of in any other industry’. “This has led to a situation where, in spite of the state being the owner of these resources, mine owners are benefitting beyond any measure of reasonable returns,” the chief minister said arguing for a tax on the lines of Australia’s Mineral Resource Rent Tax of 30%.

The chief minister said the state is the owner of the resource which is non-renewable, and it is important that windfall gains from natural resources do not fall on few hands but a fair return be given to the community.
Demanding that these surplus rents should accrue to the state for improving social and physical infrastructure, strengthening welfare measures besides improving livelihoods of the people, the letter said, “The government also has a responsibility towards future generations to charge appropriately for extraction of minerals,” he said.

The letter further argued, “By reducing the incentive for excess production in violation of statutes, it will ensure conservation of finite resources. It will ensure that profits from the state resources are used for the well-being of the community and supernormal profits are not made by a few individuals or companies, which are engaged in merchant mining”.