India's Assocham Calls for 40% Super-Profits Tax to Reduce Iron Ore Exports

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Researched by Industrial Info Resources (Sugar Land, Texas)-The Associated Chambers of Commerce and Industry of India (Assocham) (New Delhi) has called on the Indian government to impose a 40% super-profits tax on mining activities in an attempt to reduce exports of iron ore. The call is similar to a proposal made by the Ministry of Mines to the Finance Ministry for a windfall profits tax on Indian mining companies.

According to Assocham, the present export duty of 15% on iron ore lumps and 5% on iron ore fines has failed to curtail the level of iron ore exports from India, even though export duty on iron ore lumps rose from 10% to 15% in April this year.

Assocham is concerned about the level of iron ore exports from the country, citing China's continuous increase in export duties on commodities such as coal, coke and steel products, designed to conserve the raw materials used in steel production.

India's Ministry of Steel has also called for a complete ban on iron ore exports and Assocham has come out in support of the ministry. A spokesman for Assocham stated, "Assocham has sought a complete ban on exports of iron ore having more than 60% iron content in it. If such a ban cannot be considered, then a 40% resource tax uniformity should be imposed across the mining sector to check the windfall profits made by iron ore miners."

Although Indian miners have suggested that the domestic steel industry does not have the capacity to manufacture steel from iron ore fines, Assocham refutes this, stating "most of the integrated steel plants using sinter and pellets use iron ore fines extensively, which results in increased efficiency in the iron-making process."

Earlier this year the then-Australian Prime Minister Kevin Rudd proposed the 40% Resource Super Profits Tax for Australia, although the aim of the Australian tax was not designed to restrict exports. Rather, the Australian plan was described as a "sharing of the profits" by Prime Minister Rudd.

Commenting on the Australian proposal, Assocham observed "windfall profits that are being reaped by a handful of private miners would have far-reaching consequences that may go beyond mere profits. Such abnormally high profits not only impact the development of any particular industry, but has its fallout in the political stability of some of the states."

Australian miners such as the giant BHP Billiton Limited (NYSE:BHP) (Melbourne, Australia) protested vociferously against the proposed tax, and the resulting political debate in Australia eventually led to the replacement of Kevin Rudd by Julia Gillard. The new prime minister then struck a deal with BHP and the two other leading mining companies operating in Australia, Xstrata plc (LSE:XTA) (Zug, Switzerland) and Rio Tinto plc (NYSE:RTP) (London, England).

The revised Australian tax, now renamed as the Mineral Resources Rent Tax, has a proposed levy of 22.5% and is scheduled to be introduced in 2012. However, small to medium sized mining companies in Australia feel that they were bypassed in the agreement and are now threatening to restart the advertising campaign against the proposed tax.

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