Centre proposes to curb powers of states to tax minerals

Synopsis

The central government is poised to restrict state authority concerning taxation on mining activities. This initiative aims to enhance the national viability of mining operations, as previous overly burdensome taxes deterred mineral extraction. Following a 2024 Supreme Court ruling that permitted states to add taxes, the proposed legislation aspires to introduce a standardized and fair financial framework for the mining industry.

The central government plans to limit state powers over mining taxes

The centre has proposed curbs on State Governments powers to impose tax, cess or such other levy on mineral rights or on mineral bearing lands. Proposing amendments to the mines and minerals (development and regulation) act, Mines Minister G Kishan Reddy said excessive fiscal burden makes mining operations commercially unviable, discourages mineral extraction, adversely affects mineral production and in some cases, leads to closure of mines.

ET reported on January 1, 2025, that the centre was planning to stop excessive mining taxes by states.

“This was a much needed step which will give a required push to the domestic mining sector, bringing parity in mining taxes , cess and levies across states," mining policy expert and former director general of Federation of Indian Mineral Industries (FIMI), B K Bhatia told ET. He also mentioned that the absence of this legislation had exposed the country's mining sector including PSUs to over Rs 1.5 lakh crore additional burden by state governments.

The move to put these restrictions follow a 2024 Supreme Court verdict, allowing states to levy additional taxes on mining operations in their territory. The apex court verdict was followed by fresh mining taxes by Karnataka, Jharkhand, and Tamil Nadu.

According to Reddy, any fiscal burden imposed on mineral extraction should be guided by a uniform and balanced fiscal framework across the country. “The cumulative incidence of different levies should not become disproportionate to the economic value and profitability of the mining operations,” he said while introducing the bill in the lower house.

There is also a need to ensure certainty, stability and predictability of the fiscal regime applicable to mining.

“The State has the power, coupled with the duty as a trustee of natural resources of the nation, to advance the national interest,” the minister said, adding this means ensuring harmonised mineral development (and consequent economic development) across the nation, rather than creating localised pockets of mineral resource driven growth.