Karnataka’s new mineral tax, aiming to generate ₹4,200 crore, could significantly impact the steel and mining sectors. Steelmakers may face shrinking margins and heightened competition from cheaper imports, threatening profitability.
Major miners like NMDC, Vedanta, and Sandur could be compelled to cut production due to increased taxes, causing potential disruptions in Karnataka’s mining landscape and prompting a shift in operations to other states.
The tax narrows the cost disparity between auctioned and pre-auction iron ore mines. While JSW Steel pays just ₹1 per tonne, Vedanta faces a steep 45% rise in taxes, squeezing its profit margins.
The Karnataka (Mineral Rights and Mineral Bearing Land) Tax Bill, 2024, proposes levies that could raise production costs for miners like Vedanta and Sandur by 45%, impacting steel prices and exacerbating challenges from cheaper imports.
Pre-auction miners like #NMDC, #Vedanta, and #Sandur face a tripling of tax burdens, intensifying pressure on margins. Steelmakers may struggle to transfer these costs to consumers, further straining the industry.
Impact on Pre-Auction Mines
Key operators such as NMDC Ltd, Vedanta Ltd, and Sandur Manganese and Iron Ores Ltd are set to bear the brunt of the proposed taxes. Together, these companies produce a significant portion of Karnataka’s iron ore, which constitutes 15% of India’s annual 280-million-tonne output, as per BigMint.
Vedanta and Sandur, producing 5.6 million and 3.8 million tonnes of iron ore annually, face steep cost pressures. Smaller pre-auction operators will also feel the impact, raising concerns across the sector.
Public sector NMDC faces a cost hike of 22.5%, compared to private miners like Vedanta and Sandur, who will see a 45% increase due to the mineral rights tax, equivalent to three times the current royalty rate.
Auctioned vs. Non-Auctioned Mines
The tax seeks to reduce the cost gap between auctioned and non-auctioned mines, addressing disparities stemming from the MMDR Act, 2015, which introduced auction-based mining rights.
JSW Steel, Karnataka’s largest auctioned mine operator, pays minimal additional taxes but incurs a hefty premium exceeding 100% of IBM’s monthly sales price. This reform could equalize cost structures to some extent.
Ripple Effects on Steel Prices
The tax could escalate iron ore costs, pressuring steelmakers like JSW Steel and potentially raising steel prices. This might reduce the competitiveness of domestic steel against cheaper imports, compounding challenges for Indian manufacturers.
Industry observers warn of disruptions for miners, with some potentially cutting production or shifting operations to lower-tax states, altering India’s mining dynamics.
Karnataka expects to generate ₹4,207.95 crore in mineral rights tax revenue and an additional ₹506 crore from mineral-bearing land taxes, further reshaping the industry landscape.