Passing Of Karnataka Minerals Tax Bill To Hurt Majorly Three Metal Companies
The potential passing of the Karnataka government mineral taxes bill would impact Vedanta, NMDC and JSW Steel.
The Karnataka government has proposed a bill to levy tax on various minerals including iron ore. This comes after the Supreme Court's August order that allowed states to collect mineral taxes on mineral bearing land and mineral rights from April 2005.
If this bill is passed it would hurt both miners and consumers. As per Nuvama Research, the potential passing of the bill mainly impacts Vedanta, NMDC and JSW Steel.
What Has The Karnataka Government Proposed?
The Karnataka government has proposed to impose tax on minerals in two ways. The first method proposes a tax of Rs 100 per tonne on iron ore. This will be effective from 1st April, 2005, and would be applicable to all miners.
The second proposed method imposes different tax rates for different category of miners, effective from 12th Jan, 2015. For auctioned mines like that of JSW Steel, only a Re 1 per tonne tax on iron ore will be levied.
For non-auctioned mines like that of Vedanta's, the bill proposes to impose a tax that is three times the royalty rate. For NMDC, the company will be levied a tax rate at 1.5 times the royalty rate. It is to be noted that the royalty rate stands at 15%.
Stock Specific Impact
As per Nuvama Research, with regards to future volumes from Karnataka mines, Vedanta will be severely affected. The company will have to pay 3x the royalty rate of 15% as well as a Rs 100 per tonne tax on iron ore.
NMDC will be liable to pay a Rs 100 per tonne tax on iron ore as well an additional tax that will be 22.5% of the IBM price of iron ore. As per Nuvama, the company could have a tough time passing on the entire increase.
JSW Steel will attract a low Rs 100 per tonne tax on its captive mines. However, the company could also be indirectly affected via higher prices from NMDC and other miners.
