ICRA Highlights Potential Profit Decline for Steel Sector For New Mining Cess.
The Indian steel industry is likely to face tougher times due to a new mining tax being considered by some states, following a recent Supreme Court decision. This tax is expected to reduce profits for steel producers. Impact on Steel Producers. According to ICRA projections, primary steel companies’ profits could drop by 0.6% to 1.8% as a result of the new levy. Secondary steel producers, who already have thinner profit margins, could see their profits drop by 0.8% to 2.5%, depending on how high the tax rate goes (between 5% and 15%).
Girish Kumar Kadam from ICRA noted that while exact tax rates are still unknown, any significant increase could hurt secondary steel producers the most, as they will bear the brunt of higher costs from suppliers. Odisha’s Key Role Odisha, The Orissa Rural Infrastructure and Socio-Economic Development Act, 2004 (ORISED Act) was introduced by Odisha and allows a fifteen percent cess on coal and iron ore. A major maker of minerals, is considering a charge of up to 15% on iron metal and coal. If fully implemented, this could raise the cost of iron ore by about 11%, making it more expensive for steel makers.
Jharkhand has already increased its tax by Rs 100 per tonne on iron ore and coal. This will only slightly impact profits, reducing them by about 0.3% to 0.4%. Other states might follow, but the overall effect may be small. Retrospective Tax and Broader Effects If states decide to apply the new tax retroactively, steel companies could face additional financial pressure from past taxes. However, the Supreme Court has allowed companies to pay these taxes over 12 years without extra charges, offering some relief. The tax could also affect other industries.
The power sector might see a cost increase of 0.6% to 1.5%, potentially raising electricity prices. Aluminium producers, who use a lot of power, might see their costs go up by about Rs 1,200 to Rs 1,300 per tonne, which is about 0.6% of current aluminium prices. Summary The impact of the new mining tax will depend on how different states implement it. Steel and other industries need to watch these developments closely and plan how to manage the financial challenges ahead.
Here are some potential opinions on the impact of the new mining cess: Positive for Government Revenue: The new mining cess could boost state revenues, helping fund local infrastructure and development projects. This is particularly relevant for states rich in minerals, which could see significant financial benefits.
Challenges for Steel Industry: The steel industry, especially secondary producers with already tight margins, might struggle with increased costs. This could lead to higher steel prices or reduced competitiveness, affecting the broader economy.
Uncertainty for Businesses: The possibility of retrospective taxation adds uncertainty, which could impact business planning and financial stability. Businesses may have unforeseen expenses and administrative workloads.
Potential for Broader Impact: Beyond steel, other sectors like power and aluminium could also face higher costs. This could translate into higher consumer prices, affecting households and potentially slowing economic growth. Need for Balanced Implementation: While the tax aims to generate revenue, its design and implementation will be crucial. States need to strike a balance to avoid stifling key industries while still achieving fiscal goals.
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