The Supreme Court’s verdict in July allowing states to tax mineral rights and mineral-bearing land has brought in a sense of euphoria among the mineral-rich regions of India. The ruling is momentous given the financial empowerment it provides to the states by fulfilling this long-pending demand.
The top court, which clearly defined the line between mineral royalty and tax, made the significant observation that the states’ right to impose taxes with their legislative domain must be secured from “unconstitutional interference by parliament” to maintain fiscal federalism.
It made a clear case for states such as Jharkhand, Chhattisgarh and Odisha that suffer from what it called the ‘resource curse’, as they remain backward despite having natural riches. “Taxation is among the important sources of revenue for these states, impacting their ability to deliver welfare schemes and services to the people,” the court observed.
Soon after the judgement, Jharkhand Chief Minister Hemant Soren described the ruling as historic, and said his state’s persistent demand had finally been met as it stood to gain over Rs 1.36 lakh crore.
Odisha too anticipates a windfall. While there is no clear number in sight, the state might mop up over Rs 1 lakh crore in arrears from public sector and private mining companies as dues accruing since 2005. The eastern state had enacted the Orissa Rural Infrastructure and Socio-Economic Development (ORISED) Act, 2004 to levy tax on the annual value of all mineral-bearing land at a rate not exceeding 20 per cent. However, the legislation was struck down by the Orissa High Court in 2005.
With the Supreme Court ruling, the state government will now have to compute the claims, which promises to be a complex job given the 20-year retrospective dues in the backdrop of different mining auction regimes. The state will have to factor in the uneven playing field, as some neighbouring states will likely charge differently from the ad valorem tax system Odisha is expected to deploy under ORISED.
The state pins its hope for industrialisation on metal-linked businesses and many of its projects have mining linkages. Apprehensions over the mood of investors in the mining industries over the hefty arrears demanded by the state cannot be wished away. While the revenue from the mineral tax will surely help with development projects, the state will have to be careful in how it plays its cards.