The finance ministry has largely agreed to the steel ministry’s proposal for taking measures to bring down rising steel prices on the condition that it remains revenue neutral for it.
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Meaning, any reduction in excise duty from the current 14% to the proposed 8% should be made up by an equivalent ad valorem rate on iron ore exports.
But the spoke in the wheel might be the commerce ministry, which does not want a tax on iron ore exports because it will hugely impact its goal of 29% growth in India’s total exports to $200 billion this year. Currently iron ore exports are taxed at a slab rate, and not ad valorem.
For low quality ore with less than 62% 'Fe’, or iron, content, the tax is Rs 50 per tonne, and for above 62%, it is Rs 300 per tonne.
The revenue loss stemming from lower excise will have to be compensated through a ad valorem rate proposed between 15% to 20%.
Interestingly, out of India’s entire iron ore production, only about 50% is consumed locally. So miners have no option but to export it.
The Cabinet Committee on Prices will take up the discussion further since there was no consensus on the issue.
The matter was discussed by a Group of Ministers comprising representatives of the finance ministry, commerce ministry, steel ministry and the mines ministry late on Wednesday.
The proposals mooted by various ministries on Wednesday included bringing down the countervailing duty of steel imports to zero per cent as a special case, imposing an export duty on iron ore, suspension of futures trading in steel, revising of railway freight imposed on steel to the rates prevailing in April 2007, and, as a last resort, appointing a regulator to monitor pricing of essential commodities if the above proposals fail.
A report of this meeting will be presented to the Prime Minister Manmohan Singh on Thursday.
Union minister of steel, Ramvilas Paswan said there is a revenue implication of Rs 5,000 crore by imposing all the measures we have suggested.
“The finance ministry, by and large, does not have any objections to our proposals, but they say the revenue deficit must be compensated from somewhere,” he said. Paswan said the measures will become revenue-neutral if an export duty of 15% is imposed on iron ore.
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