Fitch Ratings has said that operating costs of Indian mining companies are likely to rise significantly if states impose additional mining taxes, as allowed by the Supreme Court in a recent judgment. On August 14, the Supreme Court ruled that mineral-rich states can collect past dues on royalty and taxes on mines and mineral-bearing land from April 1, 2005, from both the Centre and mining lease holders. A nine-judge Constitution bench directed that the past dues be paid in a staggered manner over the next 12 years, starting from April 1, 2026.
The rating agency said ‘We see increased risks from a sustained weakening of the companies’ EBITDA margins due to the prospective levies.’ At the same time, Fitch expects limited financial impact from the payment of past dues, as the court has provided a long timeframe of 12 years for the payment of such dues, starting from the financial year 2026-27.
It said ‘We believe the steel and mining sector companies are more at risk from state-imposed taxes than sectors such as power and cement.’ Metal and mining companies have limited ability to pass on the potential increase in operating costs, as their products track global prices. It argued ‘We believe additional state taxes on coal will lead to an increase in electricity prices, as fuel cost changes are passed through to consumers under the power purchase agreements of most of the domestic coal-based power plants, and more than two-thirds of India’s power generation remains coal-based. The higher prices should quicken the pace of investments and growth in renewable power generation.’ It stated ‘We think that the impact of the court ruling will become gradually clearer in the next few quarters. A key unknown is whether individual states will raise demands for past dues or impose additional taxes’.
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