DGM proposes to significantly increase mining royalty rates for all minerals

In most cases the royalty rates are being doubled

 

The Department of Geology and Mines (DGM) under the Ministry of Economic Affairs (MoEA) has proposed a significant increase in the mining royalty and mineral rent saying that a revision is long overdue and would have a good impact on the nation’s finances.

The proposal is recommended for approval for the upcoming Parliament budget session. If approved the government stands to gain an additional Nu 177 mn every year, over and above the current annual mining revenue which was Nu 230.92 mn in 2013. This would mean a total of more than Nu 408 mn a year in total mining revenue. (See mineral wise royalty and mineral rent revision chart on page 10)

The report says that the current mining levies are less and do not reflect the actual value of the minerals. The minerals that are in commercial operation in Bhutan are Dolomite, Limestone, Marble, Iron Ore, Quartz, Talc, Granite, Shale, Clay, Gypsum, Coal and Slate and construction materials like stone quarries.

Thought the practice of levying charges on minerals in some form or the other was prevalent in Bhutan from the 1970’s it was first standardized under the 2002 Mines and Minerals Management Regulations 2002.

The last known increase in royalties and mineral rent was in 2006 and at the time it did not cover minerals like marble slabs and tiles, coal, domestic talc, domestic granite blocks and boulders, construction materials, clay, slate and shale.

According to mining officials the increase in 2006 for the other minerals was not very significant and so it was expected that another increase would happen a few years later.

The report reveals that in 2010, an initiative to revise the rates were taken by the Department of Revenue and Customs in consultation with the Department of Industry and the DGM. They proposed a percentage increase to the existing rates to the then government.

However, the report says that the proposal did not materialize due to unknown reasons.

It point out that over the long run a comprehensive review of the mineral fiscal regime must be done but for now the updating of royalty rates is very necessary.

The DGM says that advice from the World Bank the royalty and mineral rent can be increased based on three factors which are inflation rate, potentiality for value addition and current sales value. These three factors would be added up to give the total percentage increase in the royalty and mineral rent.

In terms of inflation all minerals whose rates have not been increased since 2002 will see a 63 percent increase in royalty rates due to inflation while those that have been increased in 2006 will see a lower 44 percent increase.

In addition to the above there will also be increases in terms of value addition. This means that those who want to export minerals in raw form without value addition will have to pay higher royalty rates which range from 40 percent to 10 percent. So minerals with high potential of value addition being exported will attract an additional 40 percent royalty, those with medium value addition potential will attract 30 percent royalty, minerals with low value addition potential will attract 20 percent royalty and finally those with low value addition potential will have to pay around 10 percent royalty. Conversely minerals being used for value addition inside Bhutan will generally get a 10 percent discount on royalty.

Apart from increasing revenue the main aim of this particular factor is to encourage value addition of minerals and at the same time also not completely stop raw export of minerals.

The third factor in deciding the royalty rates is in the per metric tonne (MT) sales value of the minerals. The royalty here will be higher for those being exported and lower for those being used domestically.

So minerals selling above Nu 3000 per MT will attract 40 percent royalty for export and 20 percent for domestic use. Those selling between Nu 2000 to Nu 3000 per MT will have 30 percent royalty for export and 15 percent for domestic use. Minerals in the Nu 1000 to Nu 2000 per MT category will have to pay 20 percent royalty for export and 10 percent for domestic use. Finally those with sale value of less than Nu 1000 per MT will have to pay 10 percent for export and five percent for domestic purposes.

Therefore, the end result of the increase of royalty in the above three categories like inflation, potentiality of value addition and current sales value is that the royalty rates have at least doubled in all categories of minerals with some being even higher.

In the case of dolomite from the current Nu 40 per MT royalty and Nu 10 per MT mineral rent it has increased to Nu 78 royalty per MT and Nu 16 mineral rent for export.

For gypsum the royalty has increased from Nu 100 to Nu 204 per MT while mineral rent has shot up from Nu 10 to Nu 41 per MT for export.

In case of marble blocks the royalty increase is from Nu 160 to Nu 342 per MT while mineral rent has gone up from Nu 40 to Nu 68 per MT.

In coal the royalty has been hiked from Nu 100 to Nu 213 per MT and mineral rent from Nu 10 to Nu 43 per MT for export. For domestic use royalty has been hiked from Nu 50 to Nu 87 per MT while mineral rent has been increased from Nu 5 to Nu 17 per MT.

There are such increases in all the remaining mineral sectors too.

The report also recommends a significant increase in royalty and mineral rent for construction materials which come from stone quarries. The report says that the mineral levy for construction materials was kept the same since 1993 to keep construction costs low.

The report claims that the incentivized rates for construction materials has not served the purpose of keeping construction costs low but has instead decreased revenue generation from the mining sector.  This has lead to a stronger perception of the problems of mining sector outweighing its revenue according to the report. It also says that such low revenues also hindered the DGM in getting appropriate support and indirectly contributing to the many mining related issues.

It recommends that the royalty rate for quarries be increased from Nu 4 to Nu 25 per MT and mineral rent from Nu 1 to Nu 5 per MT for export. For domestic use the report recommends increasing the royalty from Nu 2.2 to Nu 15 per MT and the mineral rent from Nu 0.55 to Nu 3 per MT.

The DGM report has been presented to its parent Ministry of MoEA where it will undergo further deliberations before being finally presented to the cabinet for approval.

Check Also

The story of Khandu Wangmo’s victims in the sedition case

While the Thimphu District Court has convicted Khandu Wangmo for sedition, for planting seditious documents …

Leave a Reply

Your email address will not be published. Required fields are marked *