The Finance Ministry has raised several questions on the mines ministrys proposal on attracting investors to the countrys investment-starved mining sector. It has,in a recent note to the inter-ministerial committee for development of models of venture capital for mineral exploration,said that the proposal needed to be deliberated extensively with all concerned stakeholders before the ministry firms up its views.
The ministry has shot down the proposal to provide tax exemption for mining and exploration bonds on the lines of infrastructure bonds. Tax incentives and holidays are being discontinued and have been given a sunset clause under the Income Tax Act. In the Direct Taxes Code,only investment-linked incentives are proposed to be provided, the ministry said.
It has also questioned the proposal to introduce the flow-through shares model to lure foreign multi-national giants to the mining sector. It argues that the concept needs a detailed scrutiny.
The introduction of flow-though shares concept in India requires detailed study as regards the impact it will have on revenue foregone for the government,and also the type of reporting and monitoring mechanism, the finance ministry said in its note.
The ministry cited that the concept of these shares was first introduced by the Canada in 2000 to provide incentives for investment in exploration firms.
Such firms,particularly the smaller ones,undertake capital-intensive exploration and they usually do not have sufficient revenue stream to set off the tax deductible expenses available to them. So,in order to improve their fund flows and incentivise investments,the concept of flow-through shares were introduced. This helped exploration companies pass on the un-utilisable tax deduction to potential investors.
It also ruled out the suggestion that payment for exploration should be made eligible as tax exemption. Deduction for payments to scientific research associations are being given to promote core R&D and mining activity does not stand on the same footing, it said.