The impact of the court ruling will become increasingly evident in the coming quarters.
Operating costs for Indian mining and metals companies are likely to rise significantly if state governments impose additional mining taxes in the wake of a Supreme Court ruling, Fitch Ratings said in a note on Monday.
India’s top court last month upheld the right of state governments to levy taxes on mineral extraction and last week allowed them to do so retrospectively, from April 1, 2005. The taxes would be paid over a 12-year period in installments beginning April 1, 2026, the court ruled.
The case followed a long-running dispute between Indian states and the federal government over the states’ right to impose taxes on minerals.
“We see increased risks from a sustained weakening of companies’ EBITDA (earnings before interest, taxes, depreciation and amortization) margins due to potential levies,” Fitch Ratings said.
The rating agency said the credit risk of potential liens would be higher for Tata Steel than for JSW Steel.
“We believe Tata Steel Limited’s (TSL, BBB-/Negative) lower rating margin exposes it to higher credit risks from the impact of future taxes compared to JSW Steel Limited,” Fitch said.
The rating agency said steel and mining companies were more at risk from state-imposed taxes than other sectors such as power and cement companies operating in the mining industry.
“Metals and mining companies have limited ability to pass on potential increases in operating costs as their products follow global prices,” Fitch said.
The impact of the court ruling will gradually become clearer in the coming quarters, Fitch said, adding that it is not yet known whether individual states will step up requests for late payments or impose additional taxes.
Last week, brokerage Macquarie said the retroactive tax would hit state-owned Coal India and Tata Steel the hardest among metals and mining companies.
(Only the headline and image of this report may have been reworked by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
First published: August 19, 2024 | 19:28 IS
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