Iron ore export duty rejigged to plug tax hole.

A recent circular from the Central Board of Excise & Customs (CBEC) states that for the purpose of calculating export duty, the transaction value— the price actually paid or payable for goods for delivery at the time and place of export—would henceforth be the free on board (FoB) price of such goods.

The finance ministry says this move is expected to plug a loophole in the earlier methodology that allowed exporters to pay lower tax by inflating the chartering & freight (CFR) cost, which was bundled with the FoB price when calculating the export duty.

However, since freight rates have recently fallen by as much as 70-80%, the inflated figures caught the attention of the authorities. Therefore, it has been decided that exporters would have to provide a precise break-up of FoB and CFR price.

The development comes at a time when iron ore prices have already crashed in China, which accounts for a bulk of Indian iron ore exports. The current FoB price in China is around $55-56 per dry metric tonne (or, dmt, the weight of iron ore with 7% moisture content), down from a high of $147 a dmt in July. Last fiscal, the country exported 100 million tonne (mt) of iron ore, of which around 88 mt went to China.

The finance ministry’s decision has been criticised by the Federation of Indian Mineral Industries (Fimi), the apex association of mineral producers. According to the industry, not only would the new methodology result in an additional tax burden of at least Rs 180 crore on already beleaguered iron exporters, but it would also force them to revisit their existing contracts.

Fimi has written to the ministry to amend the circular so that the dmt quantity is taken into account while calculating export duty. Without this provision in place, “It would be unrealistic to pay the export duty over and above the export FoB price realisation,” Fimi said.