In September 1974, at the Two Continents restaurant in Washington, economist Arthur Laffer drew a hump-shaped graph on a napkin to argue that tax rates and government revenue have an inverted-U relationship. His argument was simple: When governments cut high tax rates they have the potential to increase total revenue, while an increase of tax rates beyond a particular level would inversely reduce collections. Since then, the world has seen the Laffer Curve play out on multiple occasions.
In India, the most recent example of this was in the case of GST 2.0 where the rationalisation in tax rates further boosted demand, thereby increasing revenue collections. The recent passage of the Mines and Minerals (Development and Regulation) Amendment Act, 2026, in Parliament is another attempt at focusing on maximising revenue to states rather than increasing taxes, and adds to the mining reform journey that began 12 years ago.
India had the talent, enterprise and mineral wealth to grow. A missing element was a system that could unlock value. Before 2014, mineral blocks were allotted at discretion, approvals took years, and investors stayed away. India’s mining sector was a closed system, marked by opacity, inefficiency and corruption, with the burden ultimately falling on state finances. Today, every block is allocated through transparent, competitive e-auctions. Once allocated, progress is monitored end-to-end. There is a plan for the welfare of mining communities, for scientific closure of mines and a vision for sustainability. This shift from discretion to certainty is the same principle this Act now extends to taxation.
At the heart of this amendment is an effort for the establishment of a simple uniform and predictable tax system so that misaligned fiscal choices do not fracture the national market for minerals. Mining is a long-term, capital-intensive, and labour-intensive activity. For such an industry, certainty in the fiscal environment is a vital prerequisite.
Minerals are the building blocks of the wider economy. Critical minerals will increasingly determine our technological, energy and strategic capabilities. The Act enables the creation of an integrated national market for minerals. A strong cooperative federalism framework enables states to grow stronger as part of one national economy. A predictable fiscal framework will allow mineral-producing states to attract investment, expand production, and develop downstream industries, while giving businesses across the country greater certainty and competitiveness. Greater investment means more exploration, increased production, and expanded downstream industrial capacity.
Today, however, mineral producers face a complex fiscal landscape, with up to 14 types of taxes, charges, fees, and levies across different states. The recent legislation addresses this fragmentation. It will keep India’s mineral market integrated, protect essential sectors from uncompetitive taxation, and help mineral-rich states realise the full value of their resources. All this is being done by retaining the state’s own revenue pool from mineral production.
Mining reforms over the past 12 years have boosted the state’s mineral revenues. Since the auction regime began in 2015, states have received more than Rs 7 lakh crore, which is almost 90 per cent of total revenue, from both coal and non-coal sector, through royalty, auction premium, DMF and GST. The recent amendments retain this revenue-sharing formula with 90 paise of every rupee earned from mineral production continuing to be retained by states.
Even with rich domestic resources, an uncompetitive mineral market can make India import-dependent. Therefore, rational taxation is vital for conserving foreign exchange, strengthening our supply chains, and reducing dependence on imports, important in a world of geopolitical uncertainties.
India’s mining sector has moved decisively from a system of untapped potential to one of transparency, competition, investment, and national purpose. The task ahead is to build higher, to explore, produce, process more and add greater value within India.
The writer is chairperson, Economic Advisory Council to the Prime Minister
Source from: https://indianexpress.com/article/opinion/columns/a-simpler-mining-tax-model-can-mean-more-revenue-for-states-10849218/https:/indianexpress.com/article/opinion/columns/a-simpler-mining-tax-model-can-mean-more-revenue-for-states-10849218/
