Higher iron mining tax: Barking up wrong tree?

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Government should instead plug loopholes in regulations since a clutch of taxes and fees that exist cannot prevent exports of minerals

 A caterpillar at work at a mine in northern Vietnam

The Ministry of Finance has recommended a hike in mining tax on iron ore by half to 15 percent, saying this is aimed at restricting the mining of a non-recyclable resource.

Vietnam has iron ore reserves of 960.6 million tons, almost 80 percent of them known, while annually 3.5 million tons have been mined in recent years, it said.

If approved by the National Assembly, the increase will take effect next January.

Ironically, there are 12 different taxes and fees already on mining, which have done little to curb exports or the smuggling of iron ore out of the country.

As the economy continue to struggle and inventories of iron ore remain high, imposing higher export taxes or banning exports of ore would even encourage smuggling, Nguyen Manh Quan, head of Heavy Industry at the Ministry of Industry and Trade, was quoted by Dau Tu (Investment) newspaper as telling a meeting this month with steel makers and ore miners.

Members of the Vietnam Steel Association said they recently found "very large discrepancies" between the iron ore trading figures reported by Vietnamese and Chinese customs agencies in the last two years.

In 2011 Vietnam reported exports of 1.34 million tons of ore to China at US$52 a ton. But China said it imported 2.89 million tons from Vietnam at $106 a ton.

Last year the respective claims were 23,600 tons at $46 and nearly 1.75 million tons at $92.

Importantly, in China there are no limits for or taxes on the imports, meaning it is highly likely their figures are accurate.

Clearly, a lot of the ore is smuggled out while even legal exporters underreport volumes.

The government banned export of iron ore last year.

At a conference held by the Vietnam Business Forum (VBF) earlier this month, a mining firm pointed out that the massive mineral drain, especially of iron ore, is due to the fickle mining policies.

In January last year the government issued the ban on iron-ore export, but in December it allowed businesses to export minerals following pressure from local governments who said businesses had large inventories, which the Ministry of Industry and Trade estimated at about 1.5 million tons.

The Ministry of Industry and Trade then issued a circular permitting iron ore to be exported on condition it is processed and comes from approved mines.

Since the beginning of this year many local governments have sought export licenses for local businesses, again citing large inventories.

Authorities in the central province of Nghe An, for instance, asked for a license to ship 471,000 tons of iron and manganese ores. The licenses were issued for half the quantities.

The northern highlands province of Thai Nguyen sought permission to export 917,000 tons of unprocessed iron ore and hundreds of tons of other metals.

Other provinces like Lao Cai, Ha Giang, and Cao Bang are also waiting for licenses to export several million tons of ore.

At a meeting a few months} ago the Ministry of Public Security and customs also said the Ministry of Industry and Trade's circular contains loopholes that allow illegal export of ores, and cited some bizarre provisions.

For instance, if customs agencies suspect a consignment of ore, they can let it go through after taking samples for later tests. If the tests prove the suspicion right, the exporter will be fined; otherwise, the customs office has to bear the cost of the tests.

Major General Nguyen Tien Luc, deputy chief of the Ministry of Public Security's Anti-crime General Department, said a common trick is to send processed ore samples when applying for licenses, and then substituting them during shipments.

Quan, the Heavy Industry official, told Dau Tu (Investment) newspaper the government realizes that when local production revives there is a chance no raw materials are left.

Thus, the permission to export inventories of ores cannot continue for long, he said.

At the VBF forum, it was reported that Vietnam ranked 95 out of 96 territories in a global mining survey based on policies that affect investment decisions.

In the past three years Vietnam has slipped from 55th position.

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