Coal mining companies request mining royalty to be reconsideredEconomy
Ulaanbaatar /MONTSAME/. On October 25, representatives of coal mining companies and entities held a discussion under the theme, ‘Standard Rate and the Mining Royalties’, on taxes and corresponding fees for coal at the Mongolian National Chamber of Commerce and Industry.
Regarding the event, CEO of Mongolian Coal Association J.Zoljargal said, “The fee for exploitation of mineral resources (royalty) is required to be paid by all mining companies that are running exploitation and putting the resources on the market for sales, and they have indeed made the corresponding payments so far. However, the Government began to implement standard rates for the royalties from this July. As a result, expenditure have increased, putting the companies in risk of stopping operations.
In 2016, the Government approved the ‘Assessment for export products sales, and sources to establish internationally standard rates’. In its framework, the Ministry of Finance announces the monthly rate for the coal market. This time, however, the Ministry announced an unrealistic rate which has put on unfair tax burdens on entities that mine coal.”
Noting how Mongolian coal companies have been unable to make corresponding profits due to infrastructure and border restrictions despite the increased demand for coal in China, he underlined how the increase in fees could lead to a deficit for entities.
Deputy Director of ‘Khishig Arvin’ LLC B.Nasanbileg said, “The sudden increase in taxes and fees are creating uncertainty in the mining sector. For example, while the fee for 1 ton of coking coal was over USD 100, now we will have to pay a fee that is two times as much, resulting in an increase in expenses once more.
In our current situation where the country earns most of its foreign currency reserves through minerals, and especially coal, it is necessary to continue to keep the competitiveness on the global market by supporting companies and employers.”
CEO of ‘Erdenes Tavantolgoi’ JSC B.Gankhuyag said, “The royalty is becoming another burden on top of the current pandemic situation. For a single ton of coking coal priced at USD 83, a fee of over USD 260 was imposed in the third quarter of this year. There is no point in running a business if we have to pay a royalty of USD 15 for our coal that was sold at USD 13. Our company has reached a point where we had to stop mining coal from October 20. We contributed a total of MNT 2.4 trillion to the state budget so far. Out of this, MNT 2.2 trillion was contributed to the state budget in the last four years. 25 percent of our company’s sales income of MNT 8 trillion was also used as payment for various forms of tax. Furthermore, we had a significant amount of expense in the framework of works carried out for corporate social responsibility during the pandemic. Thus, I believe it would not be right to impose the fee on top of all this. Despite how the royalty is supposed to be 10 percent, we are currently paying a fee that amounts to 34-37 percent.”
According to international standards, royalty is calculated by taking income sales and the amount stated on the agreement into consideration - all of which are conducted transparently. However, the process has become reversed by calculating profits beforehand, highlighted the participants. Thus, they expressed their demand for appropriate decisions to be made by the working group in charge of calculating royalty for mining products. The Mongolian National Chamber of Commerce and Industry expressed support for the demand being put forth by coal mining companies and acknowledged the further risks being created as a result.