Fitch Ratings has warned that operating costs for Indian metal and mining companies are poised to increase significantly following a recent Supreme Court ruling that allows state governments to impose additional mining taxes. This ruling, upheld last month, grants states the right to levy taxes on mineral extraction retroactively from April 1, 2005, with payments spread over 12 years starting April 1, 2026.
The decision stems from a long-standing dispute between Indian states and the federal government regarding the authority to impose such taxes. Fitch Ratings highlighted that this could lead to a sustained decline in the EBITDA (Earnings before Interest, Tax, Depreciation, and Amortisation) margins for these companies.
The credit risk associated with these prospective levies is expected to be greater for Tata Steel compared to JSW Steel, as Tata Steel’s lower rating headroom makes it more vulnerable to the financial impact of these taxes.
Fitch noted that metal and mining companies are particularly at risk from state-imposed taxes, as they have limited ability to pass on increased operating costs to consumers, given that their prices are tied to global market rates.
The full extent of the ruling’s impact will become clearer in the coming quarters, with uncertainty surrounding whether states will pursue past dues or impose new taxes. Recent commentary from brokerage Macquarie indicated that state-run Coal India and Tata Steel are likely to be the most affected among mining firms.