Para, the Brazilian state where Vale SA (VALE5) has a third of its iron-ore output, will introduce a mining tax next month as governments worldwide seek to increase revenue from the exploitation of natural resources.
The tax, which takes effect in April, will be equivalent to 6.9 reais ($3.78) per metric ton of mining output, Para State Governor Simao Jatene said. Vale, based in Rio de Janeiro, operates Carajas, the world’s biggest iron-ore mine, in Para.
“The tax will finance the state so it can form a database of mining activities, who does it, where and how much they’re doing it,” Jatene said in an interview in Brasilia yesterday.
The state initiative is part of a global trend of governments seeking to raise taxes on natural resources production. Australia, the world’s largest iron-ore exporting country, passed legislation earlier this week that will reap about $11 billion in taxes within three years from BHP Billiton Ltd. (BHP), Rio Tinto Group and other iron-ore and coal miners. In Brazil, the federal government is pursuing legislation to increase royalties for the industry.
Governments at different levels say the profits generated in the past years benefited the companies more than the communities involved, Felipe Reis, an equity analyst at Banco Santander SA (SAN), said.
“If this tax is applied and understood as legal, it will easily incentivize other states like Minas Gerais,” Reis said in a telephone interview from Sao Paulo today. “That would have a negative impact on Vale.”
Vale produced a record 109.8 million metric tons of iron ore at Carajas mine last year, or about 34 percent of its total output, according to a Feb. 15 filing.
Jatene said his Para state has authority to levy the tax and informed Mines and Energy Minister Edison Lobao of the plans yesterday. Jatene said he has the written opinion from two legal experts backing Para’s stance on the tax.
The Brazilian tax, which was approved by the local house of representatives in December, initiated a debate over state rights.
“It’s ruled by a reasonable principle, you can’t charge a tax that will bring the company down,” Jatene said.
A Vale official in Rio today said the company wouldn’t comment on the Para new tax.
Vale Chief Financial Officer Tito Martins said Feb. 16 that the company was waiting for the assessment by the Brazilian Mining Institute, an industry group, and other regional associations on the effect of these taxes.
“There were similar cases to this in the past, states that tried to impose differential taxes, and they ended up being proved as unconstitutional”, Martins said during a conference call with analysts, adding that Vale isn’t making provisions for the tax payment.