Brazil has scrapped a proposal to enforce an iron export tax after mining company Vale decided to increase investments in Brazil under pressure from the government.

The government, however, is still contemplating a hike in mining royalties that is being opposed by the industry because it would affect investment in the sector.

The Brazilian iron ore producer decided to increase its investments in 2010 to $12.9bn, a 30% hike, following an announcement to invest $5.6bn in the state of Minas Gerais by 2015, according to Mining Weekly Online.

The investment follows months of continuous criticism from the Brazilian Government regarding Vale’s inadequate role in advancing economic development and improving the steel industry.

From late 2008 Vale was condemned in Brazil after it fired 1,200 Brazilian employees and idled capacity as the economic slump reduced global metals demand and stopped a five-year commodities boom.

The Brazilian Government has since criticised Vale for excessive dependence on raw material exports, alleging that the move did not create sufficient local jobs despite providing foreign exchange.