Oil companies expect revision of windfall tax as crude prices fall
Premium- The expectations come on the backdrop of the fact that officials then had said that the government would review the tax every fortnight
NEW DELHI : Oil and gas companies are expecting a reduction or withdrawal of the windfall tax on sale of crude oil with prices declining by around $15 per barrel since the imposition of the tax on 1 July.
The expectations also come on the backdrop of the fact that officials then had said that the government would review the tax every fortnight.
“The prices have declined significantly since the tax was imposed. There are no windfall profits made by the companies now, so the tax can go," said an executive with a private oil company.
A recent report by CLSA said that and dramatic fall in crude and product spreads significantly reduces any ‘supernormal’ gains for refiners as well as crude oil producers and questions the need of the continuation of the windfall tax imposed about two weeks ago.
“We expect a rethink in one of the fortnightly reviews promised by the government if current prices continue. Any relaxation would be a big trigger for ONGC and Oil India and a relief for Reliance," the report said.
It added that post the imposition of the windfall tax, the realized spread on diesel and gasoline has fallen to near loss-making levels while the realization on aviation fuel and crude have also gone below 15-year averages.
A Bloomberg report said that a review meeting is expected on Friday. However, the chances of a decision this week are thin as the finance minister is currently out of the national capital, said two government officials, who asked not be named.
An email sent to the finance ministry and the ministry of petroleum and natural gas seeking comments for the story on Thursday remained unanswered at the time of publishing.
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Revenue Secretary Tarun Bajaj had said after the imposition of the tax on 1 July that it will be reviewed every 15-days factoring in the foreign exchange rate and global crude prices, among other factors.
On 1 July, the government imposed a special additional excise duty of ₹23,250 per tonne on the sale of locally produced crude oil, sending stocks of oil producers tumbling.
The tax was imposed as crude oil prices soared after the Russia-Ukraine war broke out, earning large profits for oil producers. Domestic producers sell crude to refiners at prices benchmarked on international prices. The bellwether Brent crude prices were largely at multi-year high levels since February till two weeks back when the tax was imposed.
Brent crude was around $113 when the tax came in, while currently it is at $97.34 per barrel, weighed down by fears of a global recession.
According to Moody’s Investors Service, the windfall tax, along with the decision to impose additional excise duty on the export of petrol, diesel and jet fuel, may generate $12 billion additional revenue in FY23. The additional revenue is expected to help offset the negative impact of the fuel duty cuts in May.
Oil has been a major source of revenue for both central and state governments. Raising the taxes on petrol and diesel during periods of low global prices had helped the Centre raise revenue resources for development spending but had to be scaled back in two rounds of duty cuts announced last November and in May this year. The latest round of windfall tax on crude oil seeks to mop up a part of the margins of producers.
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