Windfall Tax on Domestic Crude Oil Reduced to Zero: Stocks such as Oil and Natural Gas Corporation and Oil India – oil exploration and production companies jumped in morning trade on May 16 after the government slashed the windfall tax on crude petroleum exports to nil from Rs 4,100 per tonne.
In this sector, Indian Oil, ONGC and GAIL India gained the most, while Adani Total Gas, Indraprastha Gas and heavyweight Reliance Industries (RIL) were top underperformers. BSE Oil & Gas index overall witnessed a 147 points or 0.8 per cent upside so far in the day.
Meanwhile, the Nifty Oil & Gas index saw a marginal upside of 0.12 per cent to trade at 7,576.80. This index crossed 7,600 mark to touch an intraday high of 7,622.95.
Indian Oil was the top gainer with an upside of 2.03 per cent followed by ONGC and BPCL soaring by 1.5 per cent and 1.3 per cent. Gujarat Gas and HPCL also advanced by 1.2 per cent and 1.1 per cent respectively. GAIL and Petronet LNG surged by nearly a per cent.
In regards to top bears, Adani Total Gas dipped by 5 per cent followed by IGL whose share prices tumbled by 1 per cent.
The windfall tax on crude petroleum has been slashed to nil from Rs 4,100 per tonne, according to a notification issued by the government late on May 15. The waiver will come into effect from today.
Windfall tax, also referred to as the special additional excise duty (SAED), was already nil on aviation turbine fuel (ATF), petrol and diesel. This has been left unchanged.
The decision to waive off the tax on crude petroleum as well was taken at the fortnightly review conducted by the finance ministry. In the previous review meeting held on May 1, the government had reduced the windfall tax on crude petroleum to Rs 4,100 from Rs 6,400 per tonne.
Bhavik Patel, Commodity/Currency analyst Tradebulls Securities, explained that “The reason behind slashing the windfall tax to zero was the softening of international oil prices. The tax was calculated every fortnight based on the average oil prices in the previous two weeks and the margins of OMCs that refiners earn on overseas shipments. With WTI trading around $71.50, the government has proposed to slash windfall tax. However, if prices rise in the future along with refining margins, then the government will place a windfall tax according to the calculation based on the average oil price. Oil marketing companies won’t have any major impact as the margins (difference between international oil price minus cost) right now is low so any slash in windfall tax will be negligible on the books of the companies. ”
Windfall tax was introduced by the government on July 1, 2022, to charge the industry for the large profit it has been earning through the sale of refined crude in the international market. Its quantum is reviewed every fortnight, on the basis of the fluctuations in the international crude rates.
Producers, including state-owned Oil and Natural Gas Corporation (ONGC) and Vedanta-controlled Cairn, were impacted by the windfall tax on domestic crude.
Rising global crude oil prices are seen as positive for domestic oil producers such as ONGC and Oil India.
In this regard, the central government last year in July began imposing the windfall tax on crude oil producers, and the same was levied on exports of gasoline, diesel and ATF after private refiners were making profits from robust refining margins in overseas markets.
The crude oil prices in international markets are currently hovering around $75 per barrel. On Monday, Brent crude futures rose $1.06, or 1.4 per cent to settle at $75.23 a barrel, while US West Texas Intermediate crude settled at $71.11 a barrel, up $1.07, or 1.5 per cent.
Last week, oil benchmarks fell for a fourth consecutive week, the longest streak of weekly declines since September 2022, over fears of a US recession and risks of a historic default on government debt in early June, according to a Reuters report.
On a year-to-date basis, ONGC shares have gained 10 per cent, while Oil India shares have surged almost 21 per cent. In the last six months, ONGC jumped nearly 17 per cent and Oil India grew by 27 per cent.
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