Oil companies expect windfall tax revision as crude oil prices fall

New Delhi Oil and gas companies are anticipating an unexpected tax reduction or withdrawal on crude sales, with crude prices falling by about $15 a barrel since the tax was imposed on July 1.

The hopes also come against the backdrop of the fact that officials had said then that the government would review the tax every fortnight.

“The prices have come down significantly since the tax was imposed. There is no windfall profit made by the companies now, so the tax can go,” said an executive of a private oil company.

A recent report by CLSA said that the dramatic fall in crude oil and product spread outweighs any ‘extraordinary’ gains for refiners as well as crude oil producers and continues the unexpected tax imposed nearly two weeks ago. raises questions about the necessity of keeping

“We expect that one of the fortnightly reviews promised by the government will be reconsidered if current prices continue. Any relaxation will be a major trigger for ONGC and Oil India and for Reliance, the report said. It would be a relief.

It said that post the imposition of windfall tax, realization spreads on diesel and gasoline have fallen almost to deficit levels, while receipts for aviation fuel and crude have also gone below the 15-year average.

A Bloomberg report said a review meeting is expected on Friday. However, a decision this week is unlikely as the finance minister is currently out of the national capital, said two government officials, who did not wish to be named.

An email sent on Thursday to the Ministry of Finance and the Ministry of Petroleum and Natural Gas seeking comment for the story remained unanswered at the time of publication.

Revenue Secretary Tarun Bajaj had said after the tax was imposed on July 1, that it would be reviewed every 15 days, taking into account other factors, including foreign exchange rates and global crude oil prices.

On 1 July, the government imposed a special additional excise duty On sale of locally produced crude oil at Rs 23,250 per tonne, shares of oil producers declined.

The tax was levied as crude oil prices rose after the Russo-Ukraine War broke out, giving large profits to oil producers. Domestic producers sell crude oil to refiners at benchmark prices at international prices. Brent crude prices were largely at multi-year highs until two weeks before February, when the tax was imposed.

Brent crude was around $113 when the tax came in, while it is currently at $97.34 a barrel, lowered by fears of a global recession.

According to Moody’s Investors Service, the windfall tax, along with the decision to impose additional excise duties on exports of petrol, diesel and jet fuel, could generate $12 billion in additional revenue in FY23. The additional revenue is expected to help offset the negative impact of fuel duty cut in May.

Oil has been a major source of revenue for both the central and state governments. Raising taxes on petrol and diesel during a period of low global prices had helped the Center mobilize revenue resources for development spending, but it had to be rolled back in two rounds of duty cuts announced last November and in May this year. The latest round of the latest tax on crude oil seeks to remove a part of producers’ margins.

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