Following news reports suggesting that the government would cut the recently enacted windfall tax in a meeting on Friday, shares of ONGC and Reliance Industries Limited (RIL) soared on Thursday. Shares of RIL increased by 2.4%, those of ONGC increased by as much as 6.6%, and those of Chennai Petroleum Corp increased by 4.2%.
Bloomberg reports that the administration is thinking about reducing the recently enacted windfall tax. This follows a period of dropping global crude oil prices, which has decreased the revenues of oil producers and exporters of gasoline.
Simply put, windfall tax is a charge placed on businesses whose financial performance has been improved solely by luck or unavoidable circumstances. For instance, the global surge in energy costs brought on by Russia's invasion of Ukraine has benefited energy businesses.
The government has been forced to examine cutting the windfall tax due to the drop in crude oil prices from $126 to $94 (a decrease of 25.3%) in six weeks, according to Bhavik Patel, the senior commodity/currency research analyst at TradeBulls Securities. On Friday, Indian government representatives are expected to meet to discuss decreasing taxes. The administration is ready to act now that prices have dropped dramatically, keeping in mind that they had previously announced that they would assess the tariffs every 15 days.
The government established export levies and placed limitations on the export of gasoline, diesel, and aviation turbine fuel on July 1. (ATF). As a windfall tax, domestic producers were required to pay a cess of Rs 23,250 per tonne of crude oil. Due to recent spikes in oil prices that reached as high as $122 per barrel, domestic producers saw unexpected profits. Currently, the price of crude oil is less than $100 a barrel.
Due to worries about a US recession and China's failure to emerge from a crippling period of COvid limits, global oil prices have plunged by roughly 20% in recent weeks. Reliance Industries Ltd. (RIL), India's leading fuel exporter, and Oil and Natural Gas Corporation, a producer of oil, have both seen their earnings shrink as a result of the recent collapse in diesel, gasoline, and aviation fuel margins.
Impact of Lower Windfall Tax on Fuels Refiners
According to industry insiders, private refiners like Reliance and Rosneft-backed Nayara Energy Ltd., which account for 80% to 85% of India's total gasoline and diesel exports, are the largest losers from the export levy.
"This news would benefit OMCs and private refineries like RIL and ONGC," added Patel. In addition to the possibility of a brief increase in their share prices owing to a shift in attitude, RIL and ONGC would likely see a more sustained uptrend if the government did decrease the windfall tax because doing so would also boost the businesses' bottom lines.