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24 May 2018
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| windfall tax (The Total Investment & Insurance Solutions) |
The government may levy a windfall tax on oil
producers like Oil and Natural Gas Corp. Ltd (ONGC) as part of a permanent
solution it is working on for moderating the spiralling retail prices of petrol
and diesel.
The tax, which may come in form of a cess, will
kick in the moment oil prices cross $70 per barrel, sources privy to the
development said.
At 2.26pm, ONGC shares were trading 8.26%
lower at Rs161.05, while Oil India Ltd fell 9.78% to Rs208. The Total Investment & Insurance
Solutions
Under the scheme, oil producers, who get paid
international rates for the oil they produce from domestic fields, would have
to part with any revenue they earn from prices crossing $70 per barrel mark.
The revenues so collected would be used to
pay fuel retailers so that they absorb spikes beyond the threshold levels, they
said. This may be accompanied by a minor tinkering with excise duty rates to
give immediate relief to consumers.
States too would be asked to cut sales tax or
VAT to show a visible impact on retail prices. The Total Investment & Insurance
Solutions
Sources said the thinking in the government
is to levy cess on all oil producers—both public and private sector—so as not
to attract criticism of stifling state-owned explorers. A similar tax was
considered in 2008 when oil prices were on the rise but the idea was dropped
after stiff opposition from private sector firms like Cairn India. The Total Investment & Insurance
Solutions
Windfall tax, they said, is levied in some of
the developed countries globally. The UK in 2011 raised the tax rate to be
applied to North Sea oil and gas profits when the price is above $75 per
barrel. China on 1 April 2006 began levying the special upstream profit tax on
domestic oil producers to redistribute and allocate the windfall income enjoyed
by the oil companies and subsidise disadvantaged industry and social groups
that are most affected by soaring crude oil prices. It in 2012 raised the
windfall tax threshold to $55 per barrel.
Sources said the windfall tax is one of the
options being considered by the government as a permanent solution to dealing
with the problem of spike in oil prices. This follows reluctance on part of the
finance ministry to cut excise duty as it has to ensure adequate funds are
available to social welfare schemes in the election year. The Total Investment & Insurance
Solutions
In particular, resources have to be arranged
for the National Health Protection Scheme (NHPS) that aims to provide health
insurance cover of Rs5 lakh to every eligible household. The Total Investment & Insurance
Solutions
Yesterday, law minister Ravi Shankar Prasad had stated
that the government will take a long-term view on the retail prices of petrol
and diesel, which have touched record high, instead of having an ad hoc
measure.
Petrol and diesel prices were
raised for the 11th day in succession today as the state-owned oil firms
gradually passed on to the consumer the increased cost of international oil
that had accumulated since a 19-day freeze was imposed just before Karnataka elections. The Total Investment & Insurance
Solutions
Since the time the hiatus ended on 14 May,
rates have gone up by Rs2.84 a litre in case of petrol and Rs2.60 in diesel.
Petrol costs Rs77.47 a litre in Delhi and diesel Rs68.53. The Total Investment & Insurance
Solutions
Sources said a $70 per barrel threshold for
the windfall tax is sufficient to cover for capital expenditure requirement of
ONGC and other oil producers. Incidentally, ONGC and OIL had till June 2015
provided for up to 40% of the annual fuel subsidy bill, which they did by way
of providing discounts on crude sold to downstream refining and marketing
companies, IOC, BPCL, and HPCL. This discount helped the retailers make good a
part of the losses they incurred on selling petrol and diesel below cost.
The government raised excise duty nine times
between November 2014 and January 2016 to shore up finances as global oil
prices fell, but then cut the tax just once in October last year by Rs2 a
litre.
The Centre levies Rs19.48 as excise duty on a
litre of petrol and Rs15.33 on diesel. State sales tax or VAT varies from state
to state. Unlike excise duty, VAT is ad valorem and results in higher revenues
for the state when rates move up.The
Total Investment & Insurance Solutions
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