Windfall oil tax on ONGC in offing to soften fuel prices

Windfall oil tax on ONGC in offing to soften fuel prices

News

1. The government is looking for various options to moderate the retail price of petrol and diesel.

Important Facts

1. The government may levy a windfall tax on oil producers like Oil and Natural Gas Corp. (ONGC)
2. The tax may come in the form of a Cess, will applicable when oil prices cross $70 per barrel. 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.
3. It is argued that $70 per barrel threshold for the windfall tax is sufficient to cover for capital expenditure requirement of ONGC and other oil producers.
4. The government may levy cess on all oil producers — both public and private sector — so as not to attract criticism of stifling State-owned explorers.
5. 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.
6. Windfall tax is levied in some of the developed countries globally.

• The U.K. in 2011 raised the tax rate to be applied to North Sea oil and gas profits when the price was above $75 per barrel.

1. Second option is cut in Excise Duty. But, Finance Ministry is reluctant to cut excise duty as it has to ensure adequate funds are available to social welfare schemes.
2. Government is also looking for providing Fuel subsidy to Oil producing companies like ONGC.
3. These companies in turn would provide 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.
4. 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.