The Union government announced that it has increased the windfall tax on petroleum crude from Rs.6,800 to Rs.9,600 per metric tonne, effective April 16.
The government has increased the windfall tax or Special Additional Excise Duty (SAED) on petroleum crude by 41% effective from April 16. The revised SAED rate is Rs.9,600 per tonne from Rs.6,800 per tonne, which was earlier on April 4 increased from Rs.4900 per tonne. Thus, with these two consecutive hikes, the windfall tax on crude has increased by 96% in 16 days.
What is the Windfall Tax?
A windfall tax is a tax levied by governments against certain industries when economic conditions allow those industries to experience significantly above-average profits. Windfall taxes are primarily levied on companies in the targeted industry that have benefited the most from the economic windfall, most often commodity-based businesses.
Why Windfall Tax on Crude Now?
The government has imposed a windfall tax because the government will cash in on higher crude oil prices through the windfall tax levy, although it doesn’t expect crude prices to touch levels seen after the Russia-Ukraine war broke out in February 2022 when the India crude basket soared to an average $116/bbl in June after staying over $100/bbl in April and May.
The government has raised its windfall tax on petroleum crude for the sixth time since February. The revised SAED rate is Rs.9,600 per tonne from Rs.6,800 per tonne, which was earlier on April 4 increased from Rs.4900 per tonne.
Who will be affected?
Oil Production companies like the Oil and Natural Gas Corporation of India (ONGC) will be affected by this windfall tax, last time when the government hiked the windfall taxes the stock slipped 4% after that on April 4th. Shares of Oil India also slipped around 3% on that day.
Conclusion:
Due to this increased hike in windfall taxes, Upstream oil exploration and production companies ONGC and Oil India Ltd stand to lose as they will not get the full benefit of rising international prices for their crude. The government on the other side will get more resources to finance its social welfare schemes for the poor and keep its fiscal deficit in check.
Disclaimer: This post has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.