Windfall levy on ONGC in offing

The government is likely to levy a ‘windfall tax’, in the form of a cess, on companies like Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) to bring down the rising petrol and diesel prices. The move may add additional pressure to oil producers that were already paying a higher cess after the switchover of fixed amount to 20 per cent ad valorem rates in 2016. According to media reports, companies that get paid at international rates for the oil they produce from domestic fields may now be asked to pay windfall tax for any revenue that they earn from prices crossing $70 a barrel. Later, the revenue will be used to pay retail majors like Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) to absorb the fuel price hike. However, industry experts are of the view that the move may wipe out the revenue of producers, who are already bleeding because of a higher 20 per cent ad valorem cess. Before 2016, this was a fixed ~4,500 per tonne, and by changing it to 20 per cent rate, oil companies are now paying around ~6,800 per tonne, much higher than the rates when crude oil prices were hovering around $100 a barrel in 2012-13. “If an additional windfall tax is being levied on firms, the Centre should also relook 20 per cent ad valorem cess. Investments in this segment are highly capital intensive. Change in contracts and taxes mid-way will affect long-term investor sentiments in India and will further lead to less foreign interests in upcoming rounds of Open Acreage Licensing Policy,” said R S Sharma, former chairman of ONGC. More on www.business-standard.com