Shares of Reliance and ONGC rose on Thursday after news of the government considering reducing the shares recently implemented unexpected tax And the meeting to review the measure is expected on Friday. Reliance rose up to 2.4 per cent in Mumbai, while ONGC It gained 6.6 per cent and Chennai Petroleum Corp by 4.2 per cent.
According to Bloomberg, the government is considering reducing the recently implemented windfall tax. This comes on the heels of a fall in global crude oil prices that has eroded profits for fuel exporters and oil producers.
Windfall tax, simply, is a tax levied on companies whose financials have grown out of luck, or events for which they are not responsible. For example, energy companies have benefited from a global jump in energy prices due to Russia’s invasion of Ukraine.
Bhavik Patel, Senior Commodity/Currency Research Analyst, Tradebulls Securities, said: “The fall in crude oil prices from $126 to $94 (25.3 per cent) over a 6-week period prompted the government to reconsider reducing windfall tax. Indian officials are expected to meet on Friday to consider reducing taxes. Keeping in mind that the government had earlier said they would assess the levy every 15 days, Now the government is in a mood to act as the prices have come down significantly in the recent past.
On July 1, the government announced export taxes and banned the export of petrol, diesel and aviation turbine fuel (ATF). Domestic producers were asked to pay a cess of Rs 23,250 per tonne on crude oil as an unexpected tax. Domestic producers made windfall gains on higher international crude prices, which recently reached $122 a barrel. Now crude oil prices have come down below $100 per barrel.
Global oil prices have plunged nearly 20 percent in recent weeks, fueled by concerns of a US recession as well as China’s struggle to move past the debilitating period of Covid’s curbs. Margins on diesel, gasoline and aviation fuel have crashed in the past two weeks, squeezing the profits of India’s top fuel exporter Reliance Industries Ltd (RIL) and oil producer Oil and Natural Gas Corporation.
Impact of lower windfall tax on fuel refiners
According to industry experts, private refiners like Reliance and Rosneft-backed Naira Energy Ltd are the biggest losers from export tax as both make up 80 per cent to 85 per cent of India’s total gasoline and diesel exports.
Patel said: “This news will be beneficial for OMCs and private refineries like RIL and ONGC. Not only can we see some bounce in their share prices because of the change in sentiment, but if the government reduces windfall tax, we will see a more sustainable jump in RIL and ONGC as lowering taxes will help the bottom line for companies. It will also help to increase ,
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