Oil Companies benefit as Centre cuts windfall tax on crude, will it trickle down to consumer?

The Central government has reduced the windfall tax on petroleum crude to 5,700 rupees ($68.34) per metric ton from the previous 8,400 rupees, effective from Thursday, as part of its fortnightly adjustments aligned with global prices.

This marks the second consecutive fortnightly reduction in the windfall tax, following a decrease from 9,600 rupees to 8,400 rupees on May 1.

Companies involved in upstream oil exploration and production, such as ONGC and Oil India Ltd, stand to benefit from the lower tax imposed on their crude oil output.

The adjustment in the tax rate comes in response to the decline in international crude oil prices, resulting in reduced earnings for oil producers. Currently, the benchmark Brent crude prices hover slightly above $82 per barrel.

Earlier, on April 16, the government had raised the windfall tax on petroleum crude to 9,600 rupees per metric ton from 6,800 rupees due to a significant surge in oil prices.

Introduced for the first time in July last year, the windfall tax aimed to capture a portion of the increased earnings of oil companies amidst sudden price spikes, thereby aiding in reducing the fiscal deficit.

Following the success of the initiative, the windfall tax was extended to cover exports of petrol, diesel, and aviation fuel as well, particularly targeting private refineries benefiting from lucrative overseas markets over domestic sales.

In the current adjustment, the government has opted to maintain the windfall tax rate on these fuels without any changes but the question of it reaching the retail consumer is unlikely as petrol prices remain market-sensitive and not pre-determined. 

(With inputs from IANS)