Central government’s decision to abolish windfall tax may help the oil companies like Reliance and ONGC, market has already reacted with a positive response.
Shares of Mukesh AMbani led Reliance Industries (RIL) and state-owned ONGC saw a recovery of about 2% from their day’s lows on Monday following the government’s decision to scrap the windfall tax on crude oil, aviation turbine fuel (ATF), petrol, and diesel exports. On 3rd December at 12.35 PM, RIL shares were trading positively at ₹1,321.35 per share, marking a 0.93% increase from yesterday. ONGC shares went up by 2.04% at 12.35 PM on 3rd December as compared to 2nd December’s closure.
Windfall Tax and Its Impact
The windfall tax, introduced in July 2022, aimed to capture the substantial profits oil producers were earning due to soaring global crude oil prices. It was a higher tax levied on specific industries experiencing above-average profits resulting from external factors like geopolitical or global events beyond their control.
This tax was reviewed and adjusted every fortnight based on the average crude oil prices of the preceding two weeks. However, with a decline in global crude oil prices, the revenue generated from this tax had significantly reduced, leading the government to decide on its removal.
Boost for Reliance, ONGC and other Oil Companies
The removal of the windfall tax and the Road and Infrastructure Cess (RIC) on petrol and diesel exports is expected to improve refining margins for companies like RIL and ONGC. This move, effective immediately, follows nearly two months of deliberations and is seen as a relief for the oil and petroleum sector.
The Ministry of Finance announced that the Special Additional Excise Duty (SAED), commonly referred to as the windfall tax, on petroleum crude production and the export of ATF, petrol, and diesel would no longer apply.
Why the Tax Was Removed?
The government’s decision to abolish the windfall tax stems from falling global crude oil prices, which diminished the tax’s effectiveness as a revenue generator. The formula for imposing the tax, managed by the Department of Revenue, was previously adjusted to reflect fluctuations in international oil prices.
Positive Market Reaction
The removal of this tax is likely to enhance the profitability of oil companies, improving their refining margins and boosting investor sentiment. Shares of oil giants like RIL and ONGC responded positively to the news, reflecting optimism about the sector’s potential for growth in the absence of the additional tax burden.
This policy shift shows the government’s intent to align with current market dynamics, supporting the petroleum sector’s competitiveness while easing the financial pressures on oil producers.
(With ANI Inputs)