Govt not in favour of windfall tax on oil & gas cos profits

Written by Anupama Airy | New Delhi, Aug 8 | Updated: Aug 10 2008, 05:22am hrs
Endorsing the stand taken by countries such as Britain, the government is not in favour of imposing a windfall tax on the profits of oil and gas companiesbe it the producers or the refiners.

The much-talked about report of the committee headed by the Planning Commission member BK Chaturvedi on the financial position of oil marketing companies, in the backdrop of rising crude oil prices, has proposed levying such a tax on the oil and gas producers who were awarded exploration blocks in the pre-Nelp regime. However, the Chaturvedi committee report has recommended that refineriesin the private and public sectorbe spared from levying of such a tax.

The government has also been under pressure from the Samajwadi Party general secretary Amar Singh who has been voicing concerns over private refiners like Reliance Industries reaping windfall profits as they would benefit from the hike in crude oil prices. RILs net profit has soared and has become the first private sector company in India to cross Rs 15,000 crore ($3,739 million). Amar Singh had proposed levying a 20% windfall profit tax on such players.

However, sources said the proposal has not found favour with the ministry of finance. Crude oil prices after crossing unprecedented levels of $145 a barrel have cooled off to the current levels of $118.

Officials said amidst expectations that crude prices would stabilise at $110 a barrel, there is no need for levying such a tax on either refineries or the producers of oil and gas.

These are temporary arrangements and we need to find better options to deal with such problems. We still feel a marginal increase in the price of fuels is a much better option than resorting to levying such taxes, said a senior official in the finance ministry.

He said the under-recoveries of the three oil marketing companiesIOC, HPCL and BPCLwill continue to be met through the issuance of oil bonds and other fiscal measures.

Interestingly, ONGCwhich is going to be the hardest hit if windfall profit tax is leviedhas supported the idea. This is because ONGC feels that this is a more transparent way of helping the sister oil marketing PSUs rather than offering discounts on crude oil through the existing ad hoc mechanism.

Other producers who may get impacted if such a tax was to be levied include Cairn Energy (with huge oil finds at Barmer in Rajasthan) and Reliance Industries (massive gas reserves in the K-G basin along with its export oriented refineries).