Petrol, diesel price hikes to hit ONGC as Centre to slap tax, share price plunges 11%

ONGC share price cracked over 11 per cent in intraday trade on Thursday following reports the government may levy a windfall tax on oil producers like Oil and Natural Gas Corp (ONGC) as part of a permanent solution it is working on for moderating the spiralling retail prices of petrol and diesel.

Reacting to the news, the stock tanked as much as 11.44 per cent to Rs 155.45. The scrip ended at Rs 167.65, down 4.5 per cent. 

The tax, which may come in form of a cess, will kick in the moment oil prices cross $70 per barrel, reported PTI, quoting sources.

Under the proposed scheme, oil producers, who get paid international rates for the oil they produce from domestic fields, would have to part with any revenue they earn from prices crossing $70 per barrel mark. 

The revenues so collected would be used to pay fuel retailers so that they absorb spikes beyond the threshold levels.

This may be accompanied by a minor tinkering with excise duty rates to give immediate relief to consumers. States too would be asked to cut sales tax or VAT to show a visible impact on retail prices.

Sources said the thinking in the government is to levy cess on all oil producers - both public and private sector - so as not to attract criticism of stifling state-owned explorers. A similar tax was considered in 2008 when oil prices were on the rise but the idea was dropped after stiff opposition from private sector firms like Cairn India.

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Windfall tax, they said, is levied in some of the developed countries globally. The UK in 2011 raised the tax rate to be applied to North Sea oil and gas profits when the price is above $75 per barrel. 

Notably, the government raised excise duty nine times between November 2014 and January 2016 to shore up finances as global oil prices fell. Since then, excise duty has been reduced only once, in October, 2017. In Budget 2018, the government did slash basic excise duty by Rs 2 per litre for petrol and diesel, doing away with additional excise duty of Rs 6 too, but a simultaneous levy of road cess of 8 per cent nullified the cut in excise duty.

The Centre levies Rs 19.48 as excise duty on a litre of petrol and Rs 15.33 on diesel. State sales tax or VAT varies from state to state. Unlike excise duty, VAT is ad valorem and results in higher revenues for the state when rates move up.