ONGC, Oil India fall; Chennai Petroleum and MRPL trade with gains up to 3% as centre scraps windfall gains tax on crude

Upstream oil companies remained in focus on Wednesday (September 18) as the government has done away with the windfall gains tax on crude petroleum. Earlier, the windfall tax was at Rs 1850 per tonne. The new rates will be effective from today. 

At the last count, ONGC, Oil India and Reliance Industries (RIL)  traded mixed with RIL trading mildly higher, while Oil India fell over 2 per cent. Meanwhile Chennai Petroleum and Mangalore Refinery were trading with gains of up to 3 per cent.

This tax is levied in the form of Special Additional Excise Duty (SAED) and is notified fortnightly based on average oil prices in two weeks. The tax levy is based on factors such as global oil price, export quantity and foreign exchange rate.

Last the revision was done on August 31 when the windfall tax on crude petroleum was set at Rs 1,850 per tonne.

For the first time, the centre levied  windfall profit taxes on July 1, 2022, joining other nations that tax supernormal profits of energy companies. 

Generally speaking, windfall profits’ refer to an unanticipated spike in profits of a company on the back of some exogenous event (which could be one-off and/or prolonged) and not due to a business decision.

How will upstream oil companies react to the centre's windfall tax decision?

The slashing of the windfall tax to zero will augur well for upstream oil companies in India such as ONGC, Oil India and Reliance Industries as it will boosts their profitability.