Oil Ministry seeks review of windfall tax; wants certain fields exempt

New Delhi, September 19

The Oil Ministry has sought a review of the two-and-a-half-month-old windfall profit tax on domestically produced crude oil, saying it goes against the principle of fiscal stability provided in contracts for finding and producing oil.

The ministry in the August 12 letter sought exemption for fields or blocks, which were bid out to companies under Production Sharing Contract (PSC) and Revenue Sharing Contract (RSC), from the new levy.

It stated that companies have been since the 1990s awarded blocks or areas for exploration and production of oil and natural gas under different contractual regimes, wherein a royalty and cess is levied and the government gets a pre-determined percentage of profits.

The ministry, according to the letter, was of the opinion that the contracts have an in-built mechanism to factor in high prices as incremental gains get transferred in form of higher profit share for the government.

Emails sent to the Oil Ministry and the Finance Ministry for comments remained unanswered.

India first imposed windfall profit tax on July 1, joining a growing number of nations that tax super normal profits of energy companies. While duties were slapped on the export of petrol, diesel and jet fuel (ATF), a Special Additional Excise Duty (SAED) was levied on locally produced crude oil.

The SAED on domestic crude oil initially was Rs 23,250 per tonne ($40 per barrel) and in fortnightly revisions brought down to Rs 10,500 per tonne.

The government levies a 10-20% royalty on the price of oil and gas as also an oil cess of 20% on production from areas given to state-owned ONGC and Oil India Ltd (OIL) on a nomination basis.

Other than them, fields were awarded under the PSC regime where the government gets around 50-60% of the profit made after deducting costs. RSC regime specifically has a clause to capture windfall gains for the government.

According to Oil Ministry calculations, the letter said, the new levy in the case of PSC and RSC results in a situation where the operator ends up paying much more than the windfall gain itself. — PTI

‘Against principle of fiscal stability’

• The government first imposed windfall profit tax on July 1. While duties were slapped on the export of petrol, diesel and jet fuel, a Special Additional Excise Duty (SAED) was levied on locally produced crude oil
• The government levies a 10-20% royalty on the price of oil and gas as also an oil cess of 20% on production from areas given to state-owned ONGC and Oil India Ltd on a nomination basis