Finance minister Nirmala Sitharaman left unchanged the cess on production from domestic oil blocks, despite industry’s long-standing demand to waive it.
The industry had been requesting for a cut, if not a complete waiver, from the cess. They had argued that this could encourage domestic producers to shore up production, step up exploration and protect margins.
Crude oil and natural gas produced from the field are subject to a 20 percent ad valorem oil industry development cess. Typically, the applicable cess rate differs depending on whether the contract is based on revenue sharing or production sharing.
The cess reduction or waiver would have boosted the revenue of crude oil exploration and production companies like Oil and Natural Gas Corporation (ONGC), Oil India and Cairn Oil & Gas (Vedanta). The industry had sought it so that domestic producers become more price competitive compared with their global counterparts as there is no cess on imported crude oil.
In Budget 2016-17, the government had revised the way oil cess was charged by moving from a specific charge of Rs 4,500 per tonne of crude to an ad valorem rate of 20 per cent. The decision was meant to reduce the high cess burden at a time crude oil prices were falling.
Last year too, ahead of Budget 2021, the industry lobbied for the cess to be halved, saying that it put them at a disadvantage against imported oil. But the finance minister had left it unchanged.
The benchmark Brent crude futures have breached the levels of $90 a barrel, their highest levels since 2014, rising from lows of $68 in the beginning of December. Strong demand, coupled with geopolitical tension in West Asia and the threat of a Russian attack on neighbouring Ukraine has intensified concerns over supply disruptions.
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