Commenting on the government's decision to increase export duty on petrol, diesel, and jet fuel, and also impose a windfall tax on domestically produced crude oil, RS Sharma, ex-CMD of ONGC, said he always saw this coming.
The government on Friday announced a Rs 6 per litre tax on exports of petrol and aviation turbine fuel (ATF) or jet fuel and Rs 13 per litre on exports of diesel. That apart, it also imposed Rs 23,230 per tonne additional tax on domestically produced crude oil to take away windfall gains accruing to producers from high international oil prices, a separate government notification showed.
Reacting to the news, shares of Reliance Industries, Vedanta, Oil and Natural Gas Corp (ONGC), and Mangalore Refinery and Petrochemicals fell sharply in the trade.
With ONGC's share prices already down by nearly 10 percent, the windfall tax, which comes up to $38 per barrel, "is a very heavy amount imposed," said former MD of ONGC, in an interview with CNBC-TV18.
"Historically also, once the tax was levied, it used to be a fixed amount, due to which ONGC had to struggle a lot when the crude prices crashed down to less than $40," Sharma added.
Even when the government levied ad valorem tax, Sharma said, it was levied on a quarter-to-quarter basis and the company would not know its retention price.
However, "now, the investor would know the retention price but there is a huge value restriction," Sharma said further.
As far as upstream tax is concerned, the windfall gain that was imposed due to high crude prices would generate some resources for the government, said MK Surana, former CMD, HPCL, while speaking to CNBC-TV18.
"As the crude prices were exorbitantly high for a period of time, causing distortions in the market, there was an uneven distribution of margins between refining and marketing sectors," Surana said further. "And it became advantageous for people who had the flexibility to shift to export."
"I think this is one of the logical ways to handle the situation," former HPCL CMD added.
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