Oil producers expected to benefit from zero windfall tax in June: Analysts

Government last revised windfall tax on May 15, when SAED on domestically produced crude oil was reduced to zero.

Indian oil producers are expected to benefit from the slashing of the windfall tax on crude oil to nil for over a month now, according to analysts.

The government last revised the windfall tax on May 15, when the special additional excise duty (SAED) on domestically produced crude oil was reduced to zero from Rs 4,100 per tonne. The windfall tax on petrol, diesel, and aviation turbine fuel (ATF) was left unchanged at zero.

Deepak Jasani, Head of Retail Research, HDFC Securities, said, "Prior to May 15, they (oil producers) were paying tax at a particular range on their production. Now they are not paying that; so that is their benefit."

This comes as the Indian crude basket averaged $74.98 per barrel during May 2023, against $83.76 per barrel during April 2023 and $109.51 per barrel during May 2022, according to official data. Crude oil prices are hovering around $75 per barrel in June as well.

"Windfall tax was structured in a way that net realisation is around $75. If we look at this quarter, the average would be around $75, and therefore, there was no windfall tax in June. If you look at realisation in the second and third quarters, the net realisation of windfall tax would also be around this figure," said Nitin Tiwari, Executive Vice President, Yes Securities.

Windfall tax has weighed on the performance of state-run Oil and Natural Gas Corporation Ltd (ONGC) and Oil India Limited (OIL). Several oil companies had urged the government to remove the windfall tax.

In the quarter ending March 31, ONGC reported a decline of 53 percent in its consolidated net profit on a year-on-year (YoY) basis.

A top oil ministry official said on June 7 that the windfall tax is expected to remain zero if oil prices remain in the current range.

The windfall tax, which was first imposed in July 2022, is revised every fortnight based on the movements of international crude and product prices.

A windfall tax is levied by governments when an industry unexpectedly earns large profits — primarily due to an unprecedented event. Crude prices had touched an all-time high of $140 per barrel in March 2022 amid geopolitical tensions.