What is the exceptional tax on oil companies?

Russia’s attack on Ukraine has upended the supply chain, pushing global inflation to uncomfortable levels. And one of the reasons for soaring inflation is the sharp rise in crude oil prices.

But as public finances bleed, oil and gas companies around the world are hitting money, whether upstream, midstream or downstream.

And these gains do not come from an improvement in their processes but from the geopolitical situation.

Crude prices are now hovering around $120 a barrel. On Wednesday, it was $118 a barrel.

As governments and central banks take steps to curb inflation, the rhetoric about taxing companies that profit from rising crude prices is gaining momentum.

Such proposals were discussed and even imposed earlier in many countries. Last week, the UK announced a 25% tax on energy companies to ease the financial burden on households. Some other countries like Italy and Hungary have also imposed this tax.

A senior government official told Business Standard on condition of anonymity that while theoretically an exceptional tax on oil companies can be imposed in India, there has been no discussion of it under the current exemption.

On Monday, in response to speculation over the windfall tax, state-owned companies Oil India and Oil and Natural Gas Corporation (ONGC) said they had heard nothing from the government.

And if a windfall tax is imposed in India, it will not only be levied on private players like Reliance, but also on public behemoths. This means that the latter may have to compromise on dividends and share buybacks, from which the center benefits.

The center would require additional resource mobilization as it faces an increasing expense burden and declining revenue in FY23. The FY23 fertilizer subsidy budget estimate is of 1.05 trillion rupees.

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