Grappling with various options to arrive at a long-term solution to rising fuel prices, the government is considering taxing the upstream oil companies, including ONGC and Oil India, once the crude price touches $70 per barrel through a cess on the windfall these companies make on higher crude prices. In a knee-jerk reaction, stocks of upstream oil companies slid by up to 7 per cent. Oil India plunged 6.83 per cent to close at Rs 214.80 and ONGC fell by 4.50 per cent to settle at Rs 167.65 on BSE.
Law minister Ravi Shakar Prasad on Wednesday said the government was working on a long-term solution to moderate the spiralling retail prices of petrol and diesel.
Sources said the windfall tax is one of the options being considered by the government as an institutional solution to dealing with the problem of spike in oil prices.
Expert opinions sought by the government have conveyed that India’s oil production is less than 20 per cent of its consumption and ONGC’s production is less than 15 per cent. So, taxing these companies will not have any significant impact on bringing the price of the final product down.
Petrol and diesel prices were raised for the 11th day in succession on Thursday as the state-owned oil firms gradually passed on to the consumer the increased cost of international oil that had accumulated since a 19-day freeze was imposed just before Karnataka elections.
The idea of taxing the producers rather than cutting excise duty as a method of giving relief to the consumers has been mooted by the government as the finance ministry does not want to disturb its fiscal deficit maths and has taken the plea of expenditure meant for welfare projects like MSP hike and Aayushman Bharat, sources said.
The government derives this idea from the basic principle that if upstream oil companies like ONGC and Oil India gain from hike in crude prices, then it is they who should pay the cess for the inconvenience caused by this hike. And oil producers are now getting paid international rates in dollar terms even when they produce oil from Indian fields.
The revenues so collected would be used to pay fuel retailers so that they absorb spikes beyond the threshold levels, official sources said. In fact the issue of excise duty cut has been completely covered up by the finance ministry while pushing for upstrearm companies revenues cess for giving immediate relief to consumers.