Govt slashes windfall tax on domestic crude to ₹4,100; here’s how oil stocks reacted

The government on Tuesday slashed the windfall tax or special additional excise duty (SAED) on domestically produced crude from ₹6,400 per tonne to ₹4,100 per tonne, with effect from May 2, 2023. With this the government, however, has left the windfall tax on petrol, diesel and aviation turbine fuel (ATF) or jet fuel unchanged. The government last month reintroduced the windfall tax of ₹6,400 per tonne on domestically produced crude oil to rationalise the tax structure in the petroleum sector.

Following the development, the shares of three state-run oil retailers— Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) were trading higher on Tuesday. The stock of Oil & Natural Gas Limited (ONGC), the country’s largest oil and gas producer, surged as much as 3.1% to hit an intraday high of ₹164 apiece on the BSE. While the share price of Reliance Industries surged as much as 1.02% to hit an intraday high of ₹2,444.95, the shares of BPCL, IOC and HPCL were trading higher between 1-2%. The S&P BSE Sensex was up 285.39 points or 0.47% to 61,397. The NSE Nifty Oil & Gas Index surged 0.97% to 7,564, whereas the NSE Nifty Energy Index was up 1.09% to 23,993.

Earlier on Tuesday, Brent crude oil benchmark was up 7 cents to $79.38 per barrel by 0425 GMT, while West Texas Intermediate (WTI) crude rose 11 cents to $75.77 per barrel. 

The government initially imposed the windfall tax on the exports of crude oil, diesel and aviation fuel in July 2022 after private refiners preferred overseas markets to gain from high refining margins, instead of selling at lower-than-market rates in the country. The tax rates are revised every fortnight based on prevailing international rates. 

In January, rating agency Moody's said the country’s windfall tax on the exports of locally-produced oil has helped reduce the state-owned refining and marketing companies' marketing losses.

The government had earlier said the prices of petrol and diesel have not been increased by public sector oil marketing companies (OMCs) since April 6, 2022, despite record-high international prices. As a result, the three state-run fuel retailers — Indian Oil Corporation, BPCL and HPCL — booked a combined loss of ₹27,276 crore in the first six months of the ongoing financial year, against the combined profit before tax of ₹28,360 crore in the first half of the financial year 2021-22. IOCL, BPCL and HPCL together control around 90% of the fuel retailing network in India.