What is windfall tax on oil companies?

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

But as the government exchequers are bleeding, oil and gas companies around the world are minting money – whether upstream, midstream or downstream.

And these gains are not coming because of any improvement in their processes but because of the geopolitical situation.

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

With governments and central banks taking steps to curb inflation the talk of taxing companies gaining from the crude price rise is gaining steam.

Such proposals have been discussed and even imposed earlier in many countries. Last week the United Kingdom announced a 25 percent levy on energy companies to ease the financial burden on households. Some other countries like Italy and Hungary have also imposed this tax.

A top government official told Business Standard on condition of anonymity that while theoretically a windfall tax on oil companies can be imposed in India, there had been no discussions on it within the current dispensation.

On Monday, responding to speculation of windfall tax, state-owned companies Oil India and Oil and Natural Gas Corporation (ONGC) said they had not heard anything 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 state-owned behemoths. This means the latter may have to compromise on dividends and share buybacks, both of which the centre is a beneficiary of.

The centre could do with additional resources mobilisation as it faces a growing expenditure burden and a hit on revenue in FY23.  The FY23 fertiliser subsidy budget estimate is Rs 1.05 trillion.