ONGC seeks windfall tax on crude oil

State-run Oil and Natural Gas Corp (ONGC) has sought levy of windfall tax on any crude oil price of over $60 per barrel to pay for fuel subsidies.

Vehemently opposing the present ad-hoc subsidy regime, ONGC has suggested a Special Oil Tax (SOT) or windfall tax may be levied on crude oil producers if their produce fetched any price over $60 per barrel.

In a presentation to the expert group on pricing of petroleum products headed by Kirit Parikh, ONGC said 20 per cent of the incremental price over $60 per barrel can be taken as tax to subsidise petrol, diesel, LPG and kerosene.

Forty per cent of price beyond $70 per barrel can be taken as windfall tax, 60 per cent for any rate above $80 a barrel and 80 per cent on price over $90 a barrel, it said.

Stating that crude price hike leads to increase in cost of inputs like field service material and equipment, ONGC said: “SOT rate could be calibrated so that ONGC is able to retain some portion of increase in price to cover rise in costs.”

Till last year, upstream companies like ONGC were asked to bear one-third of the total revenue loss on auto and cooking fuel. This year, they have been mandated to bear all of the revenue loss on selling petrol and diesel below cost.

In six years since 2003-04, ONGC has doled out Rs 86,005 crore in fuel subsidies and this year it has already paid Rs 3,059 crore.

ONGC said partial increase in international oil rates need to be passed on the consumers, while a transparent mechanism which includes SOT or windfall tax should be put in place to deal with the uncovered portion of the cost. The uncovered portion of increase in cost of raw material (crude oil) needs to be equitably shared between upstream companies (like ONGC), refineries, oil marketing companies and the government.

While the Central Government should issue bonds to cover for a fixed portion, excise duty should be reduced to lower the impact of spike in international rates.

The state government should also be asked to chip in by forgoing the incremental revenues they get because of sales tax/VAT rates being ad-valorem, it said.  ONGC said, while it was ready to shoulder its responsibility of sharing a part of the burden, “transparency needs to be brought about in the system of sharing of under-recoveries (revenue losses).”

The BK Chaturvedi Committee had last year recommended SOT to kick in at $75 per barrel, but its report hasbeen not implemented.