No More Windfall Tax On Crude Starting Today; Major Oil Stocks In Focus

In a major decision that could have repercussions across the board in major sectors, particularly the energy and discom avenue, the government recently announced the scrapping of the Windfall Tax on crude oil. This new regime with a 'nil' windfall tax on non-renewable source energy kicks in today, that is, Wednesday, September 18.

Windfall Tax Is Gone

Here, a 'Windfall Tax' is a system that allows the taxation of the profits of businesses making large sums of money as a result of an exceptional occurrence. The windfall tax was implemented in the 1970s. However, since its inception, this tax structure has been the subject of discussion.

This is the second time that the regime of windfall tax has been reduced to nil or scrapped. The previous tranche of tax was reintroduced in July 2022.

Scrapping After Sucessive Cuts

In addition, this regime was later extended to tax on the export of petrol, diesel and aviation fuel because private refiners preferred to sell fuel abroad rather than domestically in order to benefit from high refining margins.

A month ago, on August 16, the central government brought the windfall tax on crude oil to Rs 2,100 per tonne. This meant a mammoth 54 per cent reduction in the tax levied. Two weeks later, the rate was further slashed to the current Rs 1,850 per tonne.

Gas and Oil Stocks In Focus

This measure comes at a crucial juncture, as the major Indian states including Haryana and Maharashtra are lining for elections, later this year.

With this crucial decision, major oil and gas stocks, particularly publicly owned entities like Oil and Natural Gas Corporation Ltd. (ONGC), Indian Oil Corporation Ltd. (IOC), Bharat Petroleum Corporation Ltd. (BPCL), Hindustan Petroleum Corp. Ltd. (HPCL), Gas Authority of India Limited (GAIL) and Oil India Ltd. (OIL), would be in focus.