Shares of RIL and ONGC rise as the government considers lowering windfall taxes on gasoline and diesel

Reliance Industries Limited (RIL) and ONGC stock rose on Thursday on media rumors that the government may cut the newly introduced windfall tax in a meeting on Friday. RIL shares increased by 2.4 percent, ONGC by up to 6.6 percent, and Chennai Petroleum Corp by 4.2 percent.

Bloomberg reports that the administration is contemplating cutting the recently enacted windfall tax. This comes on the heels of falling global crude oil prices, which have lowered profitability for fuel exporters and oil producers.

Windfall tax is essentially a charge placed on corporations whose financials have been enhanced solely by chance or occurrences over which they have no control. Energy businesses, for example, have benefited from the global surge in energy prices caused by Russia’s invasion of Ukraine.

“The collapse in crude oil prices from $126 to $94 (a drop of 25.3%) in six weeks has encouraged the government to explore cutting the windfall tax,” said Bhavik Patel, senior commodity/currency research analyst at TradeBulls Securities. Indian authorities are due to meet on Friday to discuss tax cuts. Considering that the government previously declared that taxes will be assessed every 15 days, the administration is now in the mood to act as prices have decreased dramatically in recent times.”

On July 1, the government announced export levies and limitations on petrol, diesel, and aviation turbine fuel exports (ATF). Domestic producers were requested to pay a windfall tax of Rs 23,250 per tonne on crude oil. Domestic producers profited handsomely from rising international petroleum prices, which recently hit $122 per barrel. Crude oil prices have now dropped below $100 per barrel.

Concerns about a US recession, along with China’s difficulty to exit a crippling period of Covid restraints, have caused global oil prices to plunge by around 20% in recent weeks. Diesel, gasoline, and aviation fuel margins have collapsed in the last two weeks, reducing profitability at India’s biggest fuel exporter Reliance Industries Ltd (RIL), and oil producer Oil and Natural Gas Corporation.

Impact of Lower Windfall Tax on Fuel Refiners

According to industry analysts, private refiners such as Reliance and Rosneft-backed Nayara Energy Ltd. are the greatest losers from the export tax because they account for 80% to 85% of India’s entire gasoline and diesel exports.

“This news would benefit OMCs and private refineries like RIL and ONGC,” Patel added. Not only might their share prices rise owing to a shift in attitude, but if the government reduces windfall tax, we could see more durable upside in RIL and ONGC as lower taxes would improve the firms’ bottom lines.”

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