Oil & Gas Stocks In Focus: No More Windfall Tax On ATF, Petrol, Diesel Exports From December 2

In a major good news for oil and gas giants like Reliance Industries and ONGC, the Indian government has scrapped the windfall tax on domestically produced crude products. Accordingly, the windfall tax has been abolished on exports of aviation turbine fuel (ATF), petrol, diesel, and crude products. The development has come into effect from December 2, 2024.

One of the key reasons for the withdrawal of the windfall tax is that the industry players could not enhance their production levels and were broadly unhappy with the tax, as per reports.

Additionally, average crude oil prices have been broadly steady in recent times, which is why, the majority of segments like ATF, petrol or diesel were continuing on zero taxes and hence were not garnering much revenue.

As per data from PPAC, the government has not levied any excise duty on Special Additional Excise Duty(SAED) of domestic oil production since September 18, 2024. The last time windfall tax was revised was on August 31, 2024, to Rs 1,850 per MT on SAED. This was a decline from the windfall tax of Rs 2,100 imposed on August 17, 2024.

Meanwhile, the government have kept windfall tax on SAED for the sale of diesel nil since March 1, 2024, after levying Rs 1.50 per litre on February 16, 2024. The last windfall on SAED for ATF products was at Rs 1 on December 19, 2023, and has been nil after that. The tax on petrol products has been nil since July 20, 2022.

Generally, the government would revise the windfall tax every 15 days of a month since July 2022.

The government first imposed windfall tax was effective from July 1, 2022. During this time, the Centre levied a special additional excise duty of Rs 6 per litre each on petrol and ATF, and Rs 13 per litre duty on the export of diesel. While the windfall tax was at Rs 23,250 per tonne for the sale of domestic crude. It also increased customs duty from 10.75% to 15% to curtail the current account deficit (CAD).

The need for a windfall tax emerged when crude oil prices were extremely volatile in 2022, resulting in very high prices for end consumers at petrol pumps. To mitigate the adverse impact on consumers, "Windfall tax" is one of the measures which helps in dealing with the situation. The extent of its applicability, reference period, amount of cess/ tax/ duty, incidence of tax liability, and mechanism for review are integral to such a tax.

The windfall tax decision comes at a time when global crude prices are exhibiting significant volatility.

On Monday, Rahul Kalantri, VP of Commodities, Mehta Equities said, crude oil exhibited significant volatility, retreating from recent highs due to easing supply concerns following the ceasefire between Israel and Hamas. Additionally, prices fell after U.S. President-elect Donald Trump announced plans to impose a 10% tariff on China. Last week's U.S. economic data was mixed, offering little support to oil prices. However, a weaker dollar index and U.S. bond yields helped stabilize crude oil at lower levels.

Kalantri added that the postponement of the OPEC+ meeting from 1st December to 5th December also provided some support to oil prices. He said, "We anticipate that crude oil prices will remain volatile in today's session. Key support levels for crude oil are at $67.80-67.45, with resistance at $68.65-69.25. In INR terms, support is at ₹5,755-5,700, while resistance lies at ₹5,870-5,940."

Accordingly, oil and gas stocks are in focus.