What is a tax on windfall profits for oil companies?

Russia’s attack on Ukraine has upset the supply chain and raised global inflation to uncomfortable levels. And one of the reasons for the rapid inflation is the sharp rise in crude oil prices.

But as government coffers bleed, oil and gas companies around the world are minting money – either up, in the middle or down.

And these gains do not come from any improvement in their processes, but from the geopolitical situation.

Raw prices are now hovering close to $ 120 a barrel. It stood at $ 118 a barrel on Wednesday.

With governments and central banks taking action to curb inflation, there is growing talk of taxing companies that benefit from rising crude oil prices.

Such proposals have been discussed and even imposed in many countries before. Last week, the UK announced a 25% levy on energy companies to ease the financial burden on households. This tax has also been introduced by some other countries, such as Italy and Hungary.

A senior government official told Business Standard on condition of anonymity that although it is theoretically possible to introduce a tax on windfall revenues to oil companies in India, this has not been discussed in the current regime.

State-owned companies Oil India and the Oil and Natural Gas Corporation (ONGC) said Monday they had not heard anything from the government in response to speculation about a tax on windfall profits.

And if a tax on windfall profits is introduced in India, it will be levied not only by private players like Reliance but also by state giants. This means that the latter may have to compromise on dividends and share repurchases of which the center is a beneficiary.

The center could make an additional mobilization of funds as it faces a growing burden of expenditure and a blow to revenue in the 23rd financial year. The estimated budget for fertilizer subsidies for the 23rd year is Rs 1.05 trillion.

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