RIL, ONGC gain amid report govt may lower windfall tax on fuel on Friday

Shares of Reliance Industries, ONGC, and Chennai Petroleum Corporation ended up to 2 per cent higher on Thursday amid reports that the government may lower the recently implemented windfall tax on oil exporters on July 15. 

According to a Bloomberg report, Centre is considering lowering the recently implemented windfall tax as profits of fuel exporters and oil producers have dwindled due to the crash in global crude prices.

"The measure, aimed at taxing super-normal profits on local oil production, export shipments of gasoline, diesel and jet fuel, will be reviewed at a meeting on Friday. If a cut is decided upon, it could be implemented immediately," the report said citing unnamed officials.

Export taxes on gasoline are likely to see the steepest reduction, while levies on diesel, jet fuel and crude oil could also be reduced to adjust the impact of price declines, the report added.

On the bourses, shares of RIL jumped 2.4 per cent in the intra-day trade, while those of ONGC rose 6.4 per cent. MRPL and Chennai Petroleum Corporation, too, climbed up to 4 per cent. Hindustan Oil Exploration was the only loser, down 0.4 per cent at close. In comparison, the BSE Sensex settled 0.18 per cent lower.

The government, on July 1, had imposed taxes on crude production amid windfall gains from high international prices; as well as on exports of products like petrol and diesel.

Following the government's announcement, Indian oil companies were paying Rs 6 per litre on exports of petrol and ATF, and Rs 13 per litre on exports of diesel. At the same time, upstream producers were paying taxes of Rs 23,250 per tonne of crude oil produced in India.

According to global financial services firm Moody's, the windfall taxes could have generated close to $12 billion (Rs 94,800 crore) for the government in the remainder of the current fiscal while trimming profits of firms such as Reliance Industries Ltd and ONGC.

Goldman Sachs said it saw limited earnings risk for RIL (despite wide scenarios of $1.5-12.7 risk to gross refining margins or GRMs from new taxes) as the spot implied GRM run rate is over $27 per barrel.

HSBC, meanwhile, had said the new tax will lower ONGC earnings by Rs 30 per share, and its impact on RIL would be Rs 36 a share.

That said, analysts had expected this government measure to be temporary and that taxes will be eventually adjusted according to market conditions, including considerations related to inflation, external balances and currency depreciation.

Brent crude oil hit a three-month low of $97.35 per barrel on concerns of a US recession coupled with China's struggle to move beyond a debilitating period of Covid curbs. Margins on diesel, gasoline and aviation fuel have crashed in the past two weeks -- squeezing profits of India's top fuel exporter Reliance Industries Ltd. and oil producer Oil & Natural Gas Corp.