Windfall Tax : The Indian government has decided to cut down windfall tax on petroleum crude from ₹3500 per tonne to zero per tonne which will be effective from May 16.
The government previously cut down the tax from ₹6,400 to ₹4,100 in April after a big hike. The government levies a tax on windfall profits made by oil producers on any price they get above a threshold of USD 75 per barrel.
This decision did not change the previous tax cut on oil and aviation turbine fuel (ATF), i.e., remains zero. The windfall tax on crude oil was first introduced on July 1, last year, this step was driven by economic needs and redistribution of extra wealth.
On the other hand, the windfall tax is cut down to encourage investment and for diplomatic grounds as it affects the export duties as well.
The reduction in tax promotes the growth of the company which leads to a rise in stock prices which ultimately provides the motive of attracting and encouraging investors. The windfall tax on petroleum crude and ATF are scrutinized every fortnight.
Although the motive behind the tax cut might sound diplomatic the outcome favors higher profit margins for the corporations that directly or indirectly are related to the products.
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Oil and gas stocks remained steady in India but the tax cut announcement led to a hype in stocks of giants like Oil India Limited (OIL), Oil and Natural Gas Corporation (ONGC), and Gas Authority of India Limited (GAIL).
The significant hike in stock price signifies the enthusiastic welcome of tax cuts in India.
All these giants have seen a rise of over 3% in share prices from the past announcement. In the bigger picture, all these companies have seen a similar rise of around 28% in stock price. These numbers and statistics certainly encourage investment, which ultimately will benefit the government as well.
Not only the giants but the whole sector is benefited in terms of profit margin and rising portfolio but the established giants are always the first to steal the limelight. Such tax reductions are the governments’ planning for long-term benefits and continuous investment.
However, apart from being a self-sufficient scheme, it is mandatory for the government to regularly monitor how the profits and tax cuts are utilized by the companies.
The government supposes that the extra wealth is used for the betterment of the company, that is, infrastructure, production unit, and also investment in futuristic opportunities and technologies.
