Govt likely to levy windfall profit tax on domestic natural gas: Report

The Union government may bring domestic natural gas under the ambit of windfall profit tax, as it explores various options to meet rising fuel, food and fertiliser subsidy bills, Hindustan Times has reported, citing two people aware of the development.

The domestic natural gas is a key input in fertiliser production. 

 “This is one of the various proposals being considered to mobilise additional resources with the government’s fertiliser subsidy alone expected to surge above ₹2.5 lakh crore in FY23, an over 138 percent jump from the Budget Estimate (BE),” they added on anonymity.

They further added that if possible, the proposal could have a retrospective effect.

As per the report, two industry experts working for gas producers said on anonymity that the idea to impose windfall tax on domestic gas is not justified as gas prices are fixed by a government-approved formula. 

“Besides, price of gas produced from the deepwater blocks are little more than $12 [per unit], which is significantly below the international gas prices hovering around $40. As producers are denied market price, there is no reason to impose windfall tax,” one of them said.

Another expert added that said that there is no correlation between fertiliser subsidy and domestically produced natural gas as imported LNG is mostly used in fertiliser plants. 

The fertiliser sector requires about 45 million metric standard cubic metres per day (mmscmd) gas. While 15-18 mmscmd are met through long-term LNG contracts, about 15 mmscmd gas is supplied by state-run domestic producers such as ONGC and balance is purchased in the spot market.

During the visit the US, Finance Minister Nirmala Sitharaman in conversation with eminent economist Eshwar Prasad at the prestigious Brookings Institute had said, “There are things happening outside, which are definitely hitting us…, Fertiliser, it is at a great risk. Last year, we had to give 10x [ten times more] the price on [its] imports, and obviously Indian farmers are still not really large farmers [who can afford it].”

She had also added that the next annual budget of India will have to be very carefully structured to sustain the country’s growth momentum.

“Specifics (of the next budget) may be difficult at this stage because it’s a bit too early. But broadly, the growth priorities will be kept absolutely on the top. Even as I speak about the concerns that inflation brings before me. So, inflation concerns will have to be addressed. But then how would you manage growth would be the natural question,” Sitharaman said.

Earlier on Wednesday, the government had approved a one-time grant of ₹22,000 crore to state run fuel retailers for selling cooking gas (LPG) at below market rates. The Union Cabinet headed by Prime Minister Narendra Modi at a meeting on Wednesday, approved the one-time grant to three oil marketing companies – Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), Anurag Thakur told a news briefing.

The grant was for covering the losses they incurred on selling LPG below cost to consumers from June 2020 to June 2022. The three firms sell domestic LPG at government-regulated prices to consumers. Between June 2020 to June 2022, the international prices of LPG soared by around 300 per cent.

However, to insulate consumers from fluctuations in international LPG prices, the cost increase was not fully passed on to consumers of domestic LPG, an official statement said.

Accordingly, domestic LPG prices have risen by only 72 per cent during this period, it said adding this led to significant losses for the three firms.

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