Natural gas windfall profits may be taxed by the government

Oct 14, 2022 | GST FAQ, News | 0 comments

The Union government may bring domestic natural gas, a key input in fertilizer production, under the ambit of windfall profit tax, making its treatment of the commodity consistent with the way it deals with indigenously produced crude oil and exports of fuel, as it explores various options to meet rising fuel, food and fertilizer subsidy bills, two people aware of the development said.

This is one of the various proposals being considered to mobilize additional resources with the government’s fertilizer subsidy alone expected to surge above 2.5 lakh crore in FY23, an over 138% jump from the Budget Estimate (BE), they added, requesting anonymity.

The two people said it’s possible that, if accepted, the proposal could have a retrospective effect.

Union finance minister Nirmala Sitharaman, who is in the US, said in a conversation with economist Eswar Prasad on Tuesday that disruptions in global fuel supplies have impacted fertilizer prices, one of the key inputs for millions of poor Indian farmers. “There are things happening outside, which are definitely hitting us…, Fertiliser, it is at 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 said.

The Cabinet on Wednesday approved a one-time grant of ₹22,000 crore to state-run oil marketing companies that took a hit on cooking gas between June 2020 and June 2022, which is 450% jump from ₹4,000 crore direct transfer of LPG subsidy in BE for 2022-23.

The government also extended its enhanced free grain scheme for another three months up to December 31 with additional financial implication of 44,762 crore, which is over and above 80,000 crore already spent so far in 2022-23, the two added.

“The government is committed to shielding farmers and underprivileged section of society from price rise, which is mainly due to factors beyond its control, such as supply chain disruptions because of the Ukraine war and global oil producers’ move to keep fuel rates artificially high. In such circumstances, sectors having windfall gains must contribute a part of their windfall profit for the common good,” one of the two said.

From July 1, the government imposed a windfall profit tax on domestically produced crude oil and exports of petrol, diesel and aviation turbine fuel (ATF). It adjusts these levies every fortnight based on their respective price volatility. So far, it has spared natural gas from the ambit of windfall profit tax.

Prices of domestically produced gas, which are linked with international benchmarks, have also surged significantly because of supply concerns due to the Ukraine war and western sanctions against Russia, a second official said. “As this surge in profit is purely windfall, without any additional costs to producers, they must share a part of it with government in shielding the poor from rising fuel and fertiliser prices,” he said

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