Cess on domestic crude likely to be halved
OIL & GAS

Cess on domestic crude likely to be halved

The Centre may give a “Make in India” push to oil and gas explorers, as it is considering a proposal for almost halving cess on domestic crude oil to encourage exploration activity and allow the pandemic-hit oil producers to protect their margins.

Crude oil prices were pushed down to unprecedented levels due to the glut in the oil market and deep suppressing demand during the peak-pandemic period in 2020.

Cess on domestic crude is currently levied at the rate of 20% of the oil value. Official sources said the proposal by the Ministry of Petroleum and Natural Gas (MoPNG) is to reduce it to 10%. If the Finance Ministry accepts this, the changes may be announced as part of Budget 2021 proposals, said sources.

Though the larger view favours halving the cess, the exact quantum would be worked out later. The levy reduction has huge revenue implications as Oil and Natural Gas Corporation Ltd (ONGC) alone pays over Rs 10,000 crore annually.

The changes would also provide a level playing field to domestic companies as imported crude does not attract cess.

In the FY17 Budget, the Finance Ministry had revised oil cess, shifting it from a specific charge of Rs 4,500 per tonne of crude to an ad valorem rate of 20%. This was done to help the exploration firms from higher cess burden when crude oil prices were falling.

Though oil prices are moving at over Rs 3,647 a barrel for some time now, fluctuations in pricing always put domestic crude producers at a disadvantage. The problem is magnified as cess incurred by producers is not recoverable from refineries and forms part of the production cost of crude oil. The Oil Industry (Development) Act, 1974, provides for the collection of cess as a duty of excise on indigenous crude oil. This adds to the loss of revenue for exploration companies.


4th Indian Cement Review Conference 2021

17-18 March 

Click for event info


Make in Steel 2021

24 February 

Click for event info


The government is planning to reduce the tax burden on oil companies to rev up domestic production that has stagnated for several years at around 30-35 million tonne.

The reduction in oil cess would benefit upstream companies such as ONGC, and Cairn India, whose production is subjected to the oil industry development levied on an ad valorem basis.

Under the new open acreage licensing policy (OALP), which provides pricing and marketing freedom to operators and the power to select the block for exploration, it does not attract oil cess. This puts the older oil and gas blocks at a disadvantage to any new hydrocarbon finds.

ONGC and Oil India Ltd (OIL) currently pay a cess on crude oil they produce from their allotted fields on a nomination basis. Cairn Oil and Gas has to pay the same cess for oil from the Rajasthan block.

Most of the crude oil produced in India comes from pre-New Exploration Licensing Policy (NELP) and nomination blocks and is liable for payment of cess. NELP blocks like Reliance Industries' KG-D6 are exempt from payment of cess while pre-NELP discovered blocks like Panna/Mukta and Tapti and Ravva pay a fixed rate of cess of Rs 900 per tonne.

The cess was levied at Rs 60 per tonne back in July 1974 and subsequently revised from time to time. In 2005-06, when the crude oil prices had increased from an average of Rs 2,917 per barrel to Rs 4,376, the oil industry development (OID) cess was raised to Rs 2,500 per tonne from Rs 1,800 from March 2006. When the crude prices climbed to over $100, the rate of cess went up to Rs 4,500 with effect from March 2012.

Image Source

The Centre may give a “Make in India” push to oil and gas explorers, as it is considering a proposal for almost halving cess on domestic crude oil to encourage exploration activity and allow the pandemic-hit oil producers to protect their margins. Crude oil prices were pushed down to unprecedented levels due to the glut in the oil market and deep suppressing demand during the peak-pandemic period in 2020. Cess on domestic crude is currently levied at the rate of 20% of the oil value. Official sources said the proposal by the Ministry of Petroleum and Natural Gas (MoPNG) is to reduce it to 10%. If the Finance Ministry accepts this, the changes may be announced as part of Budget 2021 proposals, said sources. Though the larger view favours halving the cess, the exact quantum would be worked out later. The levy reduction has huge revenue implications as Oil and Natural Gas Corporation Ltd (ONGC) alone pays over Rs 10,000 crore annually. The changes would also provide a level playing field to domestic companies as imported crude does not attract cess. In the FY17 Budget, the Finance Ministry had revised oil cess, shifting it from a specific charge of Rs 4,500 per tonne of crude to an ad valorem rate of 20%. This was done to help the exploration firms from higher cess burden when crude oil prices were falling. Though oil prices are moving at over Rs 3,647 a barrel for some time now, fluctuations in pricing always put domestic crude producers at a disadvantage. The problem is magnified as cess incurred by producers is not recoverable from refineries and forms part of the production cost of crude oil. The Oil Industry (Development) Act, 1974, provides for the collection of cess as a duty of excise on indigenous crude oil. This adds to the loss of revenue for exploration companies. 4th Indian Cement Review Conference 202117-18 March Click for event infoMake in Steel 202124 February Click for event infoThe government is planning to reduce the tax burden on oil companies to rev up domestic production that has stagnated for several years at around 30-35 million tonne. The reduction in oil cess would benefit upstream companies such as ONGC, and Cairn India, whose production is subjected to the oil industry development levied on an ad valorem basis. Under the new open acreage licensing policy (OALP), which provides pricing and marketing freedom to operators and the power to select the block for exploration, it does not attract oil cess. This puts the older oil and gas blocks at a disadvantage to any new hydrocarbon finds. ONGC and Oil India Ltd (OIL) currently pay a cess on crude oil they produce from their allotted fields on a nomination basis. Cairn Oil and Gas has to pay the same cess for oil from the Rajasthan block. Most of the crude oil produced in India comes from pre-New Exploration Licensing Policy (NELP) and nomination blocks and is liable for payment of cess. NELP blocks like Reliance Industries' KG-D6 are exempt from payment of cess while pre-NELP discovered blocks like Panna/Mukta and Tapti and Ravva pay a fixed rate of cess of Rs 900 per tonne. The cess was levied at Rs 60 per tonne back in July 1974 and subsequently revised from time to time. In 2005-06, when the crude oil prices had increased from an average of Rs 2,917 per barrel to Rs 4,376, the oil industry development (OID) cess was raised to Rs 2,500 per tonne from Rs 1,800 from March 2006. When the crude prices climbed to over $100, the rate of cess went up to Rs 4,500 with effect from March 2012. Image Source

Next Story
Infrastructure Transport

JNPA Becomes First Indian Port to Cross 10 Million TEU Capacity

The Jawaharlal Nehru Port Authority (JNPA), located at Uran in Navi Mumbai, has become the first port in India to achieve over 10 million TEUs (twenty-foot equivalent units) in container handling capacity.With the recent expansion, the port now operates five container terminals with a combined capacity of 10.4 million TEUs, alongside two liquid and two general cargo terminals.Handling more than half of India’s container traffic, JNPA processed 7.05 million TEUs in 2024 and has moved 15.39 million tonnes of containers and 16.64 million tonnes of total cargo in the first two months of FY 2025..

Next Story
Infrastructure Transport

Nod for Rs. 36.26 billion Expansion of Pune Metro Line 2

The Union Cabinet has approved the Rs.36.26 billion expansion of Pune Metro Line 2, adding 12.75 km of track and 13 new stations to improve east–west connectivity across the city.The project aims to link Pune’s urban core with rapidly growing suburbs, supporting the city’s rising demand for efficient and sustainable transport solutions. This expansion is part of Corridor 2 of the Pune Metro and includes two key routes: Vanaz to Chandani Chowk (Corridor 2A) and Ramwadi to Wagholi/Vitthalwadi (Corridor 2B).It will connect residential, IT, and educational hubs in areas such as Bavdhan, Koth..

Next Story
Infrastructure Transport

Assembly begins for ‘Nayak’ TBM on Thane– Borivali Twin Tunnel Project

The assembly of ‘Nayak’, the first of four Tunnel Boring Machines (TBMs) for the Thane–Borivali Twin Tube Tunnel Project, has commenced at the Thane site. Built by German firm Herrenknecht AG and deployed by Megha Engineering & Infrastructure (MEIL), the TBM marks a key milestone in Mumbai’s ambitious 11.8-km underground road corridor beneath Sanjay Gandhi National Park.The twin tunnels will reduce the Thane–Borivali travel distance by 12 km and decongest Thane Ghodbunder Road. ‘Nayak’, with a 13.2-metre diameter, is designed to bore through challenging geological conditions ..

Advertisement

Advertisement

Subscribe to Our Newsletter

Get daily newsletters around different themes from Construction world.

STAY CONNECTED

Advertisement

Advertisement

Advertisement

Advertisement

Talk to us?