The oil ministry has told the Prime Minister's Office that the Samajwadi Party's demand for levying a 'windfall profit tax' on private oil producers and refiners is against the tenets of a stable fiscal regime promised by the government while inviting investors and will discourage investments in the country's oil and gas sector.

In a note prepared in reply to a PMO reference, the ministry has pointed out that the "subject of taxation, including the levy of windfall profit tax, falls under the domain of the ministry of finance, which is competent to take an appropriate decision in the matter".

It said the government has already appointed a committee under former cabinet secretary B K Chaturvedi to examine the options for distributing the burden of high oil prices among companies, including producers, refiners, gas and petrochem-makers and refineries that do not have marketing operations.

Implying that since India is a net importer of crude, oil firms in India have not gained as much from high prices, the ministry has pointed out, "Since nearly 80% of crude processed by domestic refineries in India is imported, the cost of production in refineries also moves in tandem with changes in international markets."

"It is recognised worldwide that oil refining is a cyclical industry. There are periods of high refining margins, which spur new investments in refining activity, followed by periods of low margins. Refining margins can even turn negative when markets are faced with surplus product supply or slackening of demand, or both."