The government may levy a windfall tax on oil producers like Oil and Natural Gas Corp (ONGC) as part of a permanent solution it is working on for moderating the spiralling retail prices of petrol and diesel.

The tax, which may come in form of a cess, will kick in the moment oil prices cross $70 per barrel, sources privy to the development said.

Under the scheme, oil producers, who get paid international rates for the oil they produce from domestic fields, would have to part with any revenue they earn from prices crossing $70 per barrel mark.

The revenues so collected would be used to pay fuel retailers so that they absorb spikes beyond the threshold levels, they said.This may be accompanied by a minor tinkering with excise duty rates to give immediate relief to consumers. States too would be asked to cut sales tax or VAT to show a visible impact on retail prices.

The government raised excise duty nine times between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre.

The Centre levies Rs 19.48 as excise duty on a litre of petrol and Rs 15.33 on diesel. State sales tax or VAT varies from state to state. Unlike excise duty, VAT is ad valorem and results in higher revenues for the state when rates move up.