The Central Government on Thursday cut the windfall tax or the special additional excise duty (SAED) on domestically produced crude oil. The windfall tax on domestically produced crude petroleum has been reduced to Rs 3,500 from Rs 4,400/tonne over the past two weeks. The additional duty on diesel has been hiked to Re 1 from Rs 0.5/litre earlier. There is no change on the levy on aviation turbine fuel (ATF) or jet fuel, according to the latest notification issued by the Ministry of Finance. The levy on petrol continues to be nil.
What is windfall tax, why is it imposed?
On July 1, windfall profit taxes were first imposed on Indian companies as the country joined a growing number of nations that tax supernormal profits of energy firms. However, international oil prices have cooled since then, eroding the profit margins of both oil producers and refiners. The government levies tax on windfall profits made by oil producers on any price they get above a threshold of USD 75 per barrel. The levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments. These margins are primarily the difference between the international oil price realised and the cost.
Windfall tax is levied as a special additional excise duty which is aimed at absorbing the super-profits earned by domestic crude oil producers due to high global crude, product prices and is revised every fortnight by the central government. The rates of the levies are being changed depending on crude prices and the refining spread. The Indian government in July last year imposed the windfall tax on crude oil producers and levies on exports of gasoline, diesel and aviation fuel after private refiners sought overseas markets to gain from robust refining margins, instead of selling at lower-than-market rates in the country.
Crude Oil Prices
Oil prices stabilised on Tuesday after falling early in the previous session on investor worries that recent banking-sector problems would weigh on the global economy and limit demand for crude. Brent crude futures for May settlement gained 5 cents and traded at $73.84 per barrel by 0049 GMT. U.S. West Texas Intermediate (WTI) crude futures rose 9 cents to $67.73 a barrel. In the previous session, both Brent and WTI fell about $3 a barrel before settling higher.