The government has cut windfall tax on locally produced crude oil and exports of aviation turbine fuel (ATF) and diesel. According to the government notification dated 16 January, windfall tax on crude has been reduced to Rs 1,900 per tonne from Rs 2,100 per tonne earlier. The government also cut export tax on ATF to Rs 3.5 per litre from Rs 4.5 per litre. The export tax on diesel has been reduced to Rs 5 per litre from Rs 6.5 per litre earlier, effective Tuesday. The special additional excise duty on petrol continues to remain unchanged at ‘nil’.
What is windfall tax, why is it imposed?
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. India, the world’s largest consumer and importer of oil, has been buying Russian crude barrels at well below a $60 price cap agreed by the West. 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.
In order to tax the supernormal profits being made by domestic producers of crude petroleum when international crude prices rose to over $100 per barrel, the government had imposed these taxes. These comprised special additional excise duties of Rs 13 per litre on diesel exports and Rs 6 per litre each on petrol and aviation turbine fuel exports. The government had also imposed a special additional excise duty of Rs 23,250 per tonne on domestic crude oil production. No windfall tax is applicable on exports from special economic zones. The taxes have been reviewed on a fortnightly basis since then and have seen reduction in recent weeks due to the cooling crude oil prices. The rates of the levies are being changed depending on crude prices and the refining spread.
India’s energy imports rise
Note that Energy imports by India jumped in the nine months ended December as domestic demand remained high amid the global energy crisis. India imported petroleum, crude and related products worth $163.91 billion in April-December, up almost 46% on-year. Russia was the fourth biggest importer to India as imports rose 399.73% on-year in April to December 2022. Imports from Russia rose from $6.58 billion from April to December 2021 to $32.88 billion in 2022, likely to have been driven by crude. India stepped up it import of crude oil from Russia as the latter offered discounted rates. India has benefited from buying cheaper Russian crude oil as it saved thousands of crores of rupees.
Windfall gains taxes may fetch Rs 30,000 cr for government
The government is expected to earn about Rs 30,000-35,000 crore from the windfall gains taxes on oil companies this fiscal due to the falling global crude oil prices and the reduction in the levies since they were imposed on 1 July 2022. While the finance ministry had not given an official estimate of the revenue to be raised from the taxes, it was expected initially that it would raise at least about Rs 60,000 crore this fiscal. “Given the recent trends in crude oil prices and the series of revisions in the windfall gains taxes, it is estimated that the revenue from it would be in the range of Rs 30,000 crore,” a person familiar with the development told FE last month.