The government on Tuesday cut windfall tax on the export of locally produced crude oil to Rs 9,500 per tonne from Rs 11,000 per tonne earlier. However, windfall tax on exports of aviation fuel (ATF) has been increased to Rs 5 per litre from Rs 3.50 per litre. Tax on diesel has also been hiked by Re 1 to Rs 13 per litre. According to the govt notification, the changes in the windfall tax on oil products will be applicable from Wednesday (2 November). The cut in the windfall tax on the sale of locally produced crude oil comes at a time when global oil prices have largely remained steady at around $95 per barrel.
Note that the 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. The rates of the levies are being changed depending on crude prices and the refining spread. From $108 per barrel in March this year, crude oil prices have comes down to around $95 per barrel. On Wednesday, Oil prices rose after data showed a surprise drop in US crude stockpiles, suggesting demand is holding up despite steep interest rate hikes dampening global growth.
Brent crude futures picked up 17 cents, or 0.1%, to $94.82 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose 26 cents, or 0.3%, to $88.63 a barrel. The volatility in crude oil prices continues as the fresh Covid restrictions across Chinese cities have raised demand concerns since China is the second largest importer of crude in the world. Further, talks of a price cap on Russian gas has ensured that supply concerns persist. Additionally, weaker economic data from China and an increase in oil production in the US is also expected to keep crude prices subdued going ahead.
The windfall taxes are likely to generate additional revenues of around Rs 40,000 crore in the current fiscal, a senior official told FE earlier, adding that nearly half of these taxes will likely be paid by private sector companies. If global crude oil prices decline to $70-75/bbl, then the windfall taxes will be scrapped, the official had said. He, however, added that unless this price range is established, the levies may continue subject to fortnight adjustments.
In the previous review on 15 October, the government raised the windfall tax on domestically-produced crude oil to Rs 11,000 from Rs 8,000 per tonne, and the levy on the export of diesel to Rs 12 from Rs 5 per litre, citing a rise in global crude prices in the last fortnight. It also reintroduced a levy of Rs 3.5 per litre on the export of jet fuel, which was removed in the previous fortnightly review.