The government on Wednesday increased windfall tax on domestically produced crude oil, while the levy on export of diesel was reduced. The tax on crude oil produced by domestic firms such as state-owned Oil and Natural Gas Corporation (ONGC), was hiked to Rs 10,200 per tonne, from Rs 9,500 per tonne earlier, with effect from 17 November, according to the government notification. In the ninth fortnightly revision of windfall tax, the tax rate on export of diesel has been cut to Rs 10.5 per litre, from Rs 13 per litre earlier. The export tax on jet fuel or ATF, which was set at Rs 5 a litre in the last review, has been kept unchanged.
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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 by the central government. 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 come down to around $92 per barrel. On Thursday, oil prices fell for a second day as concerns over geopolitical tensions eased and rising numbers of COVID-19 cases in China added to demand worries in the world’s largest crude importer.
Brent crude futures dropped by 62 cents, or 0.7% to $92.24 a barrel, while US West Texas Intermediate (WTI) crude futures fell 65 cents or 0.8% to $84.94 a barrel. Brent dropped by 1.1% and WTI declined by 1.5% on Wednesday after Russian oil shipments via the Druzhba pipeline to Hungary restarted. The windfall tax is expected to generate additional revenues of around Rs 40,000 crore in the current fiscal, a senior official had 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.
Indian government first imposed windfall profit taxes on 1 July, joining a growing number of nations that tax super normal profits of energy companies. At that time, export duties of Rs 6 per litre each were levied on petrol and aviation turbine fuel and Rs 13 a litre on diesel. A Rs 23,250 per tonne windfall profit tax on domestic crude production was also levied. The duties were partially adjusted in the following fortnightly review on 20 July, 2 August, 19 August, 1 September, 16 September, 1 October, 15 October and 1 November 2022.
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For the uninitiated, while the windfall profit tax is calculated by taking away any price that producers are getting above a threshold, the levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments. These margins are primarily a difference of the international oil price realised and the cost. The Windfall gain tax counts toward the government’s income. Hence, the revenue from windfall taxes can help the government make up for the losses.