The Indian government has slashed windfall tax on domestically produced crude oil to nil from Rs 3,500 per tonne effective from Tuesday, 4 April according to a notification. Further, Special Additional Excise Duty on the export of diesel has been cut to Rs 0.5/litre from Re 1/litre. Other than diesel, products like crude, petrol, and ATF have no windfall tax levied.
India had in July imposed the windfall tax on crude oil producers and levies on exports of gasoline, diesel, and aviation fuel after private refiners wanted to make gains from robust refining margins in overseas markets, instead of selling it at home.
Crude oil pumped out of the ground and from below the seabed is refined and converted into fuels like petrol, diesel, and aviation turbine fuel (ATF).
The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.
The decision comes at a time when OPEC+ decided to cut production. The move led to Brent rising by almost 6 per cent to USD 84.58 per barrel on Monday.
This spurt will reverse the softening in rates witnessed in the basket of crude oil that India imports. The Indian basket was hovering in the range of USD 73-74 per barrel for most of the second half of last month and had brightened prospects of a cut in petrol and diesel prices.
What is windfall tax, and 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.
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