The 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 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.
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
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Oil prices steadied in early Asian trade on Tuesday after OPEC+ plans to cut more production jolted markets the previous day, with investors’ attention shifting to demand trends and the impact of higher prices on the global economy. Brent crude futures fell 2 cents to $84.91 a barrel. U.S. West Texas Intermediate (WTI) crude futures were trading at $80.47 a barrel, up 5 cents. Both benchmarks jumped more than 6% on Monday after the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, collectively known as OPEC+, rocked markets with Sunday’s announcement of plans to lower output targets by a further 1.16 million barrels per day (bpd).
