Govt scraps windfall profit tax on domestic crude oil & export of fuels after 30 months
New Delhi: In a significant policy shift, the government abolished the windfall profit tax on domestically-produced crude oil and exports of aviation turbine fuel (ATF), diesel, and petrol on Monday, citing a decline in international oil prices. The move comes 30 months after the tax was introduced to curb supernormal profits in the energy sector.
Minister of State for Finance Pankaj Chaudhary informed the Rajya Sabha about the decision through a notification rescinding the June 30, 2022, order that had imposed the special additional excise duty (SAED). The decision also eliminates the road and infrastructure cess (RIC) levied on the export of petrol and diesel.
The windfall profit tax, introduced on July 1, 2022, initially aimed to capitalise on sharp gains in global crude prices following geopolitical tensions, including the Russia-Ukraine conflict. It included export duties of Rs 6 per litre on petrol and ATF, Rs 13 per litre on diesel, and a Rs 23,250 per tonne levy on domestic crude oil production. The rates were reviewed fortnightly based on international oil price trends.
Over its duration, the tax fluctuated considerably. For example, the levy on petrol exports was removed within weeks of its introduction, while the duties on diesel and ATF exports persisted intermittently until March 2023. The duty on crude oil saw its last fluctuation crude oil & export of fuels after 30 months
in August this year, falling from Rs 1,850 per tonne to nil during a fortnightly review.
The government generated significant revenue during the tax’s tenure, earning approximately Rs 25,000 crore in the first year, Rs 13,000 crore in 2023-24, and Rs 6,000 crore in the current fiscal year. However, the declining global oil prices, with India’s import basket averaging $73.02 per barrel in November, prompted the government to scrap the levy entirely.
The decision is expected to benefit key players in the sector. State-owned companies like Oil and Natural Gas Corporation (ONGC) and Oil India Ltd will likely gain from the removal of the crude oil levy. Similarly, private refiners like Reliance Industries Ltd and Rosneft-backed Nayara Energy, which are major exporters, stand to profit from the elimination of duties on fuel exports.
The windfall tax had been a contentious issue since its inception, with industry stakeholders arguing that it disincentivized production and added fiscal uncertainty, especially for private and foreign companies. The Ministry of Petroleum and Natural Gas had been advocating for its removal, citing the adverse impact on investments and profitability.
