Finance Ministry Considers Scrapping Windfall Tax On Crude Says PMO Advisor; What This Means?

The Union finance ministry is contemplating the removal of the windfall tax on domestically produced crude oil, as stated by Tarun Kapoor, an advisor to Prime Minister Narendra Modi's office, on October 23. Kapoor noted that the relevance of this tax has diminished, given the substantial decline in global oil prices compared to 2022 when the tax was initially implemented.

Kapoor mentioned that the finance ministry will evaluate the situation, and he indicated that the petroleum ministry has already communicated its views on the matter.

As global oil prices have softened sharply, the government took steps to adjust the windfall tax earlier this year, reducing the levy on domestically produced crude oil by 11.9% to Rs 1,850 per tonne, down from Rs 2,100 per tonne, effective August 31. The windfall tax on the export of diesel and ATF remains at nil.

This potential scrapping of the windfall tax could provide substantial relief for major oil players like Reliance Industries and Oil and Natural Gas Corporation (ONGC), especially as they recently formed a partnership to bid for an oilfield exploration license.

The windfall tax was introduced in 2022 amid soaring global oil prices, aimed at capturing excess profits from oil producers during a time of heightened market volatility. This tax included a cess on domestic crude production and targeted exporters of diesel, petrol, and aviation turbine fuel (ATF). At that time, the government raised export duties significantly, with diesel facing an increase of Rs 13 per litre, petrol by Rs 6 per litre, and ATF by Rs 1 per litre.

To further regulate the market, the Indian government mandated that exporters sell a portion of their products domestically-50% of petrol and 30% of diesel-based on their total shipping bill.

*Inputs from Reuters*