Government Slashes Windfall Tax On Crude Oil, Diesel Exports, Boosts Aviation Fuel Levy

The Indian government has announced a substantial reduction in the windfall profit tax on domestically produced crude oil and diesel exports. The announcement, made on December 18, highlights a cut in the Special Additional Excise Duty (SAED) imposed on these commodities.

Effective today, December 19, the SAED on domestically produced crude oil sees a reduction from Rs 5,000 per tonne to Rs 1,300 per tonne. Simultaneously, the SAED on diesel exports has been scaled down from Rs 1 per litre to Rs 0.50 per litre.

However, amidst these reductions, the government has introduced a new levy on aviation turbine fuel (ATF) exports. The previously non-existent tax is set at Rs 1 per litre and will also be effective from December 19. On the other hand, the SAED on petrol will remain unaffected, persisting at a rate of zero.

The windfall tax undergoes fortnightly revisions, responding to the fluctuations in international crude and product prices. In the latest announcement, the government has continued its trend of revising the tax to align with the changing market dynamics.

In July 2022, India introduced the windfall tax in response to the escalating price of crude oil. This tax is imposed when an industry unexpectedly generates substantial profits, typically attributed to an unprecedented event. For domestically produced crude oil, the tax triggers when global benchmark rates exceed $75 per barrel. For diesel, ATF, and petrol exports, the levy is applicable when product cracks or margins surpass $20 per barrel.

Product cracks or margins represent the difference between the cost of crude oil (raw material) and the value of the finished petroleum products. The periodic adjustments in the windfall tax aim to strike a balance between supporting the industry and managing the impact of global price fluctuations.

The recent reduction in SAED follows the government's commitment to easing the burden on domestic producers, providing them with the necessary support to navigate challenges in the energy market. Key players in fuel export in India, including Reliance Industries Ltd and Nayara Energy, are expected to benefit from these policy adjustments.

This move comes as part of a series of changes made in response to the evolving global oil market. In the latest adjustment, the SAED on domestically produced crude oil has seen a significant cut from Rs 6,300 per tonne to Rs 5,000 per tonne on December 1. Prior to that, on November 16, the windfall tax was slashed by Rs 3,500, bringing it down from Rs 9,800 per tonne to Rs 6,300 per tonne.

Earlier on November 1, the government raised the tax on crude oil from Rs 9,050 per tonne to Rs 9,800 per tonne. Subsequently, the duty on diesel exports was reduced by half to Rs 2 per litre, and the levy on jet fuel was eliminated, bringing it down from Rs 1 per litre to nil.

India's key players in the fuel export sector, such as Reliance Industries Ltd, operating the world's largest single-location oil refinery complex in Jamnagar, Gujarat, and Nayara Energy, backed by Rosneft, are closely watching and adapting to these policy changes.