Windfall Tax Hiked On Sale Of Crude; Export Duty On ATF, Diesel Slashed Amid Rising Oil Prices

The government has hiked the windfall tax rate on domestically produced crude oil to Rs 10,000 per tonne. Earlier, windfall tax stood at Rs 6,700 per tonne. The revised windfall tax has come into effect from Saturday, September 16, 2023, onward. However, the Centre trimmed export duty on diesel and aviation turbine fuel. Oil marketing companies and aviation stocks will be in focus in the coming trading days. The move also comes when international crude oil prices have rallied to a 10-month high and embarked on fresh highs in 2023.

In the previous revision which was on September 2, the government had cut windfall tax to Rs 6,700 per tonne from Rs 7,100 per tonne.

From September 16, 2023, the government reduced export duty on diesel to Rs 5.50 per litre from the previous Rs 6 per litre. While duty on ATF or jet fuel was slashed to Rs 3.50 per litre compared to the earlier rate of Rs 4 per litre.

However, the export duty on petrol continues to be nil.

The government first imposed windfall tax was effective from July 1, 2022. During this time, the Centre levied a special additional excise duty of Rs 6 per litre each on petrol and ATF, and Rs 13 per litre duty on the export of diesel. While the windfall tax was at Rs 23,250 per tonne for the sale of domestic crude. It also increased customs duty from 10.75% to 15% to curtail the current account deficit (CAD).

The need for a windfall tax emerged when crude oil prices were extremely volatile in 2022, resulting in very high prices for end consumers at petrol pumps. To mitigate the adverse impact on consumers, "Windfall tax" is one of the measures which helps in dealing with the situation. The extent of its applicability, reference period, amount of cess/ tax/ duty, incidence of tax liability, and mechanism for review are integral to such a tax.

On September 15, crude oil prices recorded their third straight weekly gains and moved to touch fresh highs in the current year. This week crude prices have zoomed by at least 3%. The Brent crude futures have rallied to cross over $94 per barrel mark, while the US crude futures breached over $91 per barrel levels. Year-to-date, oil prices have seen a spike of a massive 13%. Last month alone, the prices skyrocketed by 15%.

Highlighting the impact of the surge in crude prices, Nirpendra Yadav, Senior Commodity Research analyst, Swastika Investmart earlier said that the rising crude oil prices will once again kick off global inflation and increase India's import bill. Saudi Arabia's and Russia's extension of oil output cuts will result in tight supply for the rest of the year.

According to Yadav, India is one of the biggest crude oil importers, so an increase in crude oil prices can substantially impact its current account deficit. India heavily depends on the import of crude oil to meet its needs, higher crude oil prices can lead to a higher import bill.

He added, "This will negatively impact the trade balance as India will have to pay more for the same quantity of crude oil. The higher import bill for oil will widen the trade deficit and lead to inflationary pressure in the economy as the cost of production and transportation increases due to higher fuel prices. Businesses can pass on this increased cost to the end consumer."

Further, as per Clear report, a windfall tax is a higher tax levied by the government on specific industries when they experience unexpected and above-average profits. The windfall tax is hiked to make the companies that enjoyed a sudden increase in profit pay a fair share of their money. It will help the government overcome losses from the recent financial crisis. This crisis is affecting the Indian economy, and Government need to compensate for that. The government has planned a windfall tax hike to recover its losses.