Windfall Tax On Crude Reimposed, Diesel's Export Duty Removed

In an effort to rationalise tax structure in the petroleum sector and promote investments, the government has reimposed the windfall tax on domestic crude oil production at Rs 6,400 per tonne, as per a Moneycontrol report.

It is expected that the reimposing of the windfall tax on oil production would generate additional revenue for the government, while the removal of export duty on diesel may provide relief to the manufacturing sector.

A windfall tax is a higher tax levied by the government on specific industries when they experience unexpected and above-average profits.

Earlier in April the Central Board of Indirect Taxes and Customs (CBIC) had decided to cut the windfall tax on crude oil from Rs 3,500 (42.56 USD) per tonne to nil while reducing the export duty on diesel to 50 paise. Now again the government has decided to reimpose it to earn revenue.

The government has also decided to increase the Special Additional Excise Duty (SAED) on crude petroleum from nil to Rs 6,400 per tonne. However, the SAED on petrol and Aviation Turbine Fuel (ATF) will remain unchanged at nil. While it has decided to remove the export duty levied on diesel, after which, the SAED on diesel will become nil from Rs 0.50 per litre.

This move is expected to impact oil companies, as now they will have to pay a higher tax on the sale of crude oil in the domestic market. However, for the manufacturing sector, the removal of export duty on diesel is expected to provide relief as it relies heavily on diesel for power generation and transportation.

The government had imposed a windfall tax for the first time last year in July to join the nations that tax super normal profits of energy companies when the crude oil prices soared after the Russia-Ukraine war broke out.

The oil producers fetched huge profits then as a windfall gain - a sudden, unexpected spike in earnings - and the government started taxing those extra earnings. At that time, export duties of Rs 6 per litre (USD 12USD per barrel) each were levied on petrol and ATF while Rs 13 a litre (26 USD a barrel) was levied on diesel.

Later the government scrapped the export tax on petrol in the very first review and on ATF it was removed at the last review on March 4. The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks to calibrate the tax mop-up. As per officials, tax rate absorbs only a part of the extra profits that the companies earn in global markets during a period of high prices.