Government increased windfall tax on crude oil

Windfall Tax: Crude oil prices are unstable in the international market. Last week there was a decline in crude oil prices. Experts are saying that prices may rise next week. However, meanwhile, the central government increased the windfall tax on domestically produced crude oil from Rs 4,600 per tonne to Rs 4,900 per tonne. However, windfall profits tax on export of diesel, petrol and aviation fuel (ATF) from India has been retained at zero. According to an official notification, the new rates have become effective from today morning. This tax is levied in the form of ‘Special Additional Excise Duty’ (SAED). For the first time in the country, windfall profit tax was imposed on petroleum products on July 1, 2022. With this, India joins those countries which impose tax on extraordinary profits of energy companies. Tax rates are reviewed every fortnight based on the average oil prices in the last two weeks.

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Updates take place in 15 days

The windfall tax is revised every 15 days based on fluctuations in international crude oil and product prices. Earlier, on the first day of the month, the Central Government has increased the windfall tax on domestic crude oil by Rs 1300 per metric ton. After this, the windfall tax became Rs 4600. At the same time, on December 1, the government had announced to reduce the unexpected tax on crude petroleum from ₹ 6,300 per tonne to ₹ 5,000 per tonne. Whereas, in January, giving relief, the government has reduced the windfall tax from Rs 2300 per tonne to Rs 1700 per tonne. At the same time, in the review on February 15, the government had increased the windfall tax on domestic crude oil. Last month there was an increase of Rs 100 per metric ton.

What is windfall tax?

India initially imposed the windfall tax in July 2022 in response to rising crude oil prices. This tax is imposed by governments when an industry makes unexpected substantial profits, which is usually attributed to some unprecedented event. A windfall tax is imposed on domestically produced crude oil when global benchmark rates exceed $75 per barrel. For exports of diesel, ATF and petrol, the levy applies when the product is cracked, or the margin exceeds $20 per barrel. Product margins or margins represent the difference between the cost of crude oil (raw material) and the value of finished petroleum products. Major players in fuel exports to India include Reliance Industries Ltd, which operates the world’s largest single-site oil refinery complex at Jamnagar in Gujarat, and Rosneft-backed Nayara Energy.