Govt. scraps windfall tax on domestic crude oil, export of fuels

• The government on Monday (December 2, 2024) scrapped 30-month old windfall profit tax on domestically-produced crude oil and on export of jet fuel (ATF), diesel and petrol following a decline in international oil prices.

Highlights:

• The Indian government has officially withdrawn the windfall profit tax on domestically produced crude oil and on the export of fuels, including jet fuel (ATF), diesel, and petrol. This decision, tabled in Rajya Sabha by Minister of State for Finance Pankaj Chaudhary, marks the end of a 30-month-long tax regime that was introduced in July 2022 amidst soaring international oil prices.

Key Highlights

Background of the Windfall Profit Tax:

• Imposed on July 1, 2022, the tax targeted "supernormal" profits of energy companies during periods of high oil prices.
• Rates included ₹23,250 per tonne on domestic crude oil and ₹6-13 per litre on fuel exports.
• The tax was reviewed every fortnight, fluctuating with global oil price movements.

Rationale for Removal:

• Declining global crude oil prices, with India's crude basket averaging $73.02 per barrel in November 2024, prompted the government to scrap the levy.
• Import prices have steadily declined from $90 per barrel in April 2024 to $73.69 per barrel in recent months.

Economic Impact of the Tax:

• Revenue Generated:
  • ₹25,000 crore in the first year (2022-23).
  • ₹13,000 crore in 2023-24.
  • ₹6,000 crore in the current fiscal year.
• Companies Affected:
  • Beneficiaries of tax removal:
  • Oil Producers: ONGC, Oil India Ltd.
  • Fuel Exporters: Reliance Industries Ltd and Nayara Energy.
• Criticisms:
  • Industry players argued that the tax reduced profitability and created fiscal uncertainty, particularly for private and foreign entities.

Details of the Scrapped Levies:

• Crude Oil Production: The ₹23,250 per tonne levy on crude oil production is removed.
• Fuel Exports: Export duties on petrol, diesel, and ATF, previously fluctuating, are now permanently scrapped.
• Road and Infrastructure Cess: Levied on petrol and diesel exports, it has also been rescinded.

Implications for Key Stakeholders

Oil and Gas Sector:

• Increased profitability for domestic producers like ONGC and Oil India Ltd.
• Boost for refiners and exporters such as Reliance and Nayara, enabling better margins on international sales.

Government Revenue:

• While the government loses a source of revenue, the declining international oil prices reduce the need for fiscal balancing through such levies.

Global Oil Markets:

• The decision aligns with India's long-term strategy to maintain competitive oil pricing domestically and support its energy sector amidst international price fluctuations.

Consumer Impact:

• Potential stability in fuel prices as domestic production and refining costs reduce.

Prelims Takeaways

• Oil and Natural Gas Corporation (ONGC)
• Special additional excise duty (SAED)
• Aviation turbine fuel (ATF)