The Union government on Friday slashed the windfall tax on domestically produced crude oil and diesel effective December 16, 2022.
Windfall tax is levied as a special additional excise duty which is aimed at absorbing the super-profits earned by domestic crude oil producers due to high global crude, product prices, and is revised every fortnight by the central government.
The rates of the levies are being changed depending on crude prices and the refining spread.
From $108 per barrel in March this year, crude oil prices have come down to around $82 per barrel.
Oil prices slid about 2% on Thursday as traders worried about the fuel demand outlook due to a stronger dollar and further interest rate hikes by global central banks.
After rising for three straight days, Brent futures fell or 1.8%, to settle at $81.21 a barrel, while US West Texas Intermediate (WTI) crude fell 1.5%, to settle at $76.11.
The Ministry of Finance slashed the tax on crude oil produced by firms such as state-owned Oil and Natural Gas Corporation (ONGC) , Private entity Vedanta to Rs 1,700 per tonne from the existing Rs 4,900 per tonne, a government notification said.
The ministry also cut the rate on diesel exports to Rs 5 per litre from Rs 8 per litre in the fortnightly revision of the windfall profit tax.
The windfall tax on aviation fuel ATF has been reduced to Rs 1.5 per litre from Rs 5 per litre, the notification said.
The Union government has been revising the windfall tax almost every two weeks since it was introduced on July 1.
At that time, the Centre levied duties of Rs 6 per litre ($12 per barrel) each on petrol and ATF and Rs 13 a litre ($26 a barrel) on diesel.
A Rs 23,250 per tonne ($40 per barrel) windfall profit tax on domestic crude production was also levied.
After today’s revision, the windfall tax on domestically-produced crude oil has been lowered by almost 65 per cent.
While windfall profit tax is calculated by taking away any price that producers are getting above a threshold, the levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments.
These margins are primarily a difference of international oil price realised and the cost.
Amid a recent fall in global oil prices and refining spreads, the union government is planning to further cut windfall taxes on locally produced crude and export of diesel.
The Union government move will benefit oil producers like ONGC and Vedanta Ltd.
The duties were partially adjusted in the following fortnightly review on 20 July, 2 Aug, 19 Aug, 1 Sep, 16 Sep, 1 Oct, 15 Oct, 1 Nov, 15 Nov, 1 Dec, and 15 Dec 2022.
The windfall tax is expected to generate additional revenues of around Rs 40,000 crore in the current financial year, a senior official had told FE earlier, adding that nearly half of these taxes will likely be paid by private sector companies.
If global crude oil prices decline to $70-75/bbl, then the windfall taxes will be scrapped, the official had said. He, however, added that unless this price range is established, the levies may continue subject to fortnight adjustments.
