Govt scraps windfall tax on local crude sales, petroleum product exports
The finance ministry has taken a series of steps signaling a shift in response to declining global oil prices and market conditions.
New Delhi: The Union government on Monday scrapped the windfall tax on the sale of domestic crude oil and the export oaviation turbine fuel (ATF). It also withdrew the road and infrastructure cess levied on petrol and diesel exports.
Union minister of state for finance Pankaj Chaudhary on Monday tabled notifications in the Rajya Sabha scrapping the levy on sale of domestic crude oil and exports of petrol, diesel and ATF. On 18 November, Mint first reported that the Centre has decided to scrap the windfall tax and that the finance ministry would shortly issue an order.
The windfall tax was imposed in 2022 as oil prices surged to multi-year highs following Russia's invasion of Ukraine, allowing oil and gas producing companies to make massive profits.
Also read | Finmin to review efficacy of windfall tax on crude oil and fuel exports
The tax is levied in the form of a special additional excise duty, and as additional excise duty or road and infrastructure cess on the export of fuel. It is reviewed every fortnight, based on their average prices in the preceding two weeks.
The decision to withdraw the windfall tax was guided by the government’s view that this levy has outlived its utility, given the fact that the government's share of the tax on domestic crude has been zero since September, when it rolled it back.
Windfall tax irrelevant
Speaking to reporters in October, Tarun Kapoor, advisor to the prime minister said weakening crude prices had made the windfall tax irrelevant and that the finance ministry would take a call on its withdrawal.
The tax on crude oil produced in the country was cut to zero on 18 September from ₹1,850 a tonne in the first fortnight of the month.
In line with softening global oil prices, the government had gradually rolled back all the elements of the windfall tax.
The road and infrastructure cess on exported diesel has also been kept at zero from 4 March 2023, and the special additional excise duty on the exports has been lowered to zero from 1 March, 2024.
Also read | Finance ministry to take call on scrapping windfall tax on oil: Tarun Kapoor
The special additional excise duty on exported jet fuel has been set at zero from 2 January 2024 from Re 1 per litre earlier. The road and infrastructure cess as well as the special additional excise duty on export of petrol was brought down to zero from 19 July 2022.
The government had also exempted petrol, diesel and jet fuel exported from special economic zones from windfall tax from 20 July 2022 onwards.
Weak oil outlook
The withdrawal of the windfall tax comes at a time when the outlook for the global oil market is largely weak, with prices unlikely to reach the all-time high levels of 2022 anytime soon.
Rating agency Icra on last month projected that global crude oil demand growth would decelerate significantly from pre-covid levels, primarily due to the muted demand from China, the world's second-largest oil consumer. It anticipates that this downtrend signals that crude markets may be entering a tipping zone, characterized by weakening growth dynamics owing to accelerating electrification.
Prashant Vasisht, senior vice president and co-group head, corporate ratings, ICRA said: "The scrapping of windfall tax is expected to have limited impact on oil companies as the same had been reduced to nil on crude oil since September 18, 2024 and on petroleum products since February 29, 2024.
Also read | Windfall tax on petroleum crude slashed to 'zero' with effect from THIS date
Oil prices have been muted in the range of $70-75 per barrel over the past few months on account of the weaker-than-anticipated demand from China and tepid growth of rest of the world. Likewise the crack spreads of diesel, petrol and aviation turbine fuel have been muted owing to weak demand growth amid supply overhang due to which the windfall tax has been low or nil for much of CY2024. Accordingly scrapping the tax is expected to have limited impact of oil companies."
Crack spread is the pricing difference between a barrel of crude oil and the petroleum products refined from it.
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Business NewsAuto NewsGovt scraps windfall tax on local crude sales, petroleum product exports
First Published:2 Dec 2024, 07:06 PM IST
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