Government cuts windfall tax on domestic crude oil to ₹1,850/tonne

The Union government August 30 reduced the windfall tax on domestically produced crude oil to ₹1,850 per tonne from ₹2,100 per tonne, as per a new notification.

The new rate will be in effect from August 31, according to an official notification.

Conversely, the windfall tax on diesel and aviation turbine fuel (ATF) exports remains unchanged at zero.

Windfall taxes are imposed by governments when industries experience unexpected large profits, typically due to unforeseen events.

Earlier, on August 17, the government had lowered the windfall tax on domestic crude oil from ₹2,400 per tonne to ₹2,100 per tonne.

The windfall tax on crude oil producers was introduced in July 2022. This tax was extended to cover exports of gasoline, diesel, and aviation fuel as private refiners sought to capitalize on favorable refining margins abroad rather than selling locally. The government revises this tax every two weeks.

The Indian government has announced an increase in the windfall tax on petroleum crude to ₹6,000 ($72) per metric tonne, up from ₹3,250. This change will take effect from July 2, according to a notification released on Monday. 

The windfall tax, which is adjusted bi-weekly, will remain at zero for diesel and aviation turbine fuel. 

Previously, on June 15, the government had reduced the windfall tax on petroleum crude from ₹5,200 per tonne to ₹3,250. Since July 2022, India has imposed taxes on crude oil production and the export of gasoline, diesel, and aviation fuel to manage private refiners' preference for selling fuel abroad to benefit from higher refining margins.

In related market news, oil prices fell on August 30 and were poised for a weekly decline amid concerns about demand and the anticipated increase in supply from OPEC+. However, disruptions to Libyan oil output moderated the drop, as per Reuters.

OPEC+ plans to implement a scheduled oil output increase from October, as Libyan production issues and planned cuts by some members aim to offset the effects of sluggish demand, sources from the producer group told Reuters.

As of 1419 GMT, Brent crude futures for October delivery were down $1.04, or 1.3%, at $78.90 per barrel, while U.S. West Texas Intermediate crude futures dropped $2.15, or 2.8%, to $73.76, as per Reuters.