Home / Industry / Energy /  Govt cuts windfall tax on locally produced crude, diesel exports

Centre has reduced the windfall tax on sale of domestic crude oil to 4,900 per tonne from the current tax of 10,200 crore. 

A finance ministry notification on Thursday also said that the tax on export of diesel has been lowered to 6.5 per litre. The changes will come into effect from December 2, 2022. Along with the levy of 1.5 per litre of road infrastructure cess, the tax would now be 8 per litre.

When the levy was first introduced, a windfall tax on export of petrol alongside diesel and ATF too was levied. The special additional excise duty on aviation turbine fuel has been kept unchanged at 5 a litre. But the tax on petrol was scrapped in subsequent fortnightly reviews.

The windfall tax on crude oil is calculated by taking away any price that producers are getting above a threshold, and 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 realized and the cost.

The cut in the windfall tax on locally produced crude oil comes at a time when oil prices have largely been subdued and below the $90 per barrel mark. At the time of writing the article, the February contract of Brent on the Intercontinental Exchange was trading at $88.43 per barrel, higher by 1.68% from its previous close.

The January contract of West Texas Intermediate (WTI) on the NYMEX was trading at $82.15 per barrel, higher by 1.99% from its previous close.

Crude prices have largely been subdued amid continued strict Covid-19 restrictions in China and concerns of an impact on demand from the world’s second largest crude oil importer.

The windfall taxes were first imposed on July 1 as energy companies were making huge profits amid multi-year high levels of crude oil prices due to the Russia-Ukraine conflict. At that time, export duties of 6 per litre each were levied on petrol and aviation turbine fuel and 13 a litre on diesel. The windfall tax on sale of locally produced crude oil was 23,250 per tonne when the tax was first imposed.

On 8 November, Mint reported that nearly four months after introducing a windfall tax on refiners and local crude oil producers, the government has managed to garner only 2,500-3,000 crore a month from the levy, far less than it needs to fully make up for the losses in revenue due to excise cuts.

Recently, in a letter to the member budget of Central Board of Indirect Taxes and Customs (CBIC), the Association for Discovered Small Filed Operators (ADSFO) said that small and marginal field operators should be exempt from petroleum cess (levied by way of special additional excise duty or SAED) or the windfall tax based on annual production share of each legal entity engaged in the business of producing crude rather than on the annual crude production at the block level.

Rituraj Baruah
Rituraj Baruah is a senior correspondent at Mint, reporting on housing, urban affairs, small businesses and energy. He has reported on diverse sectors over the last six years including, commodities and stocks market, insolvency and real estate. He has previous stints at Cogencis Information Services, Indo-Asian News Service (IANS) and Inc42.
Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Recommended For You
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout