Industry
Not much for the govt to pick up from windfall tax
Summary
- The windfall tax levied as special additional excise duty is aimed at absorbing some of the super-profits earned by domestic crude oil producers.
NEW DELHI : 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, government officials said.
The tax, introduced in July when global crude prices were at over $100 per barrel, is aimed at garnering additional revenues after the government cut excise duty on fuels to provide relief to people
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With refineries and production facilities in the special economic zones exempt from the levy, government data shows that the additional tax is not offsetting the cut in excise duty on petrol and diesel in May.
Controller General of Accounts data shows that excise duty collections in September declined by nearly 25% to ₹25,911 crore from a year earlier and is down 18% in the first half of the current fiscal.
“The Centre would need to continue with the windfall tax on crude production with global economic uncertainty still lingering... crude oil production companies are making huge windfall gains. The revenue collections from the windfall tax are not more than ₹2,500-3,000 crore per month. We are trying to extrapolate this," said one of the government officials.
The windfall tax levied as special additional excise duty is aimed at absorbing some of the super-profits earned by domestic crude oil producers and is revised every fortnight.
The Centre expects excise duty mop-up to be 18-19% lower than the budget target for the fiscal, with overall indirect taxes to grow 8-10% over the budgeted goal for the fiscal. This means duty collections will be close to ₹63,000 crore lower at ₹2.71 trillion from the budget estimate. “While we are looking at an 18-19% loss in excise duty, better-than-expected goods and services tax collections will help offset it. So, overall, there will be an 8-10% growth in indirect tax mop-up," he added.
The Centre has reduced the windfall tax on crude oil to ₹9,500 a tonne from ₹11,000 last week. The cut came as global oil prices have largely remained at around $95 per barrel.
“Windfall gain tax was proposed to minimize revenue loss from the reduction in excise duty on petrol and diesel. The proposed collection is unlikely to compensate for the majority of excise loss due to reduction in excise duty on petrol and diesel," said Devendra Kumar Pant, chief economist at India Ratings.
The lower duty receipts this fiscal are despite an increase in consumption of petrol, diesel and jet fuel in line with the economic recovery. Petrol consumption rose by 18% to 17.4 million tonnes in the six months to September. Diesel consumption in April-September jumped by 16% to 41.4 mt. In addition, the recovery in aviation led to a 72% jump in jet fuel consumption to 3.5 mt from a year ago, data from the Petroleum Planning and Analysis Cell, an arm of the oil ministry, showed.
Aditi Nayar, chief economist at ICRA Ltd, said while excise duty is likely to fall short of budget estimates, robust direct taxes and CGST inflows will more than offset this shortfall.
“Given the volatility in global energy prices and the dynamic nature of taxes on crude oil and finished products attracting excise duty, it is natural for projections on tax receipts from the sector to have some uncertainty," said Abhishek Jain, partner indirect tax, KPMG in India.
An email sent to the spokesperson for the finance ministry on Monday remained unanswered at the time of publishing.
Crude oil and refined products are sold in India at trade parity prices, which allows local producers to realize global prices from the local market. However, the Centre calibrates the taxes to mobilize revenues. The Centre earlier removed subsidies on petrol and diesel. However, state-run oil marketing firms, at times, manage prices in such a way that consumers are protected in times of sudden, sharp price volatility.
“The oil economy has three players... government, consumers and oil marketing companies. The cost has to be shared between the three. This year, the Centre is taking the onus as all states have not cut value-added tax. OMCs are being compensated for a part of the cost, and the consumer is facing a high though stable price. Hence, there will be a hit here," said Madan Sabanvis, chief economist at Bank of Baroda.
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