Windfall tax on crude oil returns amid price surge

New Delhi: The Central Board of Indirect Taxes and Customs (CBIC) has re-introduced the windfall tax on crude oil a fortnight after bringing it down to zero.

The new rate of ₹6,400 a tonne kicks in from Wednesday, a new order showed. The tax that is meant to mop up some of the super-profits that producers make during global price surges is revised on a fortnightly basis.

The Centre also lowered the special additional excise duty on export of diesel—50 paise a litre since 4 April -- to zero, showed a separate order. There is no windfall tax on export of petrol and jet fuel now. The decisions have been taken in public interest, the orders said.

Official data showed that the Indian basket of crude which represents prices of Oman and Dubai for sour grades and Brent for sweet grade has gone up to $85.64 a barrel in April from $78.50 in March. The price was at $86.09 a barrel on Monday, according to the Petroleum Planning and Analysis Cell.

Since India follows trade parity pricing of crude oil and petrol, producers of crude oil and refineries that sell finished products realise global prices in the local market. So windfall tax on profits of crude oil producers and refiners on exported products enable the government to benefit from the gain from a surge in their global prices.

The reimposition of the windfall tax comes in the backdrop of a surge in crude oil prices in the past fortnight. On the heels of the last revision of the windfall tax, OPEC+, the alliance of Organization of the Petroleum Exporting Countries (OPEC) and its allies including Russia decided to go ahead with an additional output cut of around 1.16 million barrels per day starting May. According to estimates, the reduction would bring the total volume of cuts of OPEC+ to around 3.66 million barrels per day (bpd).

This decision lifted the crude prices to over $85 per barrel, making analysts raise concerns that crude prices may again reach the $100 per barrel mark.

Although, they have not increased significantly after the steep surge, prices have remained elevated over concerns of a supply crunch post the cuts and a likely economic recovery in China, one of the largest importers of crude oil. China’s GDP grew faster than expected in the first quarter of 2023. Official data showed that the Chinese economy expanded by 4.5% year-on-year.Around 10.24 am, the June contract of Brent on the Intercontinental Exchange was trading at $84.68 per barrel, just 0.11% lower than its previous close. The May contract of West Texas Intermediate (WTI) was at $80.78 a barrel, 0.10% lower than its previous close.