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The windfall tax on oil produced within India and fuel exported overseas will make up for more than three-fourths of the revenue that the government lost when it cut excise duty on petrol and diesel to cool soaring inflation, according to news agency PTI report citing industry sources said. This development comes following India joining on July 1 a select group of countries that began taxing windfall gains accruing to oil companies from soaring energy prices.

What is windfall tax?

A windfall tax is a type of one-off tax on companies that have seen their profits increase extraordinarily based on favorable market conditions. The government has imposed a 6 per litre tax on the export of petrol and jet fuel (ATF) and 13 a litre on the export of diesel effective July 1. A 23,250 per tonne tax was levied on crude oil produced domestically.

Meanwhile, two sources with knowledge of the calculations said, the tax on crude oil producers like Oil and Natural Gas Corporation (ONGC), Oil India Ltd and Vedanta Ltd alone will fetch the government 69,000 crore annually considering 29.7 million tonnes of oil production in 2021-22 fiscal (April 2021 to March 2022), .

Notably, for the remaining nine months of the current fiscal, the levy would get the government almost 52,000 crore if the tax remains in place till March 31, 2023.On top of this, the new tax brought in on the export of petrol, diesel and ATF would bring in additional revenue.

According to one of the sources, "India exported 2.5 million tonnes of petrol, 5.7 million tonnes of diesel and 797,000 tonnes of ATF during April and May. Even if these volumes fall to a third due to the new levy and other restrictions imposed, the government would still be richer by at least 20,000 crore if the tax continues till March 2023."

Reliance Industries Ltd operates a 35.2 million tonnes a year only-for-exports oil refinery at Jamnagar in Gujarat and that refinery is expected to continue overseas shipments even with the new tax, the second source said. Some exports are also expected from the firm's adjoining 33 million tonnes a year refinery that is meant to cater to the domestic market.

"Reliance has a fuel retailing joint venture with BP and that joint venture operates 1,459 out of 83,423 petrol pumps in the country. Even after meeting the full requirement of the 1,459 petrol pumps and selling some fuel to PSU retailers, it still would be left with exportable surplus" the source said.

Similarly, Rosneft-backed Nayara Energy operates a 20 million tonnes a year refinery at Vadinar in Gujarat. It has 6,619 petrol pumps whose full requirement would be less than about 12 million tonnes of petrol, diesel and ATF that the refinery produces annually. The two taxes together will accrue as much as 72,000 crore or over 85 per cent of the revenue that the government lost from cutting excise duty on petrol and diesel, sources said.

(With inputs from PTI)

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