Opinion
Mint Quick Edit | Windfall tax is gone but other fuel taxes need reform
Summary
- India has dropped its windfall tax, relieving the oil sector of a distortive levy. That’s good riddance, but what the economy needs is fuel taxation guided by carbon concerns over revenue rake-ins.
On Monday, India’s finance ministry did away with windfall tax on crude-oil products, petrol and diesel, ending a distortive imposition that had been put in place around mid-2022, soon after the Russia-Ukraine war sent oil prices soaring.
This will relieve oil companies whose profit margins took a hit thanks to the Centre taking away a slice of their one-off profits that geopolitical turbulence had delivered.
Also read: After a four-year run, windfall tax nears end of the road
Broadly, it’s always a bad idea to levy opportunistic taxes. These defy the principle of tax stability, which all investors should be assured of in every sector. In any case, fuel taxation in India has long needed to be rationalized.
Since demand for fuels doesn’t vary much as their prices rise, they are easy to squeeze for revenue.
Fuels in India remain woefully overtaxed.
Also read: Ideal taxation: At least assure investors of tax stability as a principle
Kept out of the GST system, fuels in many states sell at prices with such huge slices going into government coffers that they distort the cost structures of several industries. Aviation, for example.
Across sectors, all this adds up to economic inefficiency. Dropping the windfall tax is welcome, if belated. But the tax treatment of fossil fuels is in need of a big rethink—guided by carbon concerns, not revenue rake-ins.
