The federal government on Monday (December 2) withdrew the windfall positive aspects tax on home manufacturing of crude oil and export of diesel, petrol, and aviation turbine gas (ATF), scrapping the levy that was launched 30 months in the past amid a surge within the costs of crude oil and key fuels within the worldwide market within the wake of Russia’s invasion of Ukraine.
Apprehensions concerning the availability of the fuels within the home market amid the worldwide vitality turmoil on the time additionally contributed to the choice to impose the levy.
However so much has modified since then. After the preliminary shock and provide considerations because of the conflict in Ukraine, the worldwide oil and gas flows have shifted and stabilised. Worldwide crude oil and gas costs are considerably decrease and there’s a strong provide of fuels within the home market. Primarily resulting from these causes, the windfall positive aspects tax was not producing vital income. Actually, the levy was already nil when the federal government determined to place this tax to relaxation.
Whereas the levy on petrol exports had been zero since July 20, 2022, on diesel exports, it had been nil since March 1, 2024. On ATF exports, windfall positive aspects tax was decreased to nil from January 2, 2024, whereas on home oil manufacturing, the levy was introduced all the way down to zero from September 18, 2024. Due to this fact, for all sensible functions, the tax was already lifeless. It has now been buried.
When it was first launched on July 1, 2022, the windfall positive aspects tax on home crude oil was Rs 23,250 per tonne, which translated to roughly $40 per barrel. Crude oil costs have been properly over $100 per barrel on the time. They’re now underneath $75 per barrel and it’s unlikely that they’ll shoot up, until there’s one other main provide shock. As for diesel exports, the preliminary levy was Rs 13 per litre. Exports of ATF and petrol initially attracted a levy of 6 rupees per litre.
What was the windfall positive aspects tax and why was it imposed?
“Windfall positive aspects tax” was a time period used to explain cesses underneath the ambit of central excise imposed on gas exports and home crude oil manufacturing, to tax super-normal income of gas exporters and oil producers. In case of home crude oil and ATF exports, the windfall positive aspects tax was within the type of Particular Extra Excise Responsibility (SAED), whereas on diesel and petrol, it was a mixture of SAED and Extra Excise Responsibility (AED), the latter often known as Street and Infrastructure Cess (RIC).
The duties are reviewed each fortnight based mostly on the motion in margins on fuels within the worldwide market and international crude oil costs. Within the first revision itself, the levy on petrol was decreased to nil and was not hiked since.
These levies have been first imposed on July 1, 2022, because of the surge in international oil and gas costs within the aftermath of Russia’s invasion of Ukraine. As the worth of crude oil produced in India is benchmarked to worldwide costs, home oil costs additionally went by the roof. On the identical time, margins on fuels have been much more profitable in different markets, incentivising refiners, notably the personal sector gamers, to export fuels. This had resulted in gas provide disruptions in some elements of the nation.
Other than taking a share of windfall income of oil producers and gas exporters to partially soften the blow of responsibility cuts on home petrol and diesel gross sales, the federal government additionally needed to make sure sufficient gas provide to fulfill home demand by these taxes.
India was not alone in imposing a windfall positive aspects tax. A number of different international locations had imposed taxes to tax super-normal income of vitality corporations within the months following Russia’s February 2022 invasion of Ukraine.
Scrapping the levy: Influence and sign
The nation’s oil business was understood to have been in opposition to the windfall tax regime even when it was launched. These in opposition to the tax argued that it restricted profitability of publicly listed corporations, and created an setting that discouraged efforts to extend oil manufacturing in a rustic that will depend on imports to fulfill over 85 per cent of its oil wants. The frequent evaluation of the levies, it was argued, made the taxation unpredictable.
Recently, not a lot income was getting generated by the windfall positive aspects tax. That is primarily resulting from vital softening in costs of crude oil and the three main fuels within the worldwide market. The windfall positive aspects tax mop-up was round Rs 25,000 crore in 2022-23 (FY23). It declined to round Rs 13,000 crore in FY24 and additional to Rs 6,000 crore to date in FY25.
The availability to alter the tax degree, nevertheless, continued to be in place even because the levy itself was nil. With Monday’s transfer, the federal government has successfully withdrawn these provisions as properly. This can be seen as an assurance to the nation’s oil business that the taxation regime can be predictable and secure.
The scrapping of the windfall positive aspects tax might not have any notable impression on the financials of home oil producers like Oil and Pure Gasoline Company (ONGC) and Oil India (OIL), and main gas exporters like Reliance Industries (RIL) and Nayara Vitality (NEL). It does, nevertheless, have worth as a sign of dependable and predictable taxation. It additionally indicators that the Indian authorities is now assured within the view {that a} hard-to-manage surge in oil and gas costs and provide shocks are unlikely going ahead.
