Govt Slashes Windfall Tax On Crude To Rs 2,100 Per Tonne

India introduced a windfall tax on crude oil producers in July 2022 and later expanded it to cover gasoline, diesel, and aviation fuel exports

The government revises the windfall tax on petroleum crude every two weeks

Source : Pixabay

The central government has reduced the windfall tax on petroleum crude to Rs 2,100 per metric tonne, down from Rs 4,600 per tonne, effective August 17. This follows a previous reduction on July 31, when the tax was lowered by 34.2 per cent to Rs 4,600 per tonne. Furthermore, the government has announced that there will be no windfall tax on the export of diesel and aviation turbine fuel (ATF).

India introduced a windfall tax on crude oil producers in July 2022 and later expanded it to cover gasoline, diesel, and aviation fuel exports. This decision was driven by private refiners' preference to sell fuel abroad to take advantage of higher refining margins rather than selling it within the country.

The government revises the windfall tax on petroleum crude every two weeks, considering changes in international crude and product prices. Windfall taxes are applied when an industry sees exceptionally high profits, often due to unexpected factors.

The windfall taxes are designed to limit the extraordinary profits of oil-producing companies during times of skyrocketing crude prices, often influenced by geopolitical events like Russia's invasion of Ukraine. These taxes are generally imposed when global benchmark prices for domestic crude oil exceed $75 per barrel. Likewise, taxes are applied to diesel, ATF, and petrol exports when product margins exceed $20 per barrel.

The windfall tax serves several key functions. It ensures that the domestic refining industry contributes to national economic growth, stabilises fuel availability, and keeps domestic prices in check. Through this approach, the government aims to balance the financial health of energy companies with the country's broader economic interests.

Oil prices fell by around 2 per cent on Friday and were set to finish the week roughly at the same levels as the previous week, with Brent crude trading just below $80 per barrel.