The Centre has announced a significant increase in the windfall tax on petroleum crude in a bid to curbing fuel exports and bolstering domestic supply. With two consecutive hikes in the month of April, the tax, effective from April 16 (Tuesday), will rise from Rs 6,800 to Rs 9,600 per metric tonne. This decision marks the latest in a series of fortnightly revisions of the windfall tax by the government. Notably, diesel and aviation turbine fuel (ATF) will remain exempt from the tax, retaining their zero windfall tax rate.
Earlier this month, on April 4, the government had raised the windfall tax from Rs 4,900 to Rs 6,800 per metric tonne. Prior to that, on March 15, 2024, the Finance Ministry had increased the tax on domestically produced crude oil to Rs 4,900 per tonne, up from the previous rate of Rs 4,600 per tonne.
The windfall tax policy, which was expanded to include gasoline, diesel, and ATF exports, aims to discourage private refiners from prioritising exports over domestic market supply. Under this policy, the government adjusts the windfall tax rate every two weeks.
The latest increase in windfall tax on petroleum crude underscores the government's commitment to ensuring a steady domestic fuel supply by discouraging excessive exports by private refiners.
Introduction of Windfall Tax
The decision to introduce the windfall tax in 2022 stemmed from the substantial profits accumulated by oil production companies amid heightened crude oil prices, spurred by geopolitical events such as Russia's invasion of Ukraine.
Typically, the windfall tax is activated when global benchmark rates surpass $75 per barrel for domestic crude oil. For exports of diesel, ATF, and petrol, the levy kicks in if product margins exceed $20 per barrel.
The tax is administered in the form of Special Additional Excise Duty (SAED), with the SAED for diesel, petrol, and ATF exports remaining at zero, as indicated by the official notification.
On Tuesday, Brent crude saw a modest increase of 0.58 per cent, reaching $90.62 per barrel.