Government Hikes Windfall Tax Rates On Crude Oil To Rs 4,600/mt, Diesel Tax Reduced To Zero; Details

The Indian government has announced adjustments to the windfall tax rates on petroleum crude, marking the third change within the month. Effective March 1, the windfall tax on crude oil has been increased to Rs 4,600 per metric ton, up from Rs 3,300. Simultaneously, the windfall tax on diesel has been reduced to zero from Rs 1.50 per litre, as per the government order released on Thursday, February 29.

This marks a significant shift in tax policy, particularly for diesel, which had seen an earlier increase in the tax rate just two weeks prior. On February 15, the windfall tax on crude oil was raised from Rs 3,200 to Rs 3,300 per tonne, and the tax on diesel was elevated to Rs 1.50 per litre from zero. The tax on petrol and aviation turbine fuel, however, remains unchanged at zero.

The windfall tax was introduced in July 2022 to regulate crude oil producers, and it has since been extended to cover exports of gasoline, diesel, and aviation fuel. This decision comes as private refiners sought to benefit from robust refining margins by selling fuel overseas rather than domestically. The government revises the tax rates fortnightly based on the average oil prices in the preceding two weeks.

Looking ahead, the international crude oil market is expected to experience continued volatility. The Organization of the Petroleum Exporting Countries (OPEC) foresees robust demand in the oil market for 2024 and 2025. However, despite the recent Red Sea crisis, global crude oil prices have not witnessed a significant spike.

On Thursday, Brent crude futures for April showed a modest decline, down two cents at $83.66 per barrel. The more active May contract, on the other hand, was up two cents at $82.17. US West Texas Intermediate crude futures experienced a rise of 25 cents, reaching $78.79. Brent has comfortably remained above the $80 mark for the past three weeks, with the Middle East conflict having only a marginal impact on crude flows.

Analysts, considering the uncertain demand outlook, anticipate that OPEC will extend the current supply agreement until the end of the second quarter. The move by the Indian government to adjust windfall tax rates aligns with global efforts to navigate the complexities of the oil market, ensuring a balance between domestic needs and international dynamics.