India Slashes Windfall Tax On Domestic Crude By 36% To Rs 6,300 Per Tonne; Export Duty On Diesel Trimmed Too

The Indian government in a series of tax adjustment, has slashed windfall taxes on crude oil and diesel on Thursday, in a response to recent plunging international oil prices. As notified officially, the central government reduced the Special Additional Excise Duty (SAED) on crude oil imports from Rs.9,800 per tonne to Rs 6,300 per tonne, which is a decline of 35.71%. Meanwhile, the duty on diesel is trimmed to Rs 1 per litre from earlier Rs 2 per litre.

In contrast, windfall tax on exports of aviation turbine fuel (ATF) were unchanged to Rs 1 per litre. However, the windfall on petrol continued to be zero. The new tax structure will come into effect from November 16, 2023, until next adjustment is alerted.

In July 2022, India initiated the first windfall tax on petrol and ATF of Rs. 6 per litre and Rs. 13/- per litre for diesel. The central government in their last adjustment on November 1st, hiked the SAED on crude oil by 75 paisa per litre and reduced diesel export tax to Rs. 2 per litre. India, being the third largest oil importer has significant impact due by international crude oil prices. As global crude oil costs have sharply tumbled by 10 percent since the beginning of November, it was requisite for the Indian government to cut taxes over these commodities. Crude Oil prices were at peak in September end above $ 90/- per barrel and currently trade around $ 76.14/- per barrel.

When there are unanticipated positive growth in a sector's earnings or sector's dominance is high in the country, then the government has authority to levy a special windfall tax on the industry with surging profits. These profits or earnings are generally considered above-average or the country is more dependent on these industry for numerous reasons. The need to implement such type of additional tax was essentially needed when private oil companies like Reliance and Nayara Energy in India, with their low priced Russian oil supply, pocketed hefty profits by boosting their exports instead of serving domestic demand. The Indian government then capped gasoline exports by private companies to 50 percent, which means same as their domestic supply and about 30 percent of diesel exports for Indian consumers. This has led to India producing higher crude oil domestically to reach almost 2.4 million metric tonnes in September 2023, a gross increase of 6.1% year-on-year, decreasing the oil and gas net import bill by $ 800 million for this month alone.

India is not the only country to levy windfall taxes on oil and petroleum giants. The Boris Johnson government of United Kingdom in 2022 initiated the so-called 'windfall tax' on crude oil companies, and the present chancellor imposed almost 35 percent Energy Profits Levy (EPL) this year. Italy approved for around 40 percent windfall tax, while Germany and all of EU has imposed a 33% windfall tax on energy mining and generating companies. Similarly, Romania has a high tax levy of 60 percent on taxable profits on crude oil, natural gas and refinery sector for 2023.

Compared to countries mentioned above, India in the today's update on windfall tax has reduced the tax collection on imported crude oil from 23.6% to almost 15.1% per litre of crude oil. However, despite the international fluctuating trend, India's petrol prices according to Goodreturns website, remain stagnant since January this year.