Reintroduction of Windfall Tax on Crude

Reintroduction of Windfall Tax on Crude

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April 26, 2023

The government reintroduced the Windfall Tax on domestically produced crude oil, with a tax of Rs 6,400 per tonne, beginning Wednesday, and eliminated the duty on diesel Crude Oils. Petrol and aircraft turbine fuel intended for crude oil remain free from the charge. The Central Board of Indirect Taxes and Customs, which is part of the Ministry of Finance, announced the adjustment in its last weekly review late Tuesday. The increase on the special additional excise duty (SAED) on domestic crude oil output comes on the heels of a 9% increase in oil prices to $85 per barrel after OPEC+ resolved to restrict oil production by 1.16 million barrels per day on April 2.

OPEC+ - According to the IEA or, the International Energy Agency, the Organisation of Petroleum Crude Oiling nations (OPEC+) plus may expect a steep drop in demand as a result of a recent spike in Crude Oil output from nations such as the United States, Norway, and Guyana. Non-OPEC nations that produce Crude Oil are referred to as OPEC plus countries. Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan, and Sudan are among the OPEC plus nations.

Windfall Taxes - are one-time charges designed to capture a portion of the government's share of super-normal profits achieved by oil producers and fuel crude oilers as a result of increased global crude prices. Windfall Tax is a higher tax applied by the government on particular industries when their earnings are unexpectedly large. The term "Windfall" refers to a sudden and unexpected surge in earnings. On the other hand, the term "tax" suggests a levy placed on this rapid revenue increase.

The Windfall Tax (or SAED) on domestically produced Crude Oil was reduced to zero when Crude Oil prices stabilised in March 2023, and the charge on diesel destined for Crude Oils was reduced to Rs 0.5 per litre in early April. The Windfall Tax was implemented for the first time on July 1, 2022, in response to a jump in oil prices during the Russia-Ukraine crisis. The action was also intended to alleviate a fuel shortage in the domestic market, as private refiners disregarded deliveries to domestic retail outlets while focusing on highly profitable Crude Oil markets. While the rise in SAED would raise government income, it will have an impact on the oil industry since it will require them to pay a greater tax on the sale of domestically produced crude.

Fact Check - State-owned OIL and ONGC produce around 77.5% of crude oil, while private enterprises produce approximately 22.5%. ONGC generated 16.8 million tonnes of India's total crude oil output of 25.4 million tonnes in FY23 to February 2023, while OIL produced 2.8 million tonnes. The Indian basket of crude oil prices peaked at $116 per barrel in June 2022 before falling to $78.54 per barrel in March 2023. However, it has climbed again to an average of $85.59/bbl in April 2023.

Source - Business Standard