Government Increases Windfall Gains Tax On Domestic Crude Oil To ₹3,200 Per Tonne

Government Increases Windfall Gains Tax On Domestic Crude Oil To ₹3,200 Per Tonne

The increase in windfall gain taxes poses challenges for upstream oil companies, including prominent names like Oil and Natural Gas Corp Ltd, Oil India Ltd, and Vedanta Ltd. These levies were initially introduced on July 1, 2022, to address windfall profits resulting from high global oil and fuel prices.

Rahul MUpdated: Saturday, February 03, 2024, 11:17 AM IST
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Centre raises windfall gains tax on crude, diesel and ATF; Here's what you should know | Image: Wikipedia (Representative)

The government has announced a significant increase in the windfall gains tax on domestically-produced crude oil. According to a notification from the finance ministry, the tax has been raised by 1,500 rupees per tonne, bringing it to a total of 3,200 rupees per tonne. This marks the 35th revision of the windfall gains tax since its initial imposition in July 2022.

Cess on Diesel, Aviation Turbine Fuel, and Petrol Exports Remains Unchanged

While the windfall gains tax on crude oil has seen an upward revision, the finance ministry has decided to maintain the cess on exports of diesel, aviation turbine fuel, and petrol at its current level, which is nil.

Dynamic Taxation Linked to International Market Conditions

These taxes, implemented in the form of a cess, are designed to target supernormal gains of oil producers and fuel exporters. The government conducts a fortnightly review, considering oil prices and fuel margins in the international market, to adjust these taxes accordingly. The latest changes reflect the recent movements in international crude oil prices and fuel margins over the past couple of weeks.

Challenges for Upstream Oil Companies

The increase in windfall gain taxes poses challenges for upstream oil companies, including prominent names like Oil and Natural Gas Corp Ltd, Oil India Ltd, and Vedanta Ltd. These levies were initially introduced on July 1, 2022, to address windfall profits resulting from high global oil and fuel prices.

Background and Evolution of the Taxation Policy

Initially, taxes on petrol exports were also imposed, but they were subsequently reduced to nil starting from July 20, 2022. Since then, there have been no further hikes in these taxes. The government introduced these levies on fuel exports in response to supply shortages faced by fuel pumps in certain parts of the country. Private sector refiners, such as Reliance Industries Ltd and Nayara Energy, reportedly reduced domestic sales of petrol and diesel in favor of more lucrative exports, leading to the need for such taxation measures.

Crude Oil Price Surge and Impact on Indian Producers

Amidst the aftermath of Russia's invasion of Ukraine, global oil prices experienced a surge, resulting in significant profits for Indian upstream oil companies. The pricing of domestic crude oil by these companies is closely aligned with global prices.

As the government continues to monitor and adjust taxation policies in response to international market conditions, the impact on the oil and fuel industry remains a dynamic and evolving scenario.

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