Windfall profit tax hiked on domestically produced crude oil

New Delhi: In line with international oil prices, the Centre has raised the windfall profit tax levied on domestically-produced crude oil as well as on the export of diesel and aviation turbine fuel (ATF). As of today, the new tax or windfall tax has become seven-month-old and the levy is expected to continue for now onwards as global oil prices are up again. The new revised tax rates came into effect from February 4, the government said.

According to an official order issued on late Saturday evening, the levy on crude oil produced by companies such as Oil and Natural Gas Corporation (ONGC) has been hiked to Rs 5,050 per tonne from Rs 1,900 per tonne. "Besides, the Centre has also raised the tax on export of diesel to Rs 7.5 per litre from Rs 5, and the same on overseas shipments of ATF to Rs 6 a litre from Rs 3.5 a litre," the order said.

Generally, the crude oil pumped out of the ground and from below the seabed is refined and converted into fuels such as petrol, diesel and ATF. The government imposes tax on windfall profits made by oil producers on any price they get above a threshold of $75 per barrel. And the levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments. These margins are primarily a difference between the international oil price realised and the cost involved therein.

However, top officials said that the windfall profit tax on domestically produced crude oil and export of fuel will continue and is expected to give about Rs 25,000 crore in the current fiscal ending 31 March, 2023. "The levy on both domestic crude oil and fuel exports is now off the lows it had hit last month," they said.

It is also expected that the windfall tax will impact many big oil producers, including Reliance Industries Ltd as it is the primary exporters of fuel in the country. It operates the world's largest single-location oil refinery complex at Jamnagar in Gujarat and Rosneft-backed Nayara Energy as well.    

The tax rates are generally reviewed every fortnight, based on average oil prices in the previous two weeks of a month. The last tax rates were cut at its fortnight review on January 17, following softening in global oil prices. Thereafter, international oil prices have firmed, necessitating the hike of a windfall tax.   

On July 1 last year, India imposed its first windfall profit taxes, joining a growing number of nations that tax super normal profits of energy companies. At that time, export duties of Rs 6 per litre ($12 per barrel) each were levied on petrol and ATF and Rs 13 a litre ($26 a barrel) on diesel. A Rs 23,250 per tonne ($40 per barrel) windfall profit tax on domestic crude production was also levied. The export tax on petrol was also scrapped in the very first review.