The Finance Ministry has slashed the windfall levy on domestically produced crude oil to nil, while reducing it on diesel. The revised levy is effective as of Tuesday i.e., April 4, 2023. Though the levy has been reduced on account of a fall in prices during the last month, it could temporarily consider a rise in prices following a production cut by oil producing countries this week.

According to a notification, windfall levy, technically known as Special Additional Excise Duty (SAED), will now be NIL as against Rs 3,500 per tonne. This will benefit companies such as Oil and Natural Gas Corporation (ONGC). In fact, share prices of ONGC and Oil India ended in the green on Monday. SAED is not applicable to entities whose annual crude oil production is less than 2 million barrels in the previous financial year. 

Meanwhile, taking note of the fall in product prices, the Ministry has hiked the windfall levy on diesel for export to Re 0.50 a litre from Re 1 a litre, Reliance Industries and Rosneft-backed Nayara Energy are primary exporters of fuel

India first imposed windfall profit taxes last July, joining anumber of nations that tax super normal profits of energy companies. At that time, export duty of Rs 6 per litre ($12/bbl) was levied on petrol and ATF, and Rs 13 a litre ($26/bbl) on diesel. A Rs 23,250 per tonne ($40/bbl) windfall profit tax on domestic crude production was also levied.

Also read: Windfall levy on domestically produced crude oil cut, but hiked on diesel for export

The tax rates are reviewed every fortnight based on the average oil prices in the previous two weeks. The domestic producers of petroleum crude like ONGC sell their crude at international parity price. As international crude prices rose sharply, these crude producers were making super normal profits. The prices of diesel, petrol, and ATF rose even more sharply, which led to extraordinary cracking margins (difference between the product price and the crude price) on exports of these products. The cess/duties were imposed in this background. These are being reviewed periodically, as detailed above taking into account all relevant factors including international prices.

The government levies a tax on windfall profits from oil producers on any price above a threshold of $75 per barrel. According to the Finance Ministry, the data for Special Additional Excise Duty (SAED) on production of crude oil is not maintained separately. The collection of SAED, for the current financial year, is estimated at Rs 25,000 crore from the production of crude oil and export of petrol, diesel and Aviation Turbine Fuel (ATF).