With the rise in international crude oil prices, the Finance Ministry has reimposed the windfall levy on domestically produced crude by raising it to ₹6,400 a tonne from NIL. However, considering the changes in product prices, this levy has been brought down to NIL from Re 0.50 a litre for diesel to be exported.
The Ministry notified changes late on Tuesday and new rates are effective from April 19 early hours. While the rise in windfall levy on domestically produced crude is likely to impact adversely ONGC and Oil India, lowering of levy on export-bound diesel is likely to benefit Reliance Industries. The export-bound petrol and jet fuel (Aviation Turbine Fuel or ATF) will continue to attract NIL levy.
The crude oil prices are recording rise in international market because of production cut by OPEC+ countries and economic buoyancy in China which are likely to raise demand. As domestic companies get price based on international prices, there is a change in windfall levy, technically known as Special Additional Excise Duty (SAED). It is not applicable to entities whose annual crude oil production is less than 2 million barrels in the previous financial year.
India, first imposed windfall profit taxes last July, joining a number of nations that tax super normal profits of energy companies. At that time, export duty of ₹6 per litre ($12/bbl) was levied on petrol and ATF, and ₹13 a litre ($26/bbl) on diesel. A ₹23,250 per tonne ($40/bbl) windfall profit tax on domestic crude production was also levied.
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 produce at international parity price. As international prices rose sharply, these crude producers were making super normal profits. The prices of diesel, petrol, and ATF rose even more sharply, leading 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, taking into account all relevant factors, including international prices.
The government levies a tax on windfall profits from oil producers on any price above the threshold of $75 per barrel. According to the Finance Ministry, the data for SAED on production of crude oil is not maintained separately. The collection of SAED, for the Fiscal Year 2022-23, is estimated at ₹25,000 crore from the production of crude oil and export of petrol, diesel and ATF.