The government has slashed the windfall profit tax levied on domestically-produced crude oil as well as on export of diesel and ATF following a drop in global oil prices, according to an official order.
The levy on crude oil produced by companies such as Oil and Natural Gas Corporation (ONGC) has been cut steeply to Rs 1,700 per tonne from Rs 4,900, the order dated December 15 said.
Crude oil pumped out of the ground is refined and converted into fuel like petrol, diesel and aviation turbine fuel (ATF).
Moderating oil prices in 2023 could help phase out windfall tax: FitchAlso expects OMCs’ marketing margins to recover and partly recoup 2022’s losses
The government has also cut the tax on the export of diesel to Rs 5 per litre from Rs 8 and the same on overseas shipments of ATF to Rs 1.5 a litre from Rs 5.
The new tax rates are effective from December 16.
The reduction in tax rate follows a 14 per cent slump in global crude oil prices since November.
Windfall profit tax cut on crude oil output, diesel exportsWindfall tax on crude oil cut to ₹4,900 and export tax on diesel to ₹8 per litre
India first imposed windfall profit taxes on July 1, 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 has since been scrapped.
The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.
The basket of crude oil that India imports averaged $77.79 per barrel in December, as against $87.55 last month. It averaged $91.70 per barrel in October.
Similarly, the price of diesel has also come down to $104.86 per barrel this month from $123.18 in November and $133.52 in October.
The government levies tax on windfall profits made by oil producers on any price they get above a threshold of $75-76 per barrel.
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.