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Finance Ministry on late Monday notified raising windfall gain tax on domestically produced crude and export bound diesel while reimposed on jet fuel. An increase has been finalised due to a rise in crude oil prices in the global market.
According to a notification issued by the Ministry, Special Additional Tax Duty (SAED), better known as windfall gain tax, on domestically produced crude petroleum will increase to Rs 7100 a tonne from Rs. 4250/tonne. Similarly, the windfall levy on export-bound diesel has been increased to Rs 5.50 a litre from Re 1 litre. For export-bound jet fuel, better known as Aviation Turbine Fuel (ATF), the windfall gain tax will be Rs 2 a litre.
New rates will be effective from August 15. Petrol will continue to be exempted from the windfall gain levy. Change in the levy on domestically produced crude will impact Oil and Natural Gas Corporation (ONGC) and Oil India. It may be noted that SAED does not apply to entities whose annual crude oil production was less than 2 million barrels in the previous financial year.
Hike the windfall levy on diesel and ATF for export will impact on Reliance Industries and Rosneft-backed Nayara Energy as they are primary fuel exporters.
India first imposed windfall profit taxes last July, joining several nations that tax supernormal 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.
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 producers made supernormal 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, considering 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.
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