Centre cuts windfall tax on crude oil sales, ATF exports

For the past two weeks, the tax was at ₹4,900 per tonne.

Further, a goverment notification dated December 15 said that the tax on export of aviation turbine fuel has been reduced to ₹1.5 per litre from ₹5 per litre.

The windfall tax on the export of diesel has been lowered to ₹5 from ₹8, while that on petrol continues to be ‘nil’. When the levy was first introduced, a windfall tax on export of petrol alongside diesel and ATF too was levied. The special additional excise duty on ATF and diesel have been lowered while, the tax on petrol was scrapped in subsequent fortnightly reviews.

The windfall tax on crude oil is calculated by taking away any price that producers are getting above a threshold, and the levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments. These margins are primarily a difference of international oil price realized and the cost.

The cut in the windfall tax on locally produced crude oil comes at a time when oil prices have largely been subdued and below the $80 per barrel mark.

At the time of writing the article, the February contract of Brent on the Intercontinental Exchange was trading at $79.56 per barrel, lower by 2.03% from its previous close. The January contract of West Texas Intermediate (WTI) fell 2% to $74.59 per barrel.

With uncertainty in the global markets and the China relaxing its zero covid policy, the volatility in the prices is expected to continue.

Crude prices have largely been subdued despite the price cap on Russian seaborne crude oil coming into effect from 5 December.

The windfall taxes were first imposed on July 1 as energy companies were making huge profits amid multi-year high levels of crude oil prices due to the Russia-Ukraine conflict. At that time, export duties of ₹6 per litre each were levied on petrol and aviation turbine fuel and ₹13 a litre on diesel. The windfall tax on sale of locally produced crude oil was ₹23,250 per tonne when the tax was first imposed.

The windfall taxes are reviewed every fortnight. The levy was expected to compensate for the reduction in the excise duty on petrol and diesel by the Centre to provide relief to consumers.

On 8 November, Mint reported that nearly four months after introducing a windfall tax on refiners and local crude oil producers, the government has managed to garner only ₹2,500-3,000 crore a month from the levy, far less than it needs to fully make up for the losses in revenue due to excise cuts.