Windfall tax on crude petroleum slashed to zero

Government Eliminates Windfall Tax on Domestically Produced Crude Oil from September 18

New Delhi: In a significant policy shift, the Indian government has decided to eliminate the windfall tax on domestically produced crude oil, reducing it to 'nil' per tonne with effect from September 18, 2024. This comes as a part of the regular bi-monthly revisions of Special Additional Excise Duty (SAED), which is levied on crude oil producers based on fluctuations in global oil prices.

The windfall tax was introduced in July 2022, at a time when global energy prices were soaring due to geopolitical tensions and supply chain disruptions. The tax is intended to capture supernormal profits earned by oil companies when global crude prices surge beyond certain thresholds. Since its introduction, the government has periodically revised the SAED rates to reflect the volatility in global oil markets.

As per the latest official notification, while the windfall tax on crude oil has been slashed to zero, the SAED on the export of diesel, petrol, and aviation turbine fuel (ATF) will remain at 'nil', as was the case in the previous revision on August 31, 2024. At that time, the windfall tax on crude oil had been set at Rs 1,850 per tonne.

This decision is expected to provide a boost to domestic oil producers by reducing their tax burden, allowing them to retain a larger share of their profits, especially as global oil prices remain relatively stable. The bi-monthly review of SAED rates, conducted by the government, ensures that these taxes are aligned with the prevailing market conditions.

The move is seen as part of the government's broader strategy to support the energy sector, ensuring stability in domestic production while safeguarding consumer interests. India had initially imposed the windfall tax in response to record profits made by oil companies amid soaring energy prices following the Russia-Ukraine conflict and the resultant sanctions on Russian oil.

As crude oil prices have since moderated, and with supply and demand dynamics gradually normalizing, the need for the windfall tax has diminished, leading to the decision to withdraw it altogether for the time being.