India is considering lowering the recently implemented windfall tax and the meeting to review the measure is expected to take place on Friday, according to a Bloomberg report. This comes against the backdrop of a fall in global crude oil prices, which has also reduced the super-profits of refiners.
On July 1, the government announced export taxes and imposed restrictions on exports of petrol, diesel and aviation turbine fuel (ATF). Similarly, given the sharp surge in oil prices, the government also levied a special additional excise duty (SAED) on the production of crude oil. Domestic producers were asked to pay a cess of Rs 23,250 per tonne on crude oil as a windfall tax.
The windfall tax is a one-off tax imposed by a government on a company on an unforeseen or unexpectedly large profit, especially unfairly obtained. Domestic producers made windfall gains on high international crude prices, which reached as high as $122 per barrel recently. Now, the crude oil prices have fallen below $100 per barrel.
After announcing the decision to impose the windfall tax, Revenue Secretary Tarun Bajaj said, “The taxation would be reviewed every 15 days depending upon international crude prices… If crude prices fall, then windfall gains will cease and windfall taxes would also be removed.”
“If a cut is decided upon, it could be implemented immediately,” the Bloomberg report said.
According to brokerage CLSA, “The last two weeks have seen a massive crash in the refining spreads (or margins) of diesel, gasoline (petrol) and aviation fuel (ATF) coinciding with a cool-off in crude prices from their respective peaks seen in June… This questions the need for the continuation of the windfall tax imposed about two weeks back.”
It added, “A $12 per barrel windfall tax on this takes the realised refining spread down to a near loss-making level of just $2 per barrel. Similarly, the diesel spread after the export tax of $26 per barrel would be a meagre $2 a barrel,” it said.
It added that with the next review due later this week, this sharp decline in global prices may force a re-think of this tax. “One may not expect the government to react so quickly but we see a good chance for relief in one of the subsequent reviews this quarter if the price remains around current levels.”
The tax on crude oil firms like Oil India, ONGC and Vedanta alone was estimated to fetch the government Rs 69,000 crore annually considering 29.7 million tonnes of oil production in 2021-22 fiscal (April 2021 to March 2022).
For the remaining current fiscal, the levy would get the government almost Rs 52,000 crore if the tax remains in place till March 31, 2023. On top of this, the new tax brought in on the export of petrol, diesel and ATF would bring in additional revenue.
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