The Finance Ministry is not considering any proposal to do away with windfall tax on domestically produced crude and export-bound petroleum products. As on date, the levy, technically known as Special Additional Excise Duty (SAED), is zero on domestically produced crude and export-bound petroleum products.
The issue about doing away with the levy came into limelight when Advisor to Prime Minister Tarun Kapoor said recently that there is not much relevance in imposing windfall tax on crude oil. Kapoor, who was earlier the Oil Secretary, said that the Ministry of Petroleum & Natural Gas (MoPNG) has approached the Finance Ministry over the issue.
When asked whether there is any proposal to formally end the levy, a senior Finance Ministry official told businessline: “No”. Imposed in 2022, the levy aims to counterbalance the unusually high profits earned by oil and gas companies from high global crude oil prices. The tax is reviewed every fortnight. The government had slashed windfall tax on domestically produced crude oil to ‘nil’ per tonne with effect from September 18. The tax is levied in the form of Special Additional Excise Duty (SAED) and is notified fortnightly based on average oil prices in two weeks.
Though the Ministry official did not give any reason for not doing away with the concept of levy, it is believed that oil prices are still volatile. Last month, Oil Secretary Pankaj Jain had said: “There is a calculation mechanism for windfall levy and it is from the Revenue Department. We are in continuous discussions with the Revenue Department, which will continue, which will take the final call. The final decision will be with the Revenue Department.”
The windfall tax has nothing to do with retail price, as there is a separate tax structure comprising a Central levy (Central Excise Duty at a specific rate) and a State levy (VAT/Sales Tax at an ad valorem rate) for petroleum products sold in the market. For export-bound petroleum products and domestically produced goods, as the realisation is directly based on global prices. When prices are high, there is possibility of windfall gains, and the government imposes an additional levy in such cases.
India imports about 85 per cent of its crude oil requirements. India also imports LPG and natural gas to the extent of about 55 per cent and 50 per cent of their domestic consumption. India does not export crude oil. The installed refining capacity in the country is more than the domestic needs for petroleum products, and thw export of petroleum products are one of the biggest sources of foreign exchange earnings for the country. The government takes into account all relevant factors while making interventions on the calibration of duties and taxes on petroleum products. Recent steps have also been taken in line with this approach of the government, said the Finance Ministry official quoted above.
Last Friday, oil prices nudged higher and registered a weekly gain of more than 1 per cent, as tensions in the world’s top oil-producing region, the Middle East, and a restart of Gaza ceasefire talks in the coming days kept traders on edge. On Friday, Brent crude futures climbed 18 cents, or 0.2 per cent, to $74.56 a barrel while U.S. West Texas Intermediate crude was at $70.34 a barrel, up 15 cents, or 0.2 per cent.