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Windfall tax on domestic oil, fuel exports scrapped with immediate effect

2024-12-02 00:00:00.0 商业标准报-经济和政策原网页

The Centre on Monday scrapped the windfall tax on domestically produced crude oil, and the export of diesel, petrol, and aviation turbine fuel, with immediate effect.

The road and infrastructure cess (RIC) on exporting petrol and diesel too has been removed, the finance ministry said in a notification.

Falling global crude oil prices, and the subsequent shrinking of profits of domestic oil producers, has led to the tax being withdrawn, petroleum ministry officials said.

“The ministry had backed the review of the windfall tax to provide relief to state-owned upstream oil companies, considering their net profits had reduced in the past few quarters,” an official said.

Global crude oil prices fell every month since June, when it had breached $80 per barrel (bbl).

Since July 22, Brent Last Day Financial prices have crossed the $80/bbl on just two occasions as oil prices factor in weak global demand growth and concerns of oversupply.

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On Monday, Brent crude futures stood at $72.6/bbl.

Classified as special additional excise duty (SAED), the windfall tax was levied on domestically produced crude oil on July 1, 2022, and was designed to tax the profits a company derives from the energy price rise as a result of the Russia-Ukraine conflict.

But falling global prices of crude oil have ended the justification for the tax.

The tax was extended to exports of petrol, diesel, and aviation fuel after private refineries started raking in big gains from overseas markets instead of selling the fuels in the domestic market. It was calculated based on refiners’ overseas shipment margins, or the difference between domestic production costs and international prices. The tax rates were reviewed every fortnight, based on average oil prices in the previous two weeks. After the rates were slashed to nil on September 18 for just the second time since April 4, 2023, the call to remove the tax had grown within the government, the official said.

Low impact on revenue

The Centre’s annual receipts from the tax have shrunk since FY23, the data provided by finance ministry sources shows.

Windfall-tax receipts stood at Rs 6,000 crore in FY25, down from Rs 13,000 crore in FY24 and Rs 25,000 crore in FY23. The government’s revenue realisation from the tax has not been as significant as that from excise duty on sales of petrol and diesel, an analyst said.

The latest move is unlikely to have an impact on the tax burden of upstream oil companies, analysts reiterated on Monday.

“The impact of the windfall tax on oil companies has been limited in recent months since oil prices have been $70-72 per barrel. Before being reduced to nil on September 18, the windfall tax on domestically produced crude oil had been Rs 1,850 per tonne, which translates into $3 per barrel,” Prashant Vasisht, senior vice-president and co-group head, corporate ratings, Icra, told Business Standard.

Shares of Reliance Industries, which runs the world’s largest oil refinery in Jamnagar, rose 1.42 per cent to Rs 1,310 per share on Monday.

Shares of public-sector Oil and Natural Gas Corporation rose 0.37 per cent to Rs 257.65 while Oil India’s shares fell 2.49 per cent to Rs 478.4 per share.

“Since the imposition of the tax, the realisation of upstream companies has been in the range of $70-75/barrel. So, removing the tax is not expected to impact these companies much,” Vashisht added.