Government reduces windfall tax on domestic crude oil, export of diesel, and ATF

India cuts Windfall Tax on Petroleum Crude: The government has cut the special additional excise duty (SAED) on crude petroleum to ₹9,050 per tonne with effect from October 18, 2023. The windfall tax on domestically produced crude oil was set at ₹12,100 per tonne in the last fortnightly review on September 29, 2023.

The SAED or duty on the export of diesel will be reduced to ₹4 per litre, from ₹5 per litre currently. The duty on jet fuel or ATF will be reduced to ₹1 per litre from ₹2.5 per litre currently.

The move is expected to provide relief to the domestic oil and gas industry, which has been struggling with high taxes and low prices for some time now. The reduction in taxes is also expected to boost exports of diesel and ATF.

The government’s decision comes in the wake of softening international petroleum product prices. The tax on the export of diesel was cut to ₹5 per litre from ₹11, while that on jet fuel (ATF) was scrapped.

The Indian government had imposed windfall profit taxes on crude oil producers and levies on exports of petrol, diesel and aviation fuel in July 2022 after private refiners sought overseas markets to gain from the robust refining margins, instead of selling them for cheaper prices at home.

What is Windfall Tax

Windfall tax is a tax levied by governments against certain industries when economic conditions allow those industries to experience significantly above-average profits. Windfall taxes are primarily levied on companies in the targeted industry that have benefited the most from the economic windfall, most often commodity-based businesses.

The purpose of a windfall tax is to redistribute excess profits in one area to raise funds for the greater social good. However, this can be a contentious ideal.

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