Softer global oil price cuts windfall tax collections

New Delhi: India’s windfall tax mop-up from crude oil and auto fuels has slipped due to a combination of lower energy prices and falling domestic production, official data showed.

Collections from the windfall tax, levied on domestic sale of crude oil to refineries and on export of petrol and diesel, fell 9% from a year earlier to 1.5 trillion in the April-October period.

This tax is levied as special additional excise duty and revised nearly twice a month.

During April-October, the highest rate of windfall tax on crude oil was 12,100 a tonne, levied in the fortnight starting 30 September.

This is a steep drop from 23,250 levied during 1-20 July, 2022, before it was lowered to 17,000 a tonne.

On Monday, the government kept windfall tax at a nominal 1,300 a tonne, showed a Central Board of Indirect Taxes and Customs (CBIC) order.

The decline in windfall tax collections follows a sharp decline in global prices of crude oil and fuels.

In the first seven months of the current fiscal, average price of the Indian crude oil basket stood at $83.4 a barrel, 18% below close to $102 a barrel a year earlier.

In the case of petrol and diesel, international prices have fallen annually by 19% and 28% respectively to $94.74 and $102.49 a barrel in the same period.

While excise duty is a tax on production, the windfall tax, seeks to mop up a part of the super profit margins that Indian crude oil producers and exporters of petrol, diesel and jet fuel make when their price realization, which is linked to global prices of these commodities rather than their cost of production, goes up.

Export of fuel from special economic zones are not covered under this levy. Crude oil producers charge global prices when they sell to domestic refiners.

Refiners also realize global prices of auto fuels in domestic market and abroad.

That leads to a situation where extraordinary prices of crude oil and sensitive fuels fetch super profits to Indian energy companies that the windfall tax targets.

Domestic crude oil production in the first seven months of the current financial year also fell 3% to 15.94 million tonnes.

“Primarily on account of reduced crude oil production and the reduced rate of special additional excise duty, revenue collection from excise duty has seen a moderation this fiscal,” explained R. Muralidharan, a practising lawyer and indirect tax expert.

While crude oil production attracts a nominal basic excise duty, a 20% cess and national calamity contingency duty in addition to the special additional excise duty, petrol and diesel attract basic excise duty, special additional excise duty and two categories of cess.

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Published: 19 Dec 2023, 11:01 PM IST

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