After economists raised concern that the big windfall tax would affect the health of the country’s oil companies, the union government today said that it had further cut that tax on locally produced crude oil and diesel exports. The tax on crude oil produced by firms such as the state-owned Oil and Natural Gas Corporation (ONGC) has been reduced to Rs 4,900 per tonne from the existing Rs 10,200 per tonne, as per government notification.
Economists say while windfall profits are taxed to encourage the taxed entities to lower their prices for the benefit of consumers, the tax could end up reducing investment because the new tax could make the after-tax profit not worth the effort.
In the fortnightly revision of the windfall profit tax, the government also cut the rate on the export of diesel to Rs 8 per litre from Rs 10.5 per litre. The levy includes Rs 1.5 per litre as road infrastructure cess.
The special additional excise duty on petrol continues to remain nil and that on aviation fuel ATF at Rs 5 a litre.
Changes to the windfall tax will be effective from tomorrow, the order said.
Windfall tax, or the special additional excise duty (SAED) on crude petroleum exports, was introduced by the government on 1 July to charge the industry for the large profit it has been earning through the sale of refined crude in the international market. Its quantum is reviewed every fortnight.
India first imposed windfall profit taxes in July, joining a growing number of countries that tax supernormal profits of energy companies. At the time, export duties of Rs 6 per litre ($ 12 per barrel) each were levied on petrol and aviation turbine fuel and Rs 13 a litre ($ 26 a barrel) on diesel.
A Rs 23,250 per tonne ($ 40 per barrel) windfall profit tax on domestic crude production was also levied.
Producers, including state-owned Oil and Natural Gas Corporation (ONGC) and Vedanta-controlled Cairn, were impacted by the windfall tax on domestic crude.
ONGC had urged the government to withdraw profit tax on domestically produced crude oil and instead use the dividend route to tap into the bumper earnings resulting from a surge in global energy prices. However, Union Minister for Petroleum and Natural Gas Hardeep Singh Puri had said that windfall tax was under the purview of the finance ministry and the ministry would continue to review it every fortnight.
Meanwhile, former Revenue Secretary Tarun Bajaj said recently that windfall gains tax would be slashed or scrapped as the global oil prices decelerate. “As the prices come down, the windfall taxes will either reduce or go away,” Bajaj told a news channel.