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Informist, Thursday, Nov. 28, 2024

 

--Govt official: Re-evaluating relevance of windfall gains tax

--Govt official: Weighing windfall gains tax relevance vs revenue implication 
 

NEW DELHI - The government is currently evaluating the relevance of continuing with windfall gains tax, while also weighing the implications on revenue if the tax is discontinued, a senior finance ministry official said Thursday. The government had reduced the windfall gains tax on domestic crude oil to nil on Sept. 17, while the windfall tax, or special additional excise duty, on exports of diesel, aviation turbine fuel, and petrol remained at nil for a much longer time.

 

The government reviews these taxes on a fortnightly basis of oil prices and fuel margins in the international market.

 

Although windfall gains tax comprises a slice of the total excise duty collections, its contribution to the kitty matters both to upstream oil companies and the government. Slashing the tax comes as a positive for the former and a negative for the latter. As per the latest data, in the first six months of 2024-25 (Apr-Mar), excise duty collections grew 3% on year as against the budgeted growth of 4.5%. In the year-ago period, the special cess had helped the government shore up revenue under this head as the levy was higher.

India Ratings and Research said in a report Wednesday that excise duty collections are likely to be INR 163.67 billion lower than the estimate of INR 3.190 trillion in the Union Budget for FY25.

 

Oil Secretary Pankaj Jain had said earlier in September that the Ministry of Petroleum and Natural Gas was in discussions with the finance ministry regarding the review of the windfall tax. The finance ministry has previously said that the windfall tax would be removed if crude oil prices fall below $70 per barrel. Brent crude oil futures traded near $70-$75 per barrel in the last fortnight. 

 
The government had last removed the windfall gains tax on domestic crude oil in May last year, before it was reimposed in July. While taxes on petrol exports were also imposed initially, they were reduced to nil from Jul. 20, 2022, and have not been hiked since.

 
The latest revision on Sept. 17 was the 50th revision in windfall gains tax since it was first imposed in July 2022. These taxes, which are in the form of a cess, are for taxing supernormal gains of oil producers and fuel exporters due to high oil and fuel prices globally. 

 

When the government had first levied the cess on domestic crude, it was priced at INR 23,250 per tonne, which translated to around $40 a barrel. The possible removal of windfall gains taxes comes as a positive for upstream oil companies such as Oil and Natural Gas Corp Ltd., Oil India Ltd., and Vedanta Ltd.
 

The government had imposed the levies on fuel exports after fuel pumps in some parts of the country faced supply shortages, partly due to private sector refiners reducing domestic sales of petrol and diesel in favour of significantly more lucrative exports. Private fuel retailers, Reliance Industries Ltd. and Nayara Energy, reportedly reduced domestic retail sales due to heavy under-recoveries.

 

As for domestic crude oil, upstream oil companies were raking in massive profits due to the surge in global oil prices in the aftermath of Russia's invasion of Ukraine in 2022. Indian oil producers price crude oil in line with global prices.  End

 

US$1 = INR 84.49

 

Reported by Priyasmita Dutta

Edited by Tanima Banerjee

 

 

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