Tax Levy
To impose windfall tax whenever crude price above $75/bbl
This story was originally published at 16:26 IST on 29 November 2024
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NEW DELHI – The government will stick to its view of lowering windfall gains tax to nil when crude oil prices are lower than $75 per barrel and will increase it when the level is breached, a senior finance ministry official said Friday, amid speculation of a proposal to completely scrap the tax. "We (government) maintain the view based on which windfall tax was introduced in the first place. We will stick to that," the official said.
"Oil prices are lower than $75 (per barrel) now, so the tax is at nil. If it goes higher, say $80 (per barrel), it will be hiked," the official told Informist.
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 levy of the windfall tax. A finance ministry official on Thursday told the media that the ministry was evaluating the relevance of the tax, while also weighing the revenue implications if it was scrapped entirely.
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 has remained nil for a much longer time. 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.
The government reviews these taxes on a fortnightly basis of oil prices and fuel margins in the international market. Brent Crude Oil futures have traded near $70-$75 per barrel in the last fortnight. 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 government had last reduced the windfall gains tax on domestic crude oil to nil in May last year, before it was hiked 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 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 84.50
Reported by Priyasmita Dutta
Edited by Akul Nishant Akhoury
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