Windfall tax back on oil produced by ONGC, others; levy of diesel export at zero

New Delhi: The government has brought back the windfall profit tax on domestically produced crude oil after international prices firmed up while the levy on export of diesel has been cut to nil, according to an official order.

The levy on crude oil produced by companies such as Oil and Natural Gas Corporation (ONGC) is now Rs 6,400 per tonne with effect from Wednesday, the order dated April 18 said.

At the last revision on April 4, windfall tax on domestically produced crude oil was cut to nil as international oil prices dipped below USD 75 per barrel.

However, oil prices have shot up this month following a surprise cut in production announced by the producers' cartel OPEC and its allies like Russia.

Alongside, the government cut the tax on the export of diesel to nil from Rs 0.50 per litre. The same on overseas shipments of ATF remains at nil.

Commenting on the move, Prashant Vasisht, vice president and co-group Head - corporate ratings, ICRA Ltd, said, "There was a moderation in crude oil prices in March 2023; hence, the special additional excise duty (SAED) was reduced to nil on April 04, 2023." "However, the crude oil prices jumped by 9 per cent to around USD 85 per barrel post OPEC+ announcement of additional production cuts of 1.16 million barrels per day on April 02, 2023." Accordingly, the SAED on crude production has been increased from nil to Rs 6,400 per tonne (USD 10.6 per barrel).

ICRA expects government collections from the same to be around Rs 15,000 crore for FY24 (April 2023 to March 2024).

The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.

The government's collection from the SAED, imposed on the production of crude oil and the export of petroleum products from July 1, 2022, is estimated at around Rs 40,000 crore in FY2023.

Crude oil pumped out of the ground and from below the seabed is refined and converted into fuels like petrol, diesel and aviation turbine fuel (ATF).

India first imposed windfall profit taxes on July 1 last year, joining a growing number of nations that tax supernormal profits of energy companies. At that time, export duties of Rs 6 per litre (USD 12 per barrel) each were levied on petrol and ATF and Rs 13 a litre (USD 26 a barrel) on diesel.

A Rs 23,250 per tonne (USD 40 per barrel) windfall profit tax on domestic crude production was also levied.

The export tax on petrol was scrapped in the very first review and that on ATF was done away with at the March 4 review.

Reliance Industries Ltd, which operates the world's largest single-location oil refinery complex at Jamnagar in Gujarat, and Rosneft-backed Nayara Energy are primary exporters of fuel in the country.

The government levies tax on windfall profits made by oil producers on any price they get above a threshold of USD 75 per barrel.

The levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments. These margins are primarily a difference between the international oil price realised and the cost.