The government on Thursday cut the windfall profit tax on crude oil produced in the country and on exports of diesel in line with softening international oil prices. The tax, levied in the form of Special Additional Excise Duty or SAED, on domestically produced crude oil has been reduced to Rs 6,300 per tonne from Rs 9,800 per tonne, according to an official notification. SAED on the export of diesel was reduced to Re 1 per litre from Rs 2 per litre. The levy on the export of jet fuel or ATF and petrol will continue to be zero.
The new tax rates came into effect from Thursday. At the last revision effective from November 1, the government had increased the tax on crude oil to Rs 9,800 per tonne from Rs 9,050 per tonne. Simultaneously, the levy on the export of diesel was halved to Rs 2 and that on jet fuel was brought to nil from Re 1 per litre. International oil prices have softened since the last revision, necessitating the reduction. The basket of crude oil that India imports has averaged USD 84.78 per barrel this month as against USD 90.08 a barrel average in the month of October and USD 93.54 in September.
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 crude oil produced by companies such as Oil and Natural Gas Corporation (ONGC) was also levied. The tax rates are reviewed every fortnight based on average oil prices in the previous two weeks.
A windfall tax is levied on domestic crude oil if rates of the global benchmark rise above USD 75 per barrel. Export of diesel, ATF and petrol attract the levy if product cracks (or margins) rise above USD 20 per barrel. Product cracks or margins are the difference between crude oil (raw material) and finished petroleum products. The levy on domestic crude oil dropped to nil in the first half of April as international crude oil prices fell but was back in the second half in step with a rise in rates.
The levy on diesel became nil in April but the levy was brought back in August. Levy on ATF became nil in March and was brought back in the second half of August. The export tax on petrol was scrapped in the very first review. 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). 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.